After being scared away from Russia by a combination of last October's "Black Tuesday" crash of the ruble, the eruption of war in Chechnya and a general aversion to emerging markets in the wake of December's Mexico crisis, share prices are booming again and Western money is starting to "think Russia" once more.
Or, rather, some is. While the Economics Ministry says foreign portfolio investors have bought up around $2 billion worth of stock in Russian privatized companies -- around $100 million last month alone -- direct foreign investment is shrinking.
Direct investors are companies here for the long-haul, sinking their money into extracting raw materials, manufacturing consumer goods, improving the country's transport, and providing world-standard services.
Last year, total foreign direct investments amounted to a miserable $1.2 billion -- about one sixth of what the International Monetary Fund is lending Russia this year. The situation in 1995 looks even worse, with just $500 million invested from abroad in the first half of the year.
The main deterrents for investors are well-known. But while the Chechen War clearly cost Russia hundreds of millions of dollars in lost investment, the country's legal and tax mess remains by far the biggest unknown quantity for people trying to plan how to make money here.
It was encouraging, therefore, to hear Prime Minister Viktor Chernomyrdin tell leading international executives last Sunday that a new comprehensive tax code will be introduced by the end of the year, which will shift the fiscal burden away from business.
But what about the tangled web of existing tax disputes that the new code will leave behind? Many -- like the dispute involving the Gardinia restaurant in Nizhny Novgorod on today's front page -- date back to the Soviet era. How can these be resolved?
Of course, many businesses have been avoiding paying tax, but equally the state is frequently to blame for failing to clarify the tax system earlier. Taxes need to be seen here not as a form of retribution or easy extortion, but as a tool for expanding budget revenues and future investment.
When the new tax code is finally introduced, Chernomyrdin could start by giving all investors, foreign or domestic, cast-iron assurances that they will no longer be subject to retroactive taxes, arbitrarily lifted or created exemptions and other foibles that now make investing long term in Russia seem such a crap shoot.
A Message from The Moscow Times:
Dear readers,
We are facing unprecedented challenges. Russia's Prosecutor General's Office has designated The Moscow Times as an "undesirable" organization, criminalizing our work and putting our staff at risk of prosecution. This follows our earlier unjust labeling as a "foreign agent."
These actions are direct attempts to silence independent journalism in Russia. The authorities claim our work "discredits the decisions of the Russian leadership." We see things differently: we strive to provide accurate, unbiased reporting on Russia.
We, the journalists of The Moscow Times, refuse to be silenced. But to continue our work, we need your help.
Your support, no matter how small, makes a world of difference. If you can, please support us monthly starting from just $2. It's quick to set up, and every contribution makes a significant impact.
By supporting The Moscow Times, you're defending open, independent journalism in the face of repression. Thank you for standing with us.
Remind me later.