'FIAC and promoting foreign investment in Russia'

We have invested over 23 billion euros in last 22 years

The EBRD’s commitment to promoting foreign investment in Russia has been strong for more than two decades. Over the past 22 years, we have invested over 23 billion euros in more than 700 individual projects in Russia. We are the single largest foreign investor in Russia outside the oil and gas sector. We are committed to Russia for the long term.

But 2013 has seen a slowdown in FDI and domestic private investment. That is reflected in EBRD’s numbers too this year. Given our long-term commitment to Russia, we want to help change the investment outlook for all investors, including EBRD, going forward.

FIAC is a crucial platform for promoting foreign investment in Russia and addressing the obstacles that investors face. We welcome the close and open engagement with the Ministry of Economic Development and many other key ministries and agencies.

EBRD has been actively involved in the Banking and Financial Markets working group of FIAC, led by Deutsche Bank, and in other areas contributing to improvements in overall business environment.

This remains a key priority – even more so in the current climate of economic deceleration, when private investment is much needed to reinvigorate growth and where foreign investors are often reluctant to come to Russia.

We welcome the efforts by the Ministry of Economy, by the Agency for Strategic Initiatives, and a number of regions to improve the business environment and attract investment.  We believe the roadmap approach is making a difference and will help Russia rise in Doing Business ratings. The EBRD stands ready to support federal and regional authorities in their efforts to improve the business climate.

In the Banking and Financial Markets working group, we focus on another key component of the business environment - the ease of secured transaction.

We have stressed recently, at the St Petersburg Forum, the importance of a robust legal framework and pledge law reform for attracting bank financing for infrastructure PPPs and for issuing project bonds.

The pledge law reform is going in the right direction but we really need to go further to enable increased project finance. The amendments to the Civil Code currently under discussion lag behind best market practice. They do not provide for sufficient flexibility in describing pledged assets, in enabling out-of-court enforcement, or in reducing transaction costs.

EBRD has been working with the Ministry of Economy, the Ministry of Transport, the Russian Direct Investment Fund and the state Duma to improve the PPP framework in Russia. We expect that the new draft PPP law (currently in the Duma) will further strengthen the legal environment and contribute towards developing bankable PPP arrangements.

A pipeline of PPPs is starting to emerge in Russia. To date, EBRD has financed two flagship PPPs in Russia: Pulkovo Airport and Western High Speed Diameter (a road PPP). EBRD is keen to actively support the efforts of Russian authorities to bring bankable PPP projects to the market, which are based on transparent and competitive tender processes and are in compliance with EBRD’s environmental standards and public consultation requirements.

A secured transaction framework is important for all firms, also for small and medium-sized ones. SMEs are more constrained in terms of access to finance than larger firms. Almost 30 per cent of SMEs consider access to finance to be a major or very severe obstacle to their operations.

Overall, more effort needs to be put in to creating a better business environment and better access to finance. This would be a major contribution to a rebalancing of the economy.

In a more balanced and diversified economy, SMEs would make a greater contribution to job creation, output and innovation. The SME sector remains very underdeveloped in Russia. Its share in GDP and employment remains significantly lower than in Europe.

What is especially worrying is the very small layer of mid-sized companies that in Europe are the backbone of many economies. We do not see tangible improvement. On the contrary, interest in entrepreneurship seems to be reducing and entry of new companies slowing.

A better business environment and growth of SMEs are also key to assisting the efforts of foreign investors to localise production and build reliable, high-quality supplier chains.

The Bank is committed to support the SME sector in Russia through partner banks, equity funds and direct financing, as well as through its small business support network that provides consultancy services and advice. We hope that the recently established Russian TC Fund will enable us to expand these activities.

We still believe the opportunities in Russia outweigh the risks and the challenges. The conversations that I have with entrepreneurs around the world, underline that they are not as convinced as we are. Such caution from investors should make us redouble our efforts to improve the business climate and dismantle barriers to investment. If we can make progress on that, we would have reasons to be even more optimistic about Russia’s longer term outlook.