Investment In Russian Investment In Russian IndustryIndustry

Deputy Minister for Economic Development and Trade of the Russian Federation A. Sharonov

Average Annual Growth Rates for the Period, %

2001-2005 2006-2010

Gross domestic product (GDP) 6.1 6.3

Capital investments 9.9 12

36,5 47,777,8

124,5

182,2

303

394,3

2001 2002 2003 2004 2005 2006 2007(05)

Gold and Forex Reserves, USD bn, as year-end

Structure of Accumulated Foreign Investments, %

29

24,824,6

21,6

manufacturingextraction of natural resourceswholesale and retail tradeother activities

Federal Law No. 65FZ of May 1, 2007 “Concerning Changes in Federal Law on Technical Regulation”:

- obligates making use of international standards when developing draft technical regulations;

- specifies a procedure for technical regulations approval;

- singles out 17 priority regulations to be adopted before January 1, 2010.

Improving legislation on the use of natural resources:

- newly amended Water and Forestry codes have been adopted and taken effect from 2007;

- a draft law ”Concerning Amendments to RF Law on Subsoil Resources” is being finalized;

- amendments to draft laws regulating specific use of subsoil plots in internal sea waters, territorial seas, and continental shelf areas are to be drafted during 2007;

- a concept of the Ecological Code of the Russian Federation is being elaborated;

- industry regulatory acts have been drafted.

Lowering administrative barriers in the economy - administrative regulations:

- define timelines for and sequence of steps in making decisions by executive bodies when responding to enquiries of individuals and legal entities or in executing powers assigned

therewith;

- adoption of administrative regulations will help to make responsibilities of executive bodies more clear and

straightforward, and introduce efficient controls and evaluation of their performance;

- administrative regulations will be conducive to the creation of single information environment under the ‘electronic government’ program

In 2006, 170 administrative regulations were elaborated;

in 2007, it is planned to work on more than 300 documents

Improvement of tax system will contribute to investment appeal of the economy:

- reduced tax burden on the economy;- tax incentives for investments and innovations;- better tax administration;

Improvement of customs system by way of harmonizing Russian legislation with international conventions:

- improve regulation of transit procedure;- introduce a single form of a customs document;- get prepared for the introduction of ‘authorized consignee’

Foreign Investment Advisory Council (FIAC)in Russia – working groups:

- State Regulation;

- Tax & Accounting;

- Financial Institutions & Capital Markets;

- Food & Agriculture;

- Natural Resources;

- Industry, Construction and High Tech;

- Image of Russia;

- PPP in Transportation Sector Task Force;

- Customs Task Force. created in 2007

About Current InvestorsAbout Current Investors More than two-thirds of their companies have global More than two-thirds of their companies have global

sales over $1 billion, including 24% that have sales over sales over $1 billion, including 24% that have sales over $50 billion.$50 billion.

51% of the companies that responded are head-51% of the companies that responded are head-quartered in the U.S., 36% are in Western Europe, 4% quartered in the U.S., 36% are in Western Europe, 4% are in Asia.are in Asia.

31% entered the Russian market before 1991; 23% 31% entered the Russian market before 1991; 23% entered within the past eight years.entered within the past eight years.

In 2006, 58% invested over $10 million each in the In 2006, 58% invested over $10 million each in the Russian market, including 38% that invested $50 Russian market, including 38% that invested $50 million/more.million/more.

More than two-thirds (70%) say they invested more in More than two-thirds (70%) say they invested more in Russia in 2006 than in 2005. Russia in 2006 than in 2005.

Investment climate in Russia over past yearInvestment climate in Russia over past year

47%

28%

25%

Russian Economic Policies and Laws that Encourage Foreign Investment

Current Investors Potential Investors

Headed in the right directionDifficult to sayGotten off track in past year

26%

41%

33%

Russia’s Integration Into Russia’s Integration Into The Global EconomyThe Global Economy

Current Investors Potential Investors

2%

32%28%

38%

6%

31% 30%33%Well integrated

(8-10 ratings)

Integrated (6-7)

Somewhatintegrated (5)

Isolated (0-4)

* zero-to-ten scale

56%

26%

10%

7%

Majority Satisfied With Investment In RussiaMajority Satisfied With Investment In Russia

Company’s Level of Satisfaction with Decision to Invest in Russia

Current Investors

High(8-10)*

Medium(6-7)*

Low (0-4)*

Mixed (5)*

* zero-to-ten scale

Return On InvestmentReturn On Investment

52%

24%

17% 18%

39%

29%

Higher than average

About average

Lower than average

Assessment of Russia’s Return on Investment, as Compared with Emerging Markets in General

Current Investors Potential Investors

Key Economic FactorsKey Economic Factors

35%

53%

55%

67%

59%

75%

Current investorsPotential investors

Russia’s Top Economic Strengths

Increasing consumer purchasing power

Growing GDP

Skilled, well-educated

labor force

Messages About Russia’s AdvantagesMessages About Russia’s Advantages

67%65%

43%

71%

51%84%

90%

89%

Current investorsPotential investors

Extremely/Quite Persuasive Reason For Investing

Large consumer market with expanding credit, increased saving, rising income; in top third in per capita GDP

Stable economy with sustained GDP growth, expanding consumer credit, trade surplus, inflation under 10% in 2006

Current foreign investors rate highly as place to invest, with good returns/profits and strong/growing market for goods/services

Highly educated work force, high productivity from executive professionals to skilled laborers

Investment RisksInvestment Risks

39%

53%

6%

59%

25%

14%

Higher than average

About average

Lower than average

Assessment of Investment Risks in Russia, as Compared with Emerging Markets in General

Current Investors Potential Investors*2% not sure for both

Negative Investment FactorsNegative Investment Factors

Major FactorsCorruption

Bureaucracy andred tape

65%

58%

Current Investors

Corruption

Bureaucracy and red tape

65%

51%

Potential Investors

Medium FactorsInconsistent applicationof legislation

Licensing/administrativeprocedures

Rule of law and judicial system

37%

35%

26%

Security and protectionof property rights

Inconsistent applicationof legislation

Lack of enforcement andprotection of businessrights

35%

27%

27%

27%57%

16%

Media Coverage Is HavingMedia Coverage Is Having A Negative ImpactA Negative Impact

How has what you have heard or read about Russia in the media in the past 12 months made you feel about the country’s investment climate?

Current Investors Potential Investors

More reassured

More concerned

No impact

16%

61%

23%

Confidence In Russia’s PotentialConfidence In Russia’s Potential

69%

16%

39%

22%

Confidence in Russia’s Ability to Become One of the Premier Countries in the International Market

Current Investors Potential Investors

High level of confidence (5-7)*

Low level of confidence (1-3)*

*one-to-seven scale

ConclusionsConclusions1. Proactively tell Russia’s positive story.

Promote the country’s economic success

Promote the consumer market

Promote the labor force

Promote the availability of country’s energy sources for growth and production

ConclusionsConclusions

2. 2. The State has to make more The State has to make more consistent and strong effortsconsistent and strong efforts in in addressing corruption and addressing corruption and bureaucracybureaucracy

ConclusionsConclusions

3. Re-energize joint efforts of3. Re-energize joint efforts of investors and government investors and government in encouraging FDIin encouraging FDI