The year of 2003 has become the most successful one over the whole period of Russia's market reforms
The year of 2003 has become the most successful one over the whole period of Russia's market reforms, Prime Minister Mikhail Kasyanov says. High oil prices in the world have guaranteed faster than expected economic growth rates. Investment flows are the best result achieved within the year. It is expected that the showing will make up 11.2 per cent by the end of the year which is 4.5 times higher than over 2002. Direct foreign investments have increased by 77.3 per cent.
According to information provided by the RF Ministry for Economic Development and Trade, investments in the basic capital made up 1618.19 billion rubles over January - October 2003, which is 12.2 per cent more than over the same year-ago period. Minister for Economic Development German Gref says no drastic chances in the investment climate and no "tectonic progress" in economy have been registered within the period under report. What is more, events that happened in Russia in the second half of the year might have scared foreign investors because of Russia's unpredictable political conjuncture and the unsteady attitude of the authority to large-scale business.
However, nothing of this kind has happened yet contrary to all forecasts. Russia's Central Bank explains that capital outflow ($7 billion in the third quarter and expected $3-4 billion in the fourth quarter of 2003) has nothing to do with arrests of Yukos management, but is in fact payment of foreign debts by Russian enterprises and the government.
Russia's investment activity has slowed down starting with the third quarter of 2003; the Ministry for Economic Development explains it with seasonal factors and adds that increase of investments is more dynamic than any other macroeconomic showings.
The concern of capital holders in Russian economy is connected with several factors, experts of the ministry say. High oil prices (the average Urals price made up $27 per barrel) are the strongest factor among them. Oil extracting enterprises have some money that they have invested in production, including adjacent industries. Irrespective of the government's efforts to diversify Russia's economy, up to 70 per cent of investments fall at the fuel and energy complex.
The reduction of profitability of investments in ruble and currency securities has made investor focus on the Russian production sector. The Ministry for Economic Development states that people's ruble and currency investments in credit organizations have also increased, which in its turn raised the bank system capitalization and guaranteed wider credit opportunities. As of September 1, the volume of bank loans granted to producing enterprises increased by 18.7 per cent since beginning of the year and made up 2 trillion rubles.
Foreign investors have come to the Russian market because of its attractive macroeconomic showings and because of economic stagnation in majority of developed countries. The biggest share of foreign investments was placed in commerce and catering (42.8 per cent) and in industry (36.3 per cent). Oil production, non-ferrous metallurgy and ferrous metallurgy have appeared to be the most attractive for foreign investors; investments made up 12.7, 6.9 and 4.2 per cent correspondingly.
By the end of September 2003, the accumulated foreign capital made up $53.6 billion, which was 34.7 per cent higher than over the same year-ago period. Direct foreign investments increased by 77.3 per cent. The basic share of investments falls at commercial loans and other borrowings. The share of direct and portfolio investments is reducing, which proves that investors evince little long-term interest in Russia now.
Moody's raised Russia's credit rating to the investment level in October before the arrest of Mikhail Khodorkovsky and the subsequent collapse on the stock market; Standard&Poors and Fitch have not yet followed the example of their colleagues. It is not clear so far if the rating raise has changed attitude of foreign investors to Russia.
The RF Government admits that the high investment growth is explained with the last year's low showing: in 2002 investments increased by 2.6 per cent. That is why even if oil prices remain still high next year, the 2003 statistic record will not be fixed in 2004.