‘To Keep our Position We Need to Improve Very Fast’

Alexander Shokhin, President of the HSE, in his interview at the XIV HSE April Conference spoke about barriers and prospects for the investment climate in Russia.

— Today you’ve spoken a lot about administrative barriers and Russia’s cooperation with other countries. What are the problems in the Russian investment climate?

— The investment climate is a complex thing. There are  direct factors which influence it, such as the tax burden. Formally, the tax burden in Russia is not that high. Ten years ago the business community was burdened not by  tax tariffs, but by tax administration. Tax rates were low, but there was  increased pressure with tax inspections and additional tax charges, the procedures for which were poorly defined by the law.

Today many things in the sphere of tax have changed dramatically. Particularly, now that tax administration works according to fairly transparent schemes. As a result, while before the crisis the problem of tax administration was considered as one of the main obstacles for business, today this issue is in fifth or sixth position.

One of the key problems is the administrative barriers related to issuing permits. They include permission to get connected to networks, permission for the allotment of a parcel of land, for construction, and so on. The abundance of  procedures around these permits naturally leads to subjective decision making, and it becomes hard to defend a company’s interests in court, for example, since not all procedures are clearly defined by law and there are sometimes no administrative rules for certain procedures. The main problem however is the corruption it is open to. The propensity for corruption in many permit schemes is obvious for the business community, and that’s why business entities often decline certain projects or go to another jurisdiction.

Today in particular we have real competition between the Russian and Kazakhstan jurisdiction as part of the Common Economic Space. In Kazakhstan the tax rates and social insurance payments are lower. Several hundred Russian companies have already re-registered in Kazakhstan. On the one hand, this is bad and is a sign that something is wrong with Russian procedures and rules. But on the other hand, this is good, because the competition between the Russian, Kazakhstan and Belorussian jurisdictions can lead to balancing the business conditions. And these conditions will be balanced to the positive side, which means we should use the best practices from different countries.

The same relates to foreign investors. An investor goes where it is more profitable.

— What is the general trend in recent years? Is there an inflow of investors into Russia?

— Of course, there is an inflow of investments, but now a period has come when all investors who had wanted to realize large projects, mainly in oil and gas, production export and commodities, have already realized them.

Today there is an opportunity to implement large projects in infrastructure. But we need a different regulatory framework, including concession agreements and life cycle contracts. Not everything is developed on the legislative level, and as soon as it is, we can expect more large projects. They could include those related to the 2018 World Cup, like airports in different cities. Some laws have been adopted to facilitate investments in the Far East and Baikal region, so it is possible to expect some large infrastructure projects there, including sea ports in the Far East.

At the same time, today efforts should be focused on attracting medium-sized capital and institutional investors, such as investment funds. They are an indicator of a favourable investment climate, since they are more flexible and focus on fast-growing projects, fast return on investment and risk minimization.

So, we can state that some progress has been made in this sphere, but on the other hand, we should look to the future. Even to keep our position in the rankings of the World Bank and others, we need to improve very fast.