Q: What is the investment climate in Russia?
Q: What about stock market investments?
Q: And direct investment?
Q: What about investment incentives?

Q: What is the investment climate in Russia?
A: This is not the place to discuss macro-economic trends or government policies. Suffice it to say that regardless of whether or not one thinks the macro-situation to be favourable or not, there are certainly a great number of individual investment possibilities that are well worth looking at. Some of the best of these are relatively small investments rather than the massive investment required in, for example oil and gas, that make the newspaper headlines.

Q: What about stock market investments?
A: This is also not the place to discuss the all the potential benefits and pitfalls of investing in the Russian stock markets. It can be argued that Russian stocks are very cheap, especially right now; on the hand, the market is very volatile and there a number of risks. Speculative is the word usually associated with the Russian stock markets; they are not for the fainthearted. The best advice we can give to is find a reliable broker and ask hard questions (e.g. who will keeping the share certificates, for example).

Q: And direct investment?
A: A great deal of direct investment in Russia is from companies who are investing to lock in a supplier or to guarantee distribution channels.

Since these investments are primarily to secure existing business, they are less risky and less dependent on the overall business climate that what might be called a 'pure' (hands off) investment. Many companies doing business in Russia find it expedient to invest - sometime considerable sums. Sometimes, 'cooperation' with a Russian partner involves such an expenditure of effort and on-going expenses that it becomes a de facto investment; the sums invested in this way are really very large, and yet are not included in the official foreign direct investment figures.

In addition, the investor must keep his mind open about how investments are structured. It may, for example, be preferable to provide financing in the form of debt, rather than capital injection (due to Russian tax and currency regulations, which do change quite often).

As noted elsewhere in this document, we believe that the local partner is of utmost importance. In fact, we normally recommend that companies think very carefully before doing it alone (setting a 100% foreign-owned operation). This may preferable to a partnership with a bad partner, but a good partner can solve all sorts of problems and probably lower costs.

Here are some opportunities that we feel are worth exploring (this is not an exhaustive list):

Garments/textiles: Made in Russia garments enjoy quota-free access to some major markets, including North America. Some Russian raw materials (e.g. yarns) are of acceptable quality and can be utilized.

Technology: Russian technical expertise has got to be some of the most cost-effective in the world. While the price of programmers has recently been bid up - in Moscow, anyway - other sorts of engineers are still very inexpensive. In addition, Russian has some technologies 'on the shelf' that can be converted into, or used in, products with only limited investment.

Consumer Services: The Russian consumer services sector is very undeveloped. Such businesses as catering, car servicing, photo developing centers have proven very profitable and stable. Other possibilities abound: business service centers, copy centers, shoe repair, key copying, retail, etc.

Light manufacturing for domestic consumption: We think there are many opportunities when the Russian partner has almost everything needed (space, raw material, distribution, etc.) but is missing something: a key component, packaging, a piece of equipment, etc. These will tend not to be very large projects, but offer very good opportunities for the small- to medium sized investor (especially if he is in a position to supply the missing components himself).

Q: What about investment incentives?
A: Theoretically, there are some. But it can very difficult to find out which, for example, tax incentives, apply in any given case. Furthermore, some ostensible benefits are not recognised by all the departments involved. It is, however, worth enquiring about the current status at the Free Economic Zones in Russia.

However, if you are comparing places around the world to see who offers the best incentives, you are unlikely to choose Russia as a place to invest. It is probably fair to say that Russia is not currently 'competing' for foreign investment in quite that way. Most companies invest in Russia because it makes good business sense, the existence or non-existence of investment incentives notwithstanding.