Foreign Direct Investment in Russia: Stakeholders' Views and Perceptions

Volumes of foreign direct investments (FDI) are growing steadily, however, transition economies, such as Russia, are attracting only a minor share of FDI despite of available potentials. Risk aversion is one of the reasons influencing decision-making processes of FDI investors. This paper reviews existing objective and subjective risks, which impact decisions regarding FDI. The results of the paper are based on the extensive dialogue with stakeholders from Austria, Germany and Japan on the risks for FDI in Russia as well as on the outcomes of the discussions on barriers for trade in frames of the workshop, which brought together Russian and European stakeholders. The results show that political, regulatory, revenue, currency and operational risks within the economy of Russia are perceived by FDI investors from different sectors such as construction, financing, automotive and other industries as being the most likely and probable risks for FDI in Russia. The majority of investors perceive political risks as a greater barrier for investment in Russia. These perceptions are influenced by existing asymmetries on the market and the political decision-making dominance over business environment. Our results support existing evidence on impacts of uncertainties connected with political and regulatory risks for FDI in Russia. However, we did not find evidence that these risk perceptions were affected by creation of the Eurasian Customs Union, neither in positive nor in a negative way. The results suggest that significant progress was already done by improving investment climate in Russia but further efforts are also needed on addressing regulatory risks such as dealing with construction permits, protecting minority investors or simplifying customs regulations, as well as addressing existing market asymmetries.