The study has been conducted annually since 1996. It uses two parameters as the main components of the investment attractiveness of Russian regions: investment risk and investment potential.

The magnitude of investment risk characterizes the likelihood of a loss of investments and returns on them. Integral risk is composed of seven different risks. A region’s rank by a particular risk was measured by the value of investment risk index: the relative deviation from the average Russian risk, which is taken to be unity.

Investment potential recognizes key macroeconomic characteristics, the region’s factor endowment, consumer demand, and other indicators. The magnitude of the potential shows the region’s share of the general Russian potential, which is taken to be 100. The aggregate investment potential of a region depends on the values of eight special potentials, each of which is, in turn, described by a group of indicators. The rank of a region by each potential depends on the qualitative assessment of its potential as a percentage of the summary potential of Russia’s 89 regions.

The integral indicator of potential or risk is calculated as the weighted sum of special potentials or risks. Indicators were summed up each with its own weight. The weight of the contribution of each component to the aggregate potential or integral risk was assessed, as usual, by interviewing a number of experts from Russian and foreign investment and consulting companies and enterprises in 2000 and 2001 (for details see Investor preferences). The survey covered experts from BKG Management Consulting, The Boston Consulting Group, the Russian Bank for Development, BASF, ZAO ROEL Consulting, OAO Kirovskii Zavod, the German Institute for Industrial Development (BFA), OAO Perm Motors, OAO Nizhnekamskneftekhim, and others.

The rating proper is the categorization of regions by aggregate potential and integral risk into 12 groups (Table 1, Chart 1, and Map 1). The survey grouped all the regions as follows:

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•       high potential – moderate risk (1B);
•       high potential – high risk (1C; in that year, none of the regions was in this group);
•       medium potential – minimum risk (2A);
•       medium potential – moderate risk (2B); 
•             medium potential – high risk (2C); 
•             low potential – minimum risk (3A); 
•             lowered potential – moderate risk (3B1);
•       lowered potential – high risk (3C1); 
•              insignificant potential – moderate risk (3B2);  
•              insignificant potential – high risk (3C2);
•       low potential – extreme risk (3D).

Alterations. Permanent changes in the socioeconomic and political situation in and outside Russia require regular adjustments of our methodology. In the current year, labor potential was augmented to include the factor of higher education in working population. On account of a sharp drop in the rate of industrial action, this factor was left out of consideration (formerly, it was taken into account in social risk assessment). In the computation of the rate of social tension, it was replaced with the ethnic composition and migration factor of the population. In computing political risk, an additional factor to be taken into account was the number of ballots in the elections of regional leaders. With a view to comparing domestic capital investment with direct foreign investment (DFI), they were converted into a currency equivalent by the dollar rate of the respective years.

Main sources of information: the RF State Statistics Committee, RF Ministry of Finance, RF Ministry of Economic Development and Trade, RF Central Bank, RF Ministry of Taxes and Dues, the Consultant Plus – Regions legal database, and the Expert RA ratings agency database. Also used was information from the administrations of separate Federation members supplied on demand or found on the Web.

Study outcomes are tables, charts, and maps showing the distribution, dynamics, and clustering of regions and their geography by rating group as well as by potential and risk indicators and their components. Lists of best and worst regions illustrate regions' ratings by each potential and risk by individual ranked by indicative indices used in rating computation.