Tashkent, Uzbekistan (UzDaily.com) -- The international consulting company Ernst&Young conducted a study of the views of foreign multinational companies on the prospects of the Russian economy in the context of the sanctions imposed against the country, the spread of the COVID-19 coronavirus, the fall in oil prices, as well as the reduction in household income.

I. As noted in the study, despite a difficult external environment, the Russian government has managed to maintain macroeconomic stability. In the second quarter of 2020, the economic downturn was less than expected; it was possible to avoid a liquidity crisis in the banking industry and a wave of bankruptcies in the real sector. At the same time, the Bank of Russia continued to soften its monetary policy, lowering its key rate in July 2020 to a historic low of 4.25%. This decision makes loans more affordable for the population and business and speaks of the stability of the economic situation in the country.

In such a situation, foreign companies are optimistic about the economic prerequisites for doing business in Russia. 40% of survey participants believe that macroeconomic conditions have worsened slightly over the past year, and 35% of companies say that they have not changed.

Moderately positive expectations of foreign companies regarding the Russian market, according to Ernst&Young experts, lie in the policy of the Russian government, which in recent years has achieved noticeable results in increasing the investment attractiveness of the country: firstly, the reform of control and supervisory activities, which was called "Regulatory guillotine"; secondly, the mechanism for managing systemic changes in the business environment “Transformation of the business climate” is working successfully; thirdly, the establishment of the Investment Development Agency was announced, which will support the implementation of new investment projects and act as an intermediary between the state and business.

The improvement of Russia’s position in international ratings of the state of the business climate testifies to the effectiveness of these measures. In 2019, Russia entered the top 30 countries for the first time in the World Bank’s Doing Business ranking, although back in 2011 it was ranked 120th in it. It also managed to maintain 43rd place out of 141 countries in the global competitiveness ranking, which is the World Economic Forum.

II. Key findings from the Ernst&Young study are as follows.

1. Russia remains a strategic market for 92% of foreign companies operating in the country. Sanctions, pandemic, volatility in commodity prices and macroeconomic instability have not greatly affected their position. The high appraisal of Russia by foreign companies does not depend on short-term changes in the economy and has grown by 1% compared to 2019.

Foreign companies intend to expand their presence in the Russian market. More than half of the survey participants (53%) said this. Most often, such plans are spoken of by Asian companies and companies from the energy and natural resource development industries, which are attracted by the large resource base of Russia, the gradual recovery of prices for raw materials and the absence of strict sanctions restrictions for companies from Asia.

From 1990 to early 2020, foreign companies invested US$193.9 billion in Russia. The average investment amounted to US$3.4 billion. Companies from the energy and natural resources sectors invest more than others, where one company accounted for almost 9 billion dollars of direct investments. Over the next five years, foreign companies intend to invest another US$5 billion in Russia.

2. There are still many regulatory barriers in Russia. According to 50% of foreign business representatives, constant changes in legislation negatively affect the investment attractiveness of the country. This is one of the key legal issues faced by large foreign businesses. The other most significant problems in the regulatory sphere are indicated - a high level of administrative barriers (39%) and the inconsistency of legislation with the prevailing conditions (34%). As the German company Merck notes, “a well-developed system of intellectual property rights protection, predictability of the regulatory environment and general stability of the market conditions are the most important factors influencing the decision on the further development of investment projects in Russia”.

3. USA, Germany and Kazakhstan remain key partners for Russian business. The continued role of the United States as a key partner in Russia was noted by 16% of companies. This is due to the large number of survey participants from this country (almost a third) and the plans of American companies to expand their presence in Russia despite external restrictions.

Germany’s key importance was reported by 10% of survey participants. Germany has traditionally been an important economic ally of Russia and, according to the results of the first half of 2020, became the country’s second largest foreign trade partner in terms of turnover (with a share of 7.2%), behind only China. Official statistics also record the inflow of foreign direct investment to Russia from Germany, which has exceeded US$3.5 billion since 2015.

The importance of Kazakhstan was noted by 10% of international companies, which is associated with its role as a key partner of the Russian Federation in the Eurasian Economic Union, bilateral trade turnover with which in the first half of 2020 amounted to US$8.6 billion.

4. Most foreign companies do not plan to expand in the regions of Russia. Moscow and St. Petersburg, as well as the Moscow and Leningrad regions, remain key regions for foreign companies. In addition to the above-mentioned regions, the most attractive for investment are the Republic of Tatarstan and the Krasnodar Territory - 12% each, as well as Khabarovsk Territory and Novosibirsk region - 8% each.

The most important factors when choosing a region for investment are "The possibility of direct dialogue with the regional authorities" - 52% and "Tax conditions and benefits" - 48%.

5. The pandemic has changed the approach of many foreign companies to organizing the work of their employees in the office. In the post-warranty period, foreign business intends to increase spending on information technology, but to reduce the cost of maintaining an office. After the pandemic, 42% of international companies are planning to give up or sublet excess office space. It is noted that the productivity of employees who had the opportunity to work from home increased by 13%, they were twice less likely to leave and were more satisfied with their work. In this regard, 65% of survey participants noted that remote employment in their companies will continue in the future.

In general, foreign companies, despite the presence of geopolitical and economic problems, are optimistic about the prospects for the Russian economy. The main factors that determine the attractiveness of Russia for foreign business are - a large consumer market, qualified personnel, access to the world’s largest resource base and high growth potential.