Fradkov Tells Investors to Stop Worrying
themoscowtimes.com
By Alex Fak
Staff Writer Foreign investors should stop worrying about "growing authoritarianism" in Russia and help the government weaken the influence that a few large conglomerates have on the economy, Prime Minister Mikhail Fradkov said Tuesday.
"The concentration of investment in the hands of large financial-industrial groups cannot but concern us," Fradkov told investors at a conference organized by Renaissance Capital.
"Foreign investment could help solve this," he said.
Although foreign direct investment will rise by about 15 percent to $8 billion this year, this is "hardly a significant amount for Russia," he said, adding that 40 percent of fixed investments are going to commodity-exporting sectors and the natural monopolies.
Fradkov said businesses should be consulted about economic development strategies, but the government must lead the drive to diversify the economy, which is overdependent on natural resources.
"We do try to minimize [the government's] role for greater effectiveness, [but] it does not always come out the way we would like," he said. "But it is not quite right to put this down to growing authoritarianism."
At the top of the to-do list is reform of the banking sector, so that small and medium-sized companies can get access to capital more easily.
"I'll say it once more: The development of the banking system is our most important task."
Fradkov said incomes, which are expected to rise by 27 percent between 2005 and 2007, need to be converted into savings that can then be converted into investments. To achieve that, however, a more versatile banking sector is required, he said.
The volume of retail lending in Russia is among the lowest in Eastern Europe, largely due to miniscule middle-class savings.
"There is a mistrust of the government and of institutions in general," Sergei Suverov, head of research at Moscow-based Zenit Bank, said on the sidelines of Tuesday's conference.
Most economists say that a new deposit insurance scheme due to start operating later this summer should help restore confidence in the system and attract depositors, although state savings bank Sberbank, which enjoys implicit deposit guarantees from the government, has not been as successful at attracting new money as many had hoped.
Foreign investment, too, suffers because of Russia's inefficient banks, Fradkov said.
"Russia is losing the competition for investment with a slew of countries with reforming economies, and this is due in large part to the level of development of the banking system," he said.
Although FDI last year rose 69 percent to $6.8 billion, that amounts to less than $50 per capita, far behind most countries in Eastern Europe.
In the first quarter of this year, FDI totaled about $1.5 billion, but 65 percent of this came from a single company in a single project -- Royal Dutch/Shell's oil-and-gas venture in Sakhalin, said Natalya Orlova, chief economist at Alfa Bank.
"Investments are concentrated in large projects, where it is possible to establish political dialogue," Orlova said. "Small investors ... do not have enough clout to lobby their interests. The problem is in the general dependence of investment on high-level political agreements."
Peter Elam Hakansson, chairman of Stockholm-based East Capital, which manages $650 million of mostly Russian stocks, said Fradkov hit all the right notes in his speech to investors.
"What I liked about the speech was its underlying message: That foreign investors are helping us change the picture," Elam Hakansson said.
However, other investors said that several government ministries and institutions have yet to fully coordinate efforts to lure foreign investments.
On Monday, for example, Deputy Central Bank Chairman Alexei Ulyukayev said importers of capital may soon be required to park 3 percent of the amount they import at the Central Bank for up to a year, and up to 20 percent when buying government bonds.
The Central Bank is afraid of speculative volatile inflows, or "hot money," but imposing these kind of restrictions "could easily hamper the investment flows the government says the country needs," said Dmitry Satchine, CEO of Interfin Capital, a Moscow-based asset management company.
Some investors said they are worried about how the kind of "managed capitalism" Fradkov talked about will actually look.
"The problem will come if they try to create an investment fund for government projects [by] collecting money from natural resource companies and trying to pump it into aviation or something," said Alex Williams, director of Bermuda-registered and Stockholm-listed Vostok Nafta Investments, which has $750 million under management, mainly in the Russian oil sector.
"But I think they realize that," Williams said. |
