Now, let us talk about a regional dimension on investment to Russia. Initially, when a foreign investor is looking for a specific country, it takes into consideration the following issues depending on the fields of a business. It might be natural resources seeking including oil resources, natural gas, diamonds, gold, copper, nickel, tin, forest etc. A foreign investor might implement a cost reduction strategy as costs of production resources including for example labor costs and energy in Russia, are lower than in many other countries, not the lowest in the world though. Foreign investment might be driven by a market access strategy, if a company wants to be closer to consumers, buy produce locally. Tourism is another sector that might attract foreign investors. In addition some companies might consider to invest abroad by looking at the activities of leading companies over the market. A higher level of competition in many western countries might stimulate companies to go to Russia, where the competition level in many economic segments is still much lower. While assessing the determinants of decision-making factors at the national level, one should take into consideration a large range of issues including economic situation. Indeed, if the economy is booming, there are plenty of opportunities to develop and enlarge business. In case of stagnation or decline, the market is shrinking. It should be mentioned though that a crisis might create new opportunities for business development. Another important dimension for foreign investors is a risk rank of the country. Every company wants to secure its investment and high political and economic risks might harm the business. A country's political risk is a crucial factor which is considered by foreign investors while making an investment decision. Political risk is linked for example to confiscation or damage to property, production disruption, stress to personnel, and changes in their regulatory environment, or the macroeconomic management. Investors prefer not to invest and raise their capital in an unstable environment. Political instability is considered by economists as a serious disease, harmful to economic performance. Political instability is likely to shorten policy makers horizons leading to sub-optimal short-term macroeconomic policy. It may also lead to a more frequent switch of policies, creating volatility and thus negatively affecting macroeconomic performance. You should be very careful though by looking at various country risk ratings as a low or a high position in the list might depend on the methodology used for the countries comparison. There are several international country ratings. For example, Credendo Group while assessing a long-term political risk of Russia, gives it four points out of seven that reflects the highest political risk. We encourage you to look at other ratings of risks related to FDI. A transparent and consistent legislation is also important for stable economic development. If a company is ready to invest into a certain country especially into a big one as Russia is, it should pay attention to a regional diversity of the country. Indeed, at the regional level investment conditions might vary substantially. They depend on location segment of business, types of natural resources as well as on risk rank of the region that consists of the regional legislative peculiarities, efficiency of local authorities, local stabilities, and financial, ecological, and crime risks. The National Rating Agency introduces a classification with nine levels of investment potential of Russian regions starting from the highest IC1 to the lowest IC9. The investment attractiveness of a region is determined by the agency as a combination of factors influencing the feasibility, efficiency, and the risk level of investments in the territory of a given region. This factors create a background for all in investment projects implemented in the region, affect the risk and profitability of those projects. The investment attractiveness of a region is made up of several factors, each of which can be assessed by selecting a special set of indicators for this. The region considers seven factors of regional attractiveness: geographical location and natural resources, the main characteristics of region's labor resources, the level of unemployment and employment, the supply of skilled labor and labor productivity. It also include regional infrastructure and its level of development. The internal market of the region as an indicator of a regional demand potential. It includes the production potential of the regional economy, institutional environment and social political stability, as well as financial sustainability of the regional budget and enterprises of the region. On the slide, you may see some example of ranking for some Russian regions for 2018. As you can observe, two larger cities of the country, Moscow and St. Petersburg, keep the leading positions. These are the only two regions having the highest rating. Other regions are more or less equally distributed in other categories. IC2 group is represented by Leningrad oblast, Moscow oblast, Tatarstan. The lowest rating have 12 regions including Republic of Tuva and Chechen Republic.
