Investment Policies in Russia: The Northern Dimension by Rainer Geiger Deputy Director, OECD Financial and Enterprise Affairs The Northern Dimension Forum St. Petersburg 13 May 2008

Investment trends and policies in the Russian Federation Strong performance in inward and outward investment Recent policy developments The 3rd OECD Investment Policy Review A strategy for business climate development for the Northwest Federal District 2

Russia’s inward and outward FDI

Russia’s FDI inflows: Sectoral distribution, 2007 (%) 4

Russia’s FDI: Country of origin 2007 (%) 5 FDI inward stockFDI outward stock Total of which 100 Cyprus Netherlands Luxembourg0.7- United Kingdom Germany US Ireland0.4- France1.5- Switzerland Virgin Island Austria-0.0 Ukraine-0.9 Belarus-4.7 Others

Russia’s FDI in comparison with emerging market economies IndicatorBrazilRussiaIndiaChina FDI inflows (in billion USD) FDI outflows (in billion USD) FDI inward stock (in billion USD) FDI outward stock (in billion USD) FDI inflows per head (in USD) FDI inflows as per cent of gross fixed investment (%) FDI inward stock per head (in USD) FDI stock as per cent of GDP (%)  inward  outward Outward/inward FDI stock ratio (%) Source: EIU (2007), World Investment Prospects to 2011: Foreign Direct Investment and the Challenge of Political Risk, September 2007.

Recent policy development Strategic sectors Strategic corporations under state control Russia’s policy framework for energy investment 7

The Northwest District: Regions with unexploited opportunities Access to large markets Natural resources Good industrial and technological base Potential for trans-border investment 8

Challenges to improve the policy environment in the regions Public sector integrity and corporate governance Policy transparency Modernisation of regulations Infrastructure Human resources – SME Access to finance 9

A business climate development strategy with a Northern dimension Based on the OECD Policy Framework for Investment Benefiting from experience with regional programmes (e.g. the Investment Reform Index of the South East Europe Investment Compact) Backed by Knowhow of OECD / World Bank Interactive process of local / regional partnership 10

The Policy Framework for Investment Identifies 10 core policy areas and 82 questions to help governments maximise the benefits of international and local investment Promotes tailor-made solutions regarding good practice Is the most comprehensive multilaterally endorsed investment instrument to date 11

How to take advantage of the PFI Self evaluation Comparative benchmarking in a regional context Policy coherence at government level Public-private sector dialogue on reforms The Business Climate Development Strategy 12

The business climate development strategy – Key features 13 Define baseline Set Priorities Implement The Business Climate Development Strategy (BCDS) as a whole is targeted at…  Improving the business environment to increase investment and competitiveness, thereby contributing to growth and employment  Supporting a dynamic and sustainable reform process It is a systematic approach involving three basic steps:

BCDS Framework

 Methodology successfully applied in South East Europe: Investment Reform Index  Breakdown of Chapters in Sub-dimensions and Indicators  Indicators with five assessment levels, ranging from least to best practice  Self-assessment by Country Economic Team and external assessment by OECD experts Methodology

BCDS Creating value for the Northwest District 1.Provide a single comprehensive document defining a business climate reform strategy based on best practice in OECD countries; 2. Leverage existing evaluations of the business climate including those by the OECD, The World Bank and the European Commission; 3. Support leadership in federal, regional and local governments to ensure coordination and consensus on priorities for reform throughout a broad range of policy areas affecting the business climate; 4. Involve continuously government and private sector throughout the process to increase buy-in for business climate reform; 5. Identify priorities for action and provide support for implementation. 16

Conclusions – Moving forward Increasing the competiveness of the region as a location for investment Identifing investment opportunities and increase sectoral competitiveness Improving policy coherence and capacities for implementation Developing effective tools for communication 17