Foreign Investments in Russia
Foreigner. Speaking about investment you often say "capital investment". Do you use the two
words interchangeably?
Russian: Yes, investment is rather a new word for Russian economy. Under centrally planned economy we used the term "gross capital investments" meaning all spendings for reproduction of fixed assets, including spendings for their full recovery.
F:. I see. What does the term "investment", the way you use it now, embrace?
R.: Capital expenditure on property, tangible and intellectual assets, including entrepreneurial activities, with a view to income, capital gains or social benefits.
F.: Thank you for this clarification. But whatever term is used, you are not happy about the volume of foreign investment in Russia. It remains very small relative to the size of the economy and attractive opportunities available, doesn't it?
R.: Yes, in spite of the country's vast market, cheap labour and enormous mineral resources, foreign investors are not very active in this country.
F.: The reasons are only too well known, I'm afraid. They are: unstable macroeconomic environment, political uncertainties, and the lack of clarity and consistency in the legal and fiscal treatment of foreign investment.
R.: You are right. Unfortunately, all this has dampened interest among potential foreign investors towards Russia. But we need foreign investments badly. Our government is trying to attract investors, to facilitate foreigners' entry into Russian business.
F.: Well, but it's a fact that there are still many restrictions affecting foreign investors here. They range from minor restrictions to total interdiction. For example, foreign investors can own land only through joint ventures.
R.: That can't be denied. But the government is encouraging foreign participation, for example, in the privatization process.
F.: Yes, the start of auctions of enterprise shares and other measures are likely to increase the role of outside investors and may also have a positive effect on the volume of foreign investment in Russia.
R.: Hopefully, it will speed up the ongoing reforms and the structural adjustment.
F.: World experience has shown on many occasions that foreign investments can become a vital element of a country's economic progress. Through what channels are foreign investments coming to Russia?
R.: Mainly in the form of foreign direct investments and portfolio investments.
F.: Foreign direct investment in Russia is most typically in the form of joint ventures, isn't it?
R.: Yes, besides there are fully foreign-owned enterprises. The most important recipient sectors are: machine-building, metal processing, the fuel and energy sectors, trade and public catering. But we are not satisfied with the investment level, as I've said. The figures for portfolio investments are not encouraging either.
F.: Figures are figures, but some foreign investors believe that Russian stocks are worth buying and the market really offers good investment opportunities.
Words you may need:
capital investmentкапиталовложения
interchangeablyadv (зд.) одно вместо другого
gross capital investmentваловые капиталовложения
reproductionn воспроизводство
full recoveryполное восстановление
intellectual assetsинтеллектуальные активы
clarificationn разъяснение
uncertaintyn неопределенность
clarityn ясность
consistencyn последовательность
to dampen interestослаблять интерес
interdictionn запрет
Ex. 14. Give extensive answers to these discussion questions:
1. What is investment?
2. What do investment activities depend on?
3. Why have investment activities become a fundamental feature of international economic development?
4. What are the major channels of foreign investments?
5. How do you assess the investment climate in Russia (activities of Russian and foreign investors)?
6. What can increase the inflow of foreign investment to Russia?
In order to get prepared for participation in the class discussion of the questions, write a short essay on the following:
a) The difference between FDI and portfolio investment.
(Use: to acquire, managerial control, to set up, joint venture, foreign branch, multinational enterprises, new technology, competition, purchase of stock)
b) Activities of institutional investors.
(Use: to invest, to diversify, stock, government bonds, to monitor, portfolio, pension funds, mutual funds, investment trusts)
c) The essence of the "economies of scale" notion in finance.
(Use: gains, to raise new capital, more easily and cheaply, to pool risks, to increase profits, to diversify activities, to reduce cost of production, large-scale production, to increase production)
Ex. 15. Prepare a short talk on the following:
a) What aspects of economic order is investment activity associated with?
b) Multinational enterprises: how firms from different countries grow into multinational enterprises; where they are welcome (developed or developing countries); relations with the host country.
c) Why are investments made? Why are foreign investments important to all countries?