Russia’s Bad Reputation Continues to Scare Off Investors

Despite the recent UN entry Russia will continue to have difficulties gaining investors due to its bad reputation, Russian prime minister Dmitri Medvedev believes.

According to Interfax, Medvedev based his argument on the opinion of experts who see Russia’s high potential for investments, but also a shortfall of its potential because of its corruptive system.

Russia has attractive labour costs, according to Over 69% of investors surveyed for the Ernst & Young’s Russia’s Attractiveness Survey. Besides energy production, investors see opportunities in high value-added manufacturing and technology, including vehicles, transportation and ICT.

The potential for productivity gains is also a big appeal of locating in Russia. The possibility of improving corporate productivity in Russia is highlighted by 67% of investors surveyed, with 27% seeing a “very” good opportunity.

Yet Russia is seen as a highly corrupt country with uncertain legal system for investors. Going about usual daily routine in Russia corruption occurs from entry to Russia. The Russian-Finish border for example, is seen as one of the most corrupt borders in the world, according to Transparency International.

For instance, banknote placed between passport would get a businessman faster border crossing. Finnish transport companies have experienced bribery in the form of payments for excess weight fees, which had no legal basis and the companies always had to pay in cash without getting any receipt or other documentation.

Medvedev admits Russia is to blame causing fears among investors who worry that changes in legislation, the administration, or government policy may harm their investment projects or that they may lose control of their investment.

Investors brave enough would have an advantage though, “companies are cheap with small firms trading on three-four or maybe five times earnings due to this discount and we have made a 200 percent return in 12 months investing in Russian firms and international firms doing business in Russia,” Jochen Wermuth, CIO of Wermuth Asset Management, has told CNBC.

Russia holds a low 143-th place in corruption perception index 2011 with a score 2.4 of 10. Australia is amongst the first ten with 8.8 whereas New Zealand is the first with 9.5.

Tagged corruption, investors, Russia