Rostov Region

Investment and Banking

Rostov fails to attract foreign investment

Rostov Oblast officials have sought to attract foreign investment from Finland, Sweden, and Denmark in recent weeks with little success. A trip by the region's economics minister gathered nothing more than an announcement by the foreigners that Rostov Oblast "undoubtedly has significant economic potential." Three factors make foreign investment unattractive in Rostov.

 First is the on-going redistribution of property in the region in which the authorities pay little attention to the requirements of the law for property rights protection. Companies often change hands without proper sales. The continuation of this practice gives owners only shaky rights to their property and creates conditions for another redistribution of property in the future with similar legal violations. Deals made in these conditions can be declared illegal once a new governor comes to power. Similar processes are taking place in Ulyanovsk Oblast under Governor Vladimir Shamanov. In Rostov, such a danger exists in particular because of the political ambitions of the leadership of the office of presidential envoy to the Southern Federal District. Rostov Governor Vladimir Chub was only able to fend them off with great difficulty in the gubernatorial elections of 2001.

A second issue is that the most profitable enterprises of Rostov Oblast, which with a relatively small investment could quickly start to produce a profit, are already controlled by large Russian financial industrial groups. Chub and his allies have no levers over these firms. Russian big businesses prefer to extract profit from these companies themselves and are not inclined to share such income with foreigners. Using all possible political and economic methods, they block any potential undesirable competitors. Sharing risks is not an attractive option for them. Thanks to their good connections with well-placed regional officials, these big Russian companies can obtain state orders, credits or subsidies without having to go through the process of a public tender. As a result, potential investors are usually offered second tier enterprises, which are not interesting to Muscovite investors.

If someone does invest in a local enterprise, then the third factor comes into effect. In Rostov, local businesses must make a large number of payments to a wide range of funds beyond just the usual bribes common in all regions. But, considering only the official payments, an investor must pay an additional dollar for each dollar of actual investment. Moreover, the poorly developed land and water transportation systems make it difficult to import or export agricultural produce from or to the region. The oblast leadership's paranoid fear of not having enough food to feed the local population also hinders such trade.

The oblast authorities have made no serious efforts to address these problems. Rather they merely talk about the oblast's economic potential and the need to improve its image.

Source: Russian Regional Report (Vol. 9, No. 3, 10 March 2004)

Foreign Relations

Finnish Ambassador visited Rostov-on-Don

Finish Ambassador to Russia Reme Nyberg paid a visit to Rostov-on-Don on March 24, 2004. During the visit Mr. Nyberg studied economic, investment and industrial potential of the city and familiarized with housing and communal sectors of Rostov-on-Don.  

Source: www.regions.ru