Investments (стр. 2 из 3)

The factors influencing an investment climate are:

а) Macroeconomic (dynamics of GDP, level of inflation and interest rates, share of savings in GDP).

b) Regulatory-legal (quality and stability of legislative base, correspondence of federal and regional legislation, policy of central and local authorities, protection of rights of property, protection of investors’ interests, level of monopolization in economy, openness of economy, level of compliance with law and order, administrative barriers for entry into investment market, level of corporate management).

c) Taxation (quality of taxation system and level of a tax burden).

d) Information support (building of an information support system, completeness and accessibility of information on investment opportunities in the country on the whole, on companies in particular, topicality of information, confidence in an information source, holding of advertising information campaigns in mass media, organization of investment exhibitions, presentations, seminars, investment missions).

e) Unpredictability, non-transparency of the country to investors. Investors understand it as absence of clear, in the form of formal procedures, generally accepted rules of conducting business in world and national markets of capital.

е) debts on foreign liabilities to international economic and financial institutions.

The factors indicated can have both stimulating and braking influence on an investment activity. E.g. reduction of the real volume of GDP has an impact on industrial production, causes as a rule its downswing, unstable state of economy in the country on the whole and as a result of this – decline of investment activities.

High level of inflation negatively affects enterprises’ investment capability as depreciation of amortization, increase of effective rate of profit taxation takes place. Inflation also results in the need to raise remuneration of employees and increase in demand for circulating assets. As a result possibilities for investment out of own means of an enterprise get narrower. High interest and tax rates worsen conditions for investments into the real sector. Under the conditions of increase of GDP, low level of inflation, low interest rates and rise in populations savings investment activities develop actively. For the last years a tendency for improvement of investment climate has taken shape in our country – political stability has been achieved, there has been increase in GDP and industrial production, level of inflation has fallen, a number of legislative acts ensuring activization of investment process has been adopted, tax reform has been carried out, etc. All this has resulted in the increase of investments volume in Russia for the last 8 years. But in 2009 growth rate of foreign investments in Russian Federation considerably has slowed down this being explained by expanding world economic crisis.

2.2 Investment climate in the main regions of Russia.

Regions with most favorable investment climate are mainly located in the European part of the country. The regions of North-Western, Central and Privolzhsky federal okrugs are notable for their particularly favorable climate. Almost one third of investment potential of the country is concentrated in them, and investment risk per region here is even lower than average Russian one. As we advance more to the East and South of Russia investment climate gradually worsens: the general potential decreases and the risk increases. In the Far Eastern federal okrug the average investment risk of the region is almost 1.5 times higher and in the Southern federal okrug it is 1.6 times higher than in the North-West of Russia.

Regions of the first three abovementioned federal okrugs dominate also among the leaders on investment risks. For all the years when assessment by a rating system has been done the first ten regions by risk level have been made up by 90% from the regions of North-Western, Central and Privolzhsky federal okrugs. Only 10% of the leader regions are from Southern okrug, the rest okrugs have not been able to raise their leaders of the All-Russian level.

By potential the superiority of the European three of okrugs is not so significant although here also 60 % of all leader regions belong to the above listed okrugs.

Altogether according to rating assessments 33 regions have been among the ten leaders by potential as well as by risks during all the years, 20 of them being again from Central, North-Western, and Privolzhsky federal okrugs

If representation frequency of regions of each Federal okrug among the leaders is to be taken into consideration here the first place goes to North-Western okrug followed by Urals, Central and Privolzhsky okrugs. But Far Eastern okrug has never been represented in the list of leaders: by all appearances neighboring China as an investment phenomenon is not an authority for us and even not an example.

The investment nucleus of Russia revealed in the last rating located between Moscow and St.Petersburg for the time being does not possess enough stability of a favorable investment climate. Its centre shifted to North-West to St.Petersburg because Moscow and Moscow Region lowered their investment attractiveness. Tver Region has fallen out of it and Leningrad Region has sharply increased the risk. At the same time the investment climate has considerably improved in Volgograd and Yaroslavl regions. /4/

In order for this wave of investment attractiveness to move further to the periphery subcentres should form there – regions with minimum investment risks should arise.

In the first place Tatarstan which already had minimum risk in 1998 and 1999 ratings as well as Krasnodar and Perm Territories, Bashkortostan, Nizhy Novgorod, Rostov, Samara and Tyumen regions can lay claim to the role of such subcentres. /4/

3. Structure of foreign investment in 2000-2009 /10/

3.1 Structure of foreign investment by its kinds in 2000-2009

The situation with foreign investment changed significantly in the XXI century. An important break-through was British Petroleum’s decision to invest US$6.7 billion in Russia’s petroleum industry in 2003. Since then, the total amount of the investment grew steadily with very high rates.

Total foreign investment for 2004 was US$40.5 billion, with consumer goods and services and construction receiving the largest shares among the economic sectors. In 2005 the figure rose to US$53.6 billion, with the heaviest investments coming from Luxembourg, Cyprus, the Netherlands, Germany, Britain, the United States, and France (see chart 2). Foreign direct investment for 2005 was US$13 billion. Increases of 42 percent in overall investment and 44 percent in foreign direct investment, compared with the same period in 2005, were reported in the first half of 2006 (see chart 1). Moreover, by the end of September 2006 the amount of investment was 35323 mln $./5/

A very important issue is a change in target industry structure. The main matter is constant increase of investment in manufacturing structure and high decrease of investment in 2005 in resource extraction. Also there is increase in investment in wholesale and retail trade and repair sphere. This trend shows that the character of the investment was changing. There was a shift from resource-extraction oriented investment to investment in manufacturing, which was certainly better for the economy, as manufacturing sphere gives more opportunities for further development and makes the economy more competitive.

In January-September 2007, According to the estimates of the Federal Service of State Statistics the volume of foreign investments inflow into Russia amounted to 87,9 billion USD, that 2,5 times exceeds the value in January-September 2006.

The foreign direct investment (FDI) volume for the same period increased by a factor of 1,9 and made 19,6 billion USD. Loans received from foreign joint enterprise owners increased by a factor of 4,4 – up to 9,7 billion USD — and became the basis of FDI growth.

Foreign investors’ contributions to the share capital of Russian companies increased by a factor of 1,5 and made 9 billion USD.

At the same time, the share of FDI in the total amount of foreign investments inflow decreased from 29,1% in January-September 2006 to 22,3% in January-September 2007.

The amount of other investments increased by a factor of 2,7 and amounted to 66,7 billion USD in January-September 2007, and their share in the total amount of investments for the same period grew from 69% in January-September 2006 to 75,9% in January-September 2007.

The volume of portfolio investments went up 2,3 times compared to the corresponding period of last year to 1,5 billion USD, that is 1,8% of the total amount of investments.

Source: www.rosgosstat.ru

Great Britain was the leader of investment inflow into Russia raising up investments by a factor of 3,8 (vs. January-September 2006) up to 20,7 billion USD, followed by the Netherlands (17,2 bln USD), Cyprus (11,9 bln USD), and Luxemburg (8,1 bln USD). The major foreign investors kept their ranking: Cyprus (19,8% of the total amount of cumulative foreign investments), the Netherlands (18,2%), Luxembourg (15,3%), Great Britain (12,2%). These countries provided for 65,5% of the total amount of cumulative foreign investments, including 72,3% of the total amount of cumulative direct foreign investments and 60,5% of other investments. /6/

Actually, the amount of the attracted Foreign Investment in 2007 in Russia was a record. The total amount of cumulative foreign investments in Russian economy amounted to 120,8 billion USD at the end of September 2007, that is 52,2% growth to the level of the end of September 2006. /7/

As of the end of 2008 (see appendices №1) accumulated foreign capital in Russia made 264.6 billion USD which is by 19.9% more compared to the previous year. The highest specific weight in the accumulated foreign capital falls on other investments made on the return basis – 51.6% (by the end of 2007 – 50.2%), the share of direct investments made 46.3% (46.7%), portfolio investments- 2.1% (3.1%).

Main investors in 2008 were Cyprus, The United Kingdom (Great Britain), the Netherlands, Germany, Luxemburg, France, the Virgin (British) Islands. The share of these countries made 77.0% of the total volume of accumulated foreign investments, 79.4% of total volume of accumulated direct foreign investments.

In 2008 Russian economy received 103.8 billion dollar foreign investments which are by 14.2% less than in 2007. In the first quarter of 2008 17.3 billion USD foreign investments came (by 29.9% less than for the corresponding period of the previous year), in the second quarter – 29.3 billion USD (by 18.0% less), in the third quarter – 29.2 billion USD (by 6.1% more), in the fourth quarter – 28.0 billion USD (by 15.2% less).

Russia saw an inflow of $54.7bn in foreign investment in the first nine months of 2009, 27.8 percent less than in the same period a year earlier. As reported earlier, the flow stood at $12bn in the first quarter of 2009, 30.3 percent below the previous year’s respective figure, at $20.2bn in Q2 (a decrease of 31.2 percent), and at $22.5bn in Q3 (a decrease of 22.9 percent).

Repaid foreign investment which Russia had received earlier stood at $50.6bn for 9M of 2009, 5.3 percent above the 9M 2008 figure. Of the total, some $12.1bn was repaid in Q1 (down 15.3 percent), $19.7bn in Q2 (down 1.2 percent), and $18.8bn in Q3 (up 36.2 percent from the previous year’s figure).

Accrued foreign capital in the Russian economy reached $262.4bn, up 4.4 percent from 2008, with the largest share claimed by the ‘other repayable investment’ category (55.7 percent against 50.7 percent as of the end of September 2008), with the proportion of direct investment at 39.7 percent (46.9 percent in 2008) and that of portfolio investment at 4.6 percent (2.4 percent).

From January to September 2009, the countries making the largest investments in Russia were also Luxembourg, the Netherlands, Cyprus, Germany, the UK, France, the United States, Ireland, British Virgin Islands, and Japan, together accounting for some 83.7 percent of the total accrued foreign investment./10/

3.2 Structure of foreign investment by industry in 2005-2007

Russia is most actively encouraging the participation of foreign companies in the oil and gas sector, not only for their capital contribution, but also for their advanced technology and experience. Nearly all the major international oil companies and many smaller ones have expressed interest in participating in the exploration and development of Russia's oil and gas reserves and willingness to commit modern technology and billions of dollars of capital on a long-term basis, provided Russia creates investment conditions compatible with international practice and which take account of the long-term character of investments in this sector. Such conditions include an opportunity to share in the production generated by the investment, a clear and reasonable tax regime which allows an equitable return on investment, a stable set of rules, and an equal opportunity to obtain and exercise rights to the oil and gas fields.

In 2005, there has been great increase in manufacturing and wholesale/retail sector as foreign investors started understanding the increasing purchasing power of Russians and lots of new plants were opened. However, the situation with Sakhalin 2 project, when Russian government has made all possible to give controlling package of shares to “Gazprom” even though Shell, Mitsui and Mitshubishi were ready to pay more, has lead to the decrease of interest of some multinational organization to invest in Russia.

In fact, Russian government is, of course, more interested in the investments and development of high technologies and manufacturing. However, even such kind of investments can be harmful for Russian producers. For example, after Ford, General Motors, Renault and other producers of cars have opened their plants in Russia, there has been great decrease in the demand of AvtoVAZ production.

In January-September 2007, an increase took place in the share of wholesale and retail trade by a factor of 2 in comparison with January-September 2006. The foreign investment inflow into manufacturing activity and extraction of minerals increased by 2 times, but the shares of this kinds of economic activity in the total amount of foreign investment inflow into Russia slightly went down to 24,6% and 17,3% correspondingly compared to January-September 2006. /9/

4. Risks in the sphere of international entrepreneurship

4.1. Main methods of risk assessment and management.

As risk is a danger of loss by an enterprise of resources or gains its quantitative measure may be determined in absolute and relative indices.

In the absolute expression risk can be determined by the size of possible losses in material-tangible (natural or physical) or value (monetary) form, if the type of such loss can be measured in such a form.

In the relative expression risk is determined as a value of possible losses related to a certain base which is usually accepted as:

а) property status of an entrepreneur;

b) total input of resources to this type of entrepreneurial activity;

c) expected gains (profit) from entrepreneurship.

Losses themselves called forth by various risks may take different forms:

1. material losses – additional spendings or direct losses of equipment, property, products, raw materials, energy and other resources;

2. labor losses – days lost (in man-hours, man-days, etc.);

3. financial losses – direct monetary damage, associated with unforeseen payments, fines, taxes, defaults on debts, reduction of gains due to landslide of prices, intensification of inflation, change in the exchange rate of national currency, etc.;

4. special losses in the form of damage to life and health of people, environment, entrepreneur’s image and also because of other unfavorable socio-psychological and political phenomena.

The measure of risk and probability of occurrence of losses connected to it are directly linked to the change of conditions of project implementation or operation of an enterprise in time. It is exactly for this reason that calculated risks and current risks are distinguished.

A calculated risk is a risk which is determined at business-project preparation stage. A current risk is a risk which is assessed in the course of the project implementation. In unfavorable concurrence of circumstances a current risk can exceed not only a calculated risk but also marginal limits of risk determined for the given project which in its turn may lead to cessation of the project or to making significant amendments to it.