Investors seek more politically stable havens and financial markets in periods of panic or plain old anxiety. Nor do investors enter a market until they completely understand the country’s foreign investment strategy.
Valdaiclub.com interview with Igor Yurgens, Chairman of the Management Board at the Institute for Contemporary Development (ICD).
Government estimates of capital outflow in Russia for 2011 amounted to almost $35 billion. Why is capital being invested abroad despite rather high oil prices? Which factors are driving capital out of Russia?
First, the $35 billion estimate was rather conservative. In reality, it’s more like $60 billion. Second, small economies and economies without serious influence on the global economy are usually subjected to such things during recessions and crises. Although the Russian economy is the 10th largest in the world, it is regulated in a way that does not suit investors’ preferences. That is why the regulation issue outweighs the potential advantages that a speculative portfolio investor could have given the high oil prices we’re seeing. In addition, in order to attract short-term direct investment, the country needs investors to be confident in their future, property rights, simple relations with the state, as well as a number of investment factors. We lack some of them, like a predictable tax burden. The absence of quality human capital and skilled labor has also depressed investment.
Investors seek more politically stable havens and financial markets in periods of panic or plain old anxiety. Nor do investors enter a market until they completely understand the country’s foreign investment strategy.
Do you think that the capital outflow we’ve seen since the beginning of the year can give way to capital inflow?
Yes, once all the factors I mentioned change, once Russia becomes investment-friendly for both domestic and foreign investors, once we carry out a sort of regulatory revolution, and neither small or medium-sized businesses are assaulted by law enforcement and raiders.
Will presidential initiatives to improve the investment climate affect capital outflow trends?
Not immediately. They will have an effect if they are carried out completely and comprehensively: then there will be changes in investment, registration will become easier, and the Ministry of Economics will be able to help investors resolve disputes. All these are very good measures, but the whole situation cannot be changed all of a sudden.
Do you see any correlation between capital outflow and the upcoming elections?
This correlation is always there, but currently everything is clearer than usual, so the impact of the elections will not be so great.
