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AutreyFDIRus - Autrey pg i Matthew Autrey Econ 508 Foreign...

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Autrey pg. i 365-04-4397 Matthew Autrey Econ 508 February 28, 2005 Foreign Direct Investment in Russia At the opening of the new millennium, Russia looms on the horizon as an immense opportunity for investors. Russia’s vast countryside stretches across Europe and Asia, possessing spectacular wealth in the form of exploitable natural resources, a large skilled workforce, and nearly 150 million consumers whose needs are endless. For actual investments to flow and capital flight to be reversed, several key changes will need to be made. Movements toward this end have been put in motion, and the country has begun the process of establishing a true market system based on private capital investment and enterprise as central to their future plans. Accomplishing this goal would facilitate Russia’s integration into the world economy, and help the country grow with the rising trends of globalization. As Russia moves towards establishing a market system, they have already begun to rapidly privatize the bulk of the assets of the former state enterprises. In many cases however, this has been done with a lack of transparency and fairness that has helped to perpetuate the legacy of communist control. There is an increased interest from foreign investors in the Russian economy, which has seen continuous growth over the past 3 years – a major turnaround after a decade of declines in the 1990s. It has been quite a shock for many to see how quickly the Russian economy has rebounded from the 1998 financial crisis. On the back of strong oil prices, real GDP growth in 2002 is expected to reach 4% [6]. The governmental interim scenarios currently suggest growth in the range of 3.4 to 5.6% for 2003-05 [6]. President Putin instructed the government to step up efforts to further increase the annual growth rate so that Russia could catch up to Portugal (GDP growth rate of 6.4% from 1999-2003) over the next 10 to 15 years [6]. In all of the above scenarios, the world oil price assumption plays an important role in view of the fact that Russia is the world’s i
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Autrey pg. ii 365-04-4397 second largest oil exporter. Growth is only expected to continually accelerate if reforms are implemented, and there would be a lag before the effects of reform would materialize [6] In addition to supporting GDP growth, President Putin has brought improved political stability, a welcome change for investors after the rotating governments prevalent in the final years of Boris Yeltsin’s presidency. The state is consolidating its control functions, and political and macroeconomic risk factors have been significantly reduced. The consolidation of the Federal Government’s authority in the regions has also brought regional legislation in line with federal law, helping to overcome the fragmentation of the national economic territory and reducing administrative barriers and risks. FDI increased to the 2 nd highest levels in Russian history under Putin in 2002, but has cooled off considerably in 2003
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AutreyFDIRus - Autrey pg i Matthew Autrey Econ 508 Foreign...

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