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| Executive Travel: Moscow |
Business Essentials
Marilen Cawad
12/01/2005
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Until recently, capital from the United States represented the second largest
inflow of foreign direct investment (after Germany) into the Russian economy.
But as the new century dawned, the U.S. gradually yielded its position to a
number of European countries. By the end of March 2005, the largest investors
were Cyprus ($12 billion); the Netherlands ($9.8 billion); the U.S. ($4.2
billion); Germany ($2.1 billion); and the UK ($1.4 billion). Most of these investments went to
the fuel, food, trade, catering and transport sectors, which is reflected in the
American companies that have made major inroads into Russia, including Exxon
Mobil, Chevron Texaco, Boeing, United Technologies, Ford, General Motors,
International Paper, Caterpillar, Procter & Gamble, Mars and Phillip Morris.
The real story behind Russian FDI, however, is not which countries it draws
from, but rather how little of the global share it has managed to draw at all.
Keith Bush, research director of the U.S.-Russia Business Council, says the
paucity of its investment can be attributed to many factors, including political
instability during the Yeltsin era; a capricious, changing and exorbitant tax
regime; lack of commercial infrastructure; limits on foreign banks; and constant
changes in legislation affecting foreign investors.
The ongoing reform of
public administration in Russia, aimed at substantial reduction of the
government’s intervention in the economy, has reversed the negative trends of
the 1990s. Since 1999, the average GDP growth rate has been approximately 6.4
percent per year in real terms. In 2004, Russia achieved its sixth consecutive
year of stable economic growth.
Another positive sign is that the growth is
spread broadly across many relatively new industries, meaning that growth in
traditional sectors is kick-starting growth in new sectors, such as retail,
insurance, communications services, branded consumer durables, hospitality
services, personal care and fitness services and real estate development.
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