If economic policy doesn’t change, it is senseless to hope for an influx of foreign investment into Russia. Sergei Alexashenko, President of the Development Center Foundation, comments on prospects for improving the investment climate in Russia

- Why, in your opinion, does capital leave Russia?
- First, Western investors learned a bitter lesson in 1998 and got into the habit of withdrawing funds invested in Russia every six to eight months. The previous wave of investment pull-out fell in the summer of 2003. So, early this year many companies quite naturally preferred to take their profits home. The second reason was the dismissal of Kasyanov’s government in February. The Western business community definitely took it as a sign of political instability in Russia. Finally, the YUKOS Affair, when the Russian state machinery pounced on the largest and most transparent Russian company. I’m not talking about whether their taxes were paid or unpaid. I mean the methods the state is using to settle disputes. They are not at all in line with the concept of a just judicial system. This made many businesspeople revise their investment decisions.   
- The government has begun to talk about a number of measures aimed to attract private capital to some industries, for example, about liberalization of Gazprom’s stock. Will such measures help the government find investors?
- Let’s take a look. We’ve heard about the liberalization of Gazprom stock for at least five years but nothing has been done so far. Recently, the government promised once again but so what? Nothing is clear. The decision was made to merge Gazprom and Rosneft and transfer 16% of the gas monopoly’s stock, currently held by its subsidiaries, to the state so that it could hold a majority stake. No one knows what will happen to the company’s stock – nothing new has been said. I think that the merger will take at least a year. And even if liberalization happens before the end of this year, the influx of investments won’t be that big. The thing is that no one knows at present to what extent foreigners really own Gazprom. According to different estimates, foreign investors hold as much as 10% of the company’s stock under the table. As soon as it is announced that non-residents are allowed to own stock, they will come out of the woodwork and Gazprom’s stockholders will turn from Russians into foreigners. At the current level of prices for Gazprom stock, the State Statistics Committee will record a foreign investment influx of around $6 billion in its reports. But in fact, this will change nothing in terms of capital. The real capital influx came when these shares were bought at a price three times lower than current ones. So, the figure the State Statistics Committee will show as foreign capital influx will actually represent profits made by foreigners.
- What about, for example, road construction projects where business would participate?
- For the time being, there is only an idea in its most general form and we need to wait for its implementation. It could take years to pass the laws and to elaborate the regulations. The government has only recently begun to discuss toll roads in legislative terms. Therefore, to be honest, at present I don’t expect the authorities to make any prompt changes to the situation. I, for example, have heard the following, “Investors will be owners of roads until they have recovered their costs with reasonable profits.” The question immediately arises as to what can be considered a normal profit for an investor and what can be considered a normal profit for the state.
Even if we assume that we’ll have the most remarkable legislation on road construction in place by New Years, everyone will look at YUKOS all the same. Since not only major shareholders but also a host of minority ones, including foreigners, have been punished. They still hope that President Putin will fulfill his promises and the company won’t be forced into bankruptcy, that they will be treated fairly. But when they find out that they have been left with zilch, they will reflect in earnest on whether it would be worth investing in road construction – even with the best legislation in effect.
- And what do you think the government should do?
- In my opinion, our government has a shortage of desire to do anything at all and to make appropriate decisions. For example, new pipelines are the most needed projects now. However, it has been stated that pipelines could be only state owned and that the entire government and not just Transneft should make the decision. No one knows what this all has to do with the government. The government is not giving any orders and Transneft is not building any pipelines. Monopolies have provided as much as 40% of investment over the last few years. Should Transneft and, for example, UES slow down, investment growth will start declining.
- In other words, the capital outflow will increase, won’t it?
- I don’t think so. The foreigners, who have been able to sell their Russian assets, have already done so. Holders of the least liquid assets, to which majority stakes in large companies – say, Baltika or Coca-Cola – belong, simply have no choice. On the other hand, they will unlikely build up their investment activity. It is clear that one shouldn’t expect new foreign investors to come to the market. Russian capital will take a pause “to think things over” as well and remain abroad for a while, or perhaps for good.
- Is this a crisis scenario?
- Capital outflow, even on a large scale, under the present Russian circumstances would not give rise to crisis events that effect everyone. Too much money is coming to Russia from \raw commodities exports, and this enables the government to smooth over processes taking place in the economy, even very hard and painful ones.
However, national savings are invested either within a country or outside it. So, with the economic policy unchanged, there will be monotonous money withdrawal instead of investments. Sustained growth is impossible under these circumstances.

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