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Foreign investors' trust in Russia remains unshattered
14.06.07
MOSCOW. (RIA Novosti economic commentator Oleg Mityayev) -

Western political leaders' views of Russia vary dramatically, judging by the results of the
11th International Economic Forum held in St. Petersburg on June 9-10.

The G8 summit, which ended in Germany the day before, did not settle the political differences between Russia and its partners, while the results of the St. Petersburg forum were much better than expected: $13.5 billion worth of contracts were signed instead of the planned $4 billion.

Foreign investment will account for about $4 billion of that sum. Aeroflot
and Boeing revived and signed a contract on the acquisition of 22 Boeing 787
Dreamliners, which had been believed dead. Russians also signed agreements
on the construction of Volvo, Suzuki and Peugeot Citroen car assembly
plants, a Samsung electronics plant, and a PepsiCo soft drinks plant in the
Rostov Region in southern Russia.

Russian companies will invest $9.5 billion. The country's largest private
oil company, LUKoil, will build a gas refinery worth $3 billion in Kalmykia
(southern Russia), and UC RusAl, the world's largest aluminum and alumina
producer, will invest $2.5 billion in the construction of the Ekibastuz
generating and metals works in Kazakhstan.

This seems to be an almost unbelievable result for two days of work, but it
was made possible by the favorable situation in the Russian economy. Foreign
investment in Russia this year, forecast at $30 billion, has already reached
$60 billion and may grow to $100 billion by the end of the year.

Russia has been working hard for this. Its economy has been growing by 7%
annually since 1999, and Russia now has the world's 10th largest GDP and
third largest gold and foreign currency reserves (worth more than $400
billion).

Therefore, some Western leaders' warnings that foreign businesses will
curtail their investment in Russia because of infringements on democratic
freedoms and a deteriorating investment climate do not sound so convincing.

On the eve of G8 talks with Russian President Vladimir Putin, Tony Blair,
the U.K. prime minister, warned that Western companies could shun Russia
unless it shared Western democratic values.

But major companies continue to invest in Russia.

Peter Hambro, executive chairman of Peter Hambro Mining, an AIM-listed
company with extensive interests in Russia, said on Monday that Blair's
comments "ran the risk of being damaging" for British business interests in
Russia, before adding: "I'm not sure how much attention is paid to him with
eight days to go."

At an investment forum in St. Petersburg over the weekend, where dozens of
global chief executives paid homage to Russia's growing economic might, Hans
Jorg Rudloff, the chairman of Barclays Capital and member of the board of
Russia's largest state-owned oil company, Rosneft, said the British
government was mistaken when it expressed public concern last week over the
growing risks of investing in Russia.

"Their approach looks unbalanced," Rudloff said. "Russia's transition to a
market economy has been successful and cannot be undone."

Some Western diplomats said the Russian government's moves to consolidate
state control over strategic sectors of the economy were undermining
Russia's investment climate and thus its future sustainable growth.

Rudloff said Russia's moves "did not seem out of the way of how OECD
countries acted in the past and still act today in establishing and keeping
control of a handful of national champions."

Apart from Rudloff, the forum was attended by the top officials of oil and
gas companies Shell and BP, which have worked in Russia for years, despite
Blair's remarks about the consolidation of the Russian government's control
over the oil and natural gas sector.

In all, 500 foreign companies sent delegates to St. Petersburg (some 200
were represented by top officials). The total number of participants from 65
countries was 9,000, and more were denied participation. St. Petersburg's
hotels were filled to capacity and some delegates were housed on the 11-deck
Viktoria steamer.

The support of the global business elite produced political dividends for
Russia. Claus Schwab, the founder and head of the World Economic Forum in
Davos, Switzerland, accepted an invitation to the St. Petersburg forum.
Other dignitaries were U.S. Trade Representative Susan C. Schwab, EU Trade
Commissioner Peter Mandelson, and WTO President Pascal Lamy.

Lamy said: "Without Russia, the WTO is not really the multilateral
institution it wants to be, and without belonging to the WTO Russia has not
attained the capital of trust in its future that it needs for its
development."

So Russia may still join the organization this year, 14 years after it began
negotiations on its entry.

The St. Petersburg forum showed that foreign business leaders are more
progressive than their politicians, like Blair, who are still influenced by
the mentality of the 1990s, when the promise of investment was used to
persuade Russia to carry out political and economic reforms.

The British prime minister may sincerely believe that foreign companies can
be called back from Russia for political reasons unless the Kremlin listens
to Western recommendations.

But foreign investors have come to Russia to stay. Their accumulated
investments there have reached $150 billion, and they are not going to
leave. On the contrary, they are channeling more money into Russia.

The opinions expressed in this article are the author's and do not
necessarily represent those of RIA Novosti.