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Investment climate in the Russian Federation in 2004
We have achieved impressive results in socio-economic policy recently. First of all it is necessary to emphasize positive changes in foreign investors’ attitude to Russia due to macroeconomic stabilization.
According to estimation of the Ministry of economic development and trade of the Russian Federation over the first three quarters GDP increased at 6,9 per cent compared to the same period of 2003, and according to the Federal agency of government statistics’ estimation industrial production rouse at 6,5 per cent. Accumulated investments in fixed capital amounted to 1490 bln. rubles over the first 3 quarters, in September 2004 investments in fixed capital totaled 267,8 bln. rubles with 108,7 per cent rate of growth compared to the same period of 2003.
According to the Ministry of economic development and trade of Russian Federation estimation total amount of accumulated foreign investments has reached 66,1 bln. US dollars by the end of June 2004. Largest unit weight in accumulated foreign investments falls at other investments, made on repayable bases (credits of international finance companies, trade credits and others), which amounted to 57,2 per cent (50,9% - by the end of June 2003), direct investments – 40,7% (46,7% - by the end of June 2003), portfolio investments – 2,1% (2,4% - by the end of June 2003).
Main countries investing in Russian economy still are Germany, Cyprus, Nederland, Luxemburg, Great Britain and the USA.
Positive image of Russia is forming in the world. Particularly, investment rating agency Moody’s in October 2003 raised rating of Russia to the investment level.
Industry, catering and trade become more and more attractive for foreign investors, as well as general commercial activities on market operations provision.
Public administration system’s reform
One of the key directions of structural reforms is an ongoing reform of the public administration system, which aimed at reduction of excessive government’s intervention in the economy. Substantial results have been achieved in realization of administrative reform concerning optimization of federal agencies’ structure and elimination of duplicating and excessive functions. In the course of the public administration reform considerable steps have been taken to debureaucratizate economy and to eliminate administrative barriers in entrepreneurial activity. Particularly a legislative draft has been worked out in order to increase the effectiveness of licensing aimed at reduction of licensable activities, specification of licensing agencies’ authorities and protection of entrepreneurs’ rights. The legislative draft was accepted by the State Duma of Russian Federation at the first reading.
It is necessary to point out the reform of technical regulation, which is directed to establish conditions for successful business development, harmonization of existent national and international standards. The basic law is accepted, and subordinate legislation is in process now.
Law enforcement reform
The law enforcement reform is meant to develop mechanisms of property rights’ protection including investors’ and shareholders’ rights protection, corporate conflicts settlement and arbitrage proceedings. There is a judicial reform is going on, directed at judgment effectiveness endorsement and providing independence of the courts of justice.
It is necessary to stress the measures taken to protect intellectual property. In June 2004 the Federal law “On authorship and adjoining rights” came into force providing harmonization of the Constitution of the Russian Federation with international agreements, protection of authorship and adjoining rights. The main goal is to expand possibilities to counter illegal rights exercising, to protect consumers’ rights and to increase the volume of legal transactions.
Achievements in the tax system reformation are also rather impressive. Reduction of tax burden on the economy led to the improvement of companies’ financial state and to expansion of internal investment opportunities of the Russian economy. Since the 1st of January 2004 tax rate for operations with equaled 0,2 per cent from the nominal value of security issue (down from 0,8 per cent), the value added tax rate was reduced to 18 per cent. In June 2004 the President of the Russian Federation signed a Federal law concerning reduction of the basic tax rates of unified tax and the change in regression scale. Simultaneously a Federal law was signed which imply changes and additions to the second part of the Tax code, and expanding the list of entrepreneurship activities in relation to which the unified tax on the imputed income system was applied.
The effectiveness of antimonopoly legislation is one of the main conditions of property rights protection aimed at competitiveness support. Necessary steps are taken to improve preventive control of abusing dominating position on the market. The problem of economic concentration control was thoroughly worked over. These measures shall stimulate activity on the financial markets and to improve financial resources circulation mechanisms.
Reform of financial intermediation
In order to support investments inflow into Russian economy the Government of the Russian Federation continues reformation of financial infrastructure and system of financial intermediation.
In September 2004 the Government of the Russian Federation approved a plan of measures concerning financial markets development. The plan provides amendments to the present financial legislation and directed at increase of operations with derivative financial instruments, development of self regulation principles, unification of requirements to equity capital forming, capital allocation and structure of financial institutes’ assets.
Significant work has been done in the direction of market makers activity regulation from the standpoint of risk reduction, development of new financial instruments, security registration system simplification, development of information disclosure system.
In 2004 work on improvement of joint-stock companies legislation was continued with regard to shareholders’ rights protection: at the first reading the State Duma of the Russian Federation accepted legislation drafts which saved amendments to the Federal law “On joint-stock companies”. It established the right to appeal to court in order to contest decisions taken by board of directors and set a protection mechanism of minority shareholders’ rights.
In 2004 the President of the Russian Federation has signed a number of laws including amendments to the Federal law “On executive proceedings”, aimed at protection of security market makers’ rights and amendments to the Federal law “On joint-stock companies” directed at improvement of investment activity by pursuing effective dividend policy and maintaining financial transparency in companies.
Beginning from 2005 it is planned to oblige joint-stock companies listed on the stock market to apply the International accounting standards. The Law is made to ensure that investors receive trustworthy information about Russian companies on the basis of opening information content regulation. The legislative draft has been accepted at the first reading by the State Duma of Russian Federation.
In June 2004 the Government of the Russian Federation generally approved the project of the Strategy of banking sector development in the Russian Federation.
In August 2004 the Federal Law with amendment to the Federal Law “On credit organizations bankruptcy” directed at legislation improvement in preventing and realization credit organization bankruptcy.
In July 2004 the President of the Russian Federation signed a law including amendments to the Federal law “On countermeasures to money laundering and terrorism financing” which allows to control banking and institutional investors activity and operations with real estate and securities.
In December 2003 the President of the Russian Federation signed a new edition of the Federal law “On currency regulation and control” creating equal conditions for currency market participants. The law was directed at liberalization of internal currency market, elimination of excessive government intervention into currency operations. It also implied change-over from the regulatory order of holding currency operations to informative.
Transparency of Russian economy
In the framework of raising transparency of insurance industry it is necessary to stress the acceptance of amendments to the Federal law “On organization of insurance business in Russian Federation” aimed at increasing foreign capital share in owner’s capital 25 per cent and elimination some restrictions for companies with 49 per cent foreign capital share.
Besides under banking sector reformation and its arrangements realization it is planned to create non-discriminatory conditions for foreign capital to access Russian banking sector.