Fdi In Russia

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Fdi In Russia

  1. 1. FDI IN RUSSIA<br />By<br />Gourav, Pooja, Prashant<br />Rahul & Rajendra<br />
  2. 2. Introduction<br /> Russia experiencing unprecedented capital flight<br /> In 1996, $22.3 billion left the country and mere 2.2 billion in FDI flowed in<br />Even in Hungary, FDI inflows are more than double from 1989 to 1996<br /> Riskiest Investment destination<br />Complex tax code<br />Endless regulations<br />Favour to local companies<br />Companies sold to banks in “share for loans” scheme & Foreign companies couldn’t bid<br />Privatization favoured Incumbent managers<br />
  3. 3. More facts<br /> Largest Oil & gas reserves <br /> Production dropped from 569 million tons (1988) to 305 million tons (1996)<br />Leaking pipelines<br />Aging oil wells<br />Lack of new drilling technology<br />Conflicts between states on ownership<br /> Required $80-100 billion per year for earlier levels and $40-50 billion to maintain their current production levels<br />Why did they sold companies for peanuts??<br />
  4. 4. Reforms<br />Boris Yeltsin opened FDI in Oil & Gas sector in 1997<br />Foreign companies can buy 100% of Russian Oil companies<br />Royal Dutch Shell teamed up with RAO Gazprom to bid for Rosneft<br /> BP purchased 10% stake in Sidanco<br />But, still companies were reluctant for big investments as they demanded<br />Stronger and legal tax guarantees<br />Internationally recognizable agreements<br />Not passed as of 1997<br />
  5. 5. Reasons for an Investor to Target Russia<br />Natural resources: Oil and natural gas Government policies and local companies play a major role in FDI<br />New markets: Purchasing power of the common middle class man<br />Efficiency: Technological and labour skills. It is said that Russia can become an Engineering hub because of its skilled labour<br />
  6. 6. FDI HISTORY<br />Post Cold War consequences<br /> FDI plummeted during 1998 due to financial crises<br />Unable to recover from the financial crises in the next three years<br />Since 2002 FDI inflow has grown by more than 8.3 times in 2006 due to the reforms of 1999<br />Change observed in 2006 was the reversal of capital flight<br />
  7. 7. Why FDI had not increased more rapidly till 1997 ?<br />Skeptical view: Perhaps they don’t want FDI and have only paid lip-service in order to gain the backing of foreign governments & international financial institutions<br /> Cold War Consequence: Post cold war members of Russian elite distrust the West <br /> Poor implementation of improved rules and lack of coordination in government policies<br />
  8. 8. Russia’s – Investment Climate<br />Foreign Exchange Control<br />Legal Framework<br />Investment Climate<br />Taxation<br />Competition Regulation & IPR<br />
  9. 9. Investment climate<br />Law on Foreign investments in Russia 1999<br />Elaborate framework to protect the rights of investors. <br />Grandfather Clause - which protects the investor from unfavorable changes in the legal and tax regulation for a period up to 7 years.<br />Labour laws- Freedom of employ any personnel of their choice regardless of their nationality<br />Dispute resolution – between foreign party and host country referred to international arbitration without having to go thru local court system. <br />One of the lowest Tax rates in Europe<br />
  10. 10. Role Of Oil/Gas in Russian politicsPolitical nexus with Gazprom<br />Gazprom is World's largest Natural gas company and accounts for 17% gas production worldwide<br />Russian Government holds 50.02% stakes in Gazprom <br />Accounted for 10% of Russia's GDP in 2008<br />Maintains a private army and employs half million people in Russia<br />Major gas supplier to European Union countries<br />
  11. 11. Ruler? It’s Oil/Gas ! <br />
  12. 12. Origin of FDI in Russia<br /> 18% in 2006 and around 14% in 2007 from one of the smallest EU countries<br /> Nearly 1/3 FDI from EU in 2006<br />More than quarter of the FDI from EU till 3rd quarter of 2007<br />
  13. 13. Destination of FDI<br />Service sector has been a big gainer<br />In 2005, energy sector FDI has gone down following the Yukos affair which slowly recovered after that<br />
  14. 14. Recent Developments<br />Increase in oil prices in the past helped increase in GDP improving FDI<br />As compared to other countries in BRIC, Russia gained FDI more than India and Brazil in 2006-07<br />Instability due to <br /> attack on Georgia,<br /> TNK/BP case, <br /> Yukos case etc<br /><ul><li>Recession affected</li></ul> Russia GDP & FDI<br />
  15. 15. Questions<br /> Will your company invest in a country like Russia in 2010?<br /> If yes, What would be the best sector to invest in?<br />
  16. 16. References<br />Foreign investment advisory council, survey of CEOs 2008<br />Paper by Ksenia Yudaeva on Foreign ownership<br />Tamila Curtis paper on Investments in Russia<br />Mehmet Ogutcu Paper on Russia<br /> CCSE- Paper on FDI brics<br />Articles from Economic times<br />
  17. 17. Thanks!<br />

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