Guiding Lines: Form and Content

The report says that, according to Russia’s Federal Statistics Service, direct foreign investment in Russia grew to $13 billion, a 38.8 percent increase from 2004. At the same time, Moscow and other Russian regions, especially, keep on complaining about the lack of financing for their most vitally important projects.

Russia accounts for nearly one-forth of all foreign investments poured into economies of Central and Eastern Europe. Quite a share, indeed. However, the EBRD says, this makes up only 6.5 percent of GDP, while foreign investments made in other CEE states make up 30 percent of GDP of those states on average, hence, in these terms, Russia remains an outsider.

So what is it that hinders the inflow of direct investments in Russia? Or, maybe foreigners themselves are reluctant to enter Russia? That’s not true: Ernst & Young reports that some 80 percent of foreign firms are satisfied with returns on their investment in this country.

Vast Russian territories attract foreigners with their size, enormous market potential and high-skilled and comparatively cheap workforce. What wards them off is incomplete legislation governing real estate markets as well as much talked-about problem of corruption. Yet another weak point of individual projects as well as of the entire Russian property market, often neglected even by the most experienced operators, is poor presentation skills.

Even Russian players have long realized that self-presentation is not merely something about models distributing promotional items at exhibition stands. Time has come to acquire more important skills, for example, learn to prepare sound investment proposals.

Respectable investors do not respond to calls such as: “Bring your money here, we will take care of it.” They need clear-cut feasibility studies, guarantees, business plans drawn in accordance with generally accepted practice, etc.

And while influential international consultants reflect on the nearly-Hamletian question of whether Russia is still corrupted or not, investments flow into more successful transition economies, such as Poland. The International Real Estate Trade Organization (IRETO) has recognized Warsaw the most risk-free CEE capital.

Ernst & Young analysts note that Poland “is the most attractive region for initial investment.” In these terms, Poland ranked 4th across the globe and 2nd in Europe, after Great Britain. Foreign investment in Poland will remain high – at $8 to 9 billion per year – within the next two to three years, Economist Intelligence Unit reports. Incidentally, Poland has long realized the effectiveness of international investment shows. The Central & Eastern Europe Property & Investment Forum (CEPIF) in Warsaw – the largest real estate show in the region supported by MIPIM – has helped the country to attract considerable funds into its economy.

With attendance growing rapidly – CEPIF 2006 was visited by nearly 3,000 delegates – the forum’s organizers have to consider a change of venue as the Palace of Science and Culture that has hosted the show since 2004 is becoming too small for the gathering, and fails to meet modern requirements. The Stalinist skyscraper measuring 817,000sqm, 231m high, the Palace was designed by prominent Soviet architect Lev Rudnev and built in 1952 to 1955.

Warsaw’s positive experience shows that it will be able to attract investment anyway. But CEPIF organizers – the RedNet company, too, are likely to succeed if they succeed in raising financing for the development of a state-of-the-art exhibition complex.

Moscow feels no shortage of exhibition facilities. But for some reason the Russian capital still does not host international real estate exhibition. Vying with each other for exhibitors and guests, exhibition companies often hold regular property shows focusing on some narrow segment of the market, and in doing so seek rather to win an approval of the “mayor himself” or “the minister himself” instead of attracting reliable and respectable investors.

Russia’s high-ranking officials shun international property shows and their absence tells on the market. For example, the 13th International Exhibition Arabian Travel Market show held in early May in Dubai was virtually ignored by Russia. The show attended by leading hotel operators from all over the world was offering Russia a chance to attract international investors into its hospitality sector but the chance was ignored. Fragmentary and incomplete data on individual hotel projects and museums presented by the Russian delegation could scarcely satisfy curiosity of the guests.

CEPIF 2006, held in Warsaw on May 11-12, was not honored by the presence of Russia’s government officials, either. Regional governments, interested in raising investment and establishing useful contacts, had attended the show. Moscow, however, was represented by only three firms; St. Petersburg ignored the event altogether. Such an approach, rather than corruption, is what impedes investment in Russia.

Russia is corrupted, of course. As corrupted as any other country. But no one has ever suffered from friendly ties with municipal or federal authorities. No major investment project is possible anywhere in the world if it fails to win approval of local governments.