Investment Policies in Russia: The Northern

Dimensionby

Rainer GeigerDeputy Director, OECD Financial and Enterprise

Affairs

The Northern Dimension ForumSt. Petersburg13 May 2008

Investment trends and policies in the Russian Federation

• Strong performance in inward and outward investment

• Recent policy developments• The 3rd OECD Investment Policy Review• A strategy for business climate

development for the Northwest Federal District

2

Russia’s inward and outward FDI 2000-2007

3

Russia’s FDI inflows: Sectoral distribution, 2007 (%)

4

Russia’s FDI: Country of origin 2007 (%)

5

FDI inward stock FDI outward stock

Totalof which

100 100

Cyprus 34.4 13.5Netherlands 34.2 51.9Luxembourg 0.7 -United Kingdom 3.3 4.7Germany 4.4 1.9US 3.5 8.1Ireland 0.4 -France 1.5 -Switzerland 1.6 0.6Virgin Island 2.8 0.3Austria - 0.0Ukraine - 0.9Belarus - 4.7Others 13.2 13.4

Russia’s FDI in comparison with emerging market economies

Indicator Brazil Russia India China

FDI inflows (in billion USD) 18.8 28.7 17.5 78.1

FDI outflows (in billion USD) 28.2 18.0 9.0 17.8

FDI inward stock (in billion USD) 214.3 93.9 67.7 699.5

FDI outward stock (in billion USD) 107.5 75.2 21.1 82.3

FDI inflows per head (in USD) 102 201 16 60

FDI inflows as per cent of gross fixed investment (%)

10.5 16.3 6.4 6.8

FDI inward stock per head (in USD)

1160 660 60 530

FDI stock as per cent of GDP (%)

inward 20.1 9.5 7.3 25.7

outward 10.1 7.6 2.3 3.0

Outward/inward FDI stock ratio (%)

50 80 31 12

6Source: EIU (2007), World Investment Prospects to 2011: Foreign Direct Investment and the Challenge of Political Risk, September 2007.

Recent policy development

• Strategic sectors• Strategic corporations under

state control• Russia’s policy framework for

energy investment

7

The Northwest District: Regions with unexploited opportunities

• Access to large markets• Natural resources• Good industrial and

technological base• Potential for trans-border

investment8

Challenges to improve the policy environment in the

regions• Public sector integrity and corporate

governance• Policy transparency• Modernisation of regulations• Infrastructure• Human resources – SME• Access to finance

9

A business climate development strategy

with a Northern dimension• Based on the OECD Policy Framework for

Investment• Benefiting from experience with regional

programmes (e.g. the Investment Reform Index of the South East Europe Investment Compact)

• Backed by Knowhow of OECD / World Bank• Interactive process of local / regional

partnership10

The Policy Framework for Investment

• Identifies 10 core policy areas and 82 questions to help governments maximise the benefits of international and local investment

• Promotes tailor-made solutions regarding good practice

• Is the most comprehensive multilaterally endorsed investment instrument to date

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How to take advantage of the PFI

• Self evaluation• Comparative benchmarking in a

regional context• Policy coherence at government level• Public-private sector dialogue on

reforms• The Business Climate Development

Strategy12

The business climate development strategy – Key features

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Define baseline Set

Priorities Implement

The Business Climate Development Strategy (BCDS) as a whole is targeted at…

Improving the business environment to increase investment and competitiveness, thereby contributing to growth and employment

Supporting a dynamic and sustainable reform process

It is a systematic approach involving three basic steps:

BCDS Framework

Methodology successfully applied in South East Europe: Investment Reform Index

Breakdown of Chapters in Sub-dimensions and Indicators Indicators with five assessment levels, ranging from least to best

practice Self-assessment by Country Economic Team and external assessment

by OECD experts

Methodology

BCDS Creating value for the Northwest District

1. Provide a single comprehensive document defining a business climate reform strategy based on best practice in OECD countries;

2. Leverage existing evaluations of the business climate including those by the OECD, The World Bank and the European Commission;

3. Support leadership in federal, regional and local governments to ensure coordination and consensus on priorities for reform throughout a broad range of policy areas affecting the business climate;

4. Involve continuously government and private sector throughout the process to increase buy-in for business climate reform;

5. Identify priorities for action and provide support for implementation.

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Conclusions – Moving forward

• Increasing the competiveness of the region as a location for investment

• Identifing investment opportunities and increase sectoral competitiveness

• Improving policy coherence and capacities for implementation

• Developing effective tools for communication

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