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12:29 GMT +3 hours25 December 2014
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Analysis & Opinion

Reasons for business' lack of interest in developing infrastructure

Analysis & Opinion
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The relationship between business and the infrastructure are not easy in Russia as evidenced by a fact made public at a recent forum on infrastructure projects.

The relationship between business and the infrastructure are not easy in Russia as evidenced by a fact made public at a recent forum on infrastructure projects.

The new regulations of the Customs Union of Russia, Belarus and Kazakhstan have created long lines of vehicles carrying telecom equipment worth 100 million rubles ($3.3 million) at checkpoints. Why?

Customs is part of the infrastructure, which should include good roads, affordable housing and high technology, in particular telecommunications. When a country has an adequate infrastructure, investors are willing to invest in its economy. This is a crucial factor as Russia is unlikely to modernize its economy without investment, including foreign capital.

However, the bulk of Russia's infrastructure was created before 1991, which is why Russia is now ranked 86th on the list of 130 countries surveyed in this respect, according to German Gref, head of Russia's largest state lender Sberbank and former Economics Minister.

In short, the government should focus on investment in infrastructure projects. It has already drafted and approved various national projects and federal targeted programs, and organized state corporations. But business, which the government expected to co-finance these efforts within public-private partnerships, is not eager to contribute, even though the joint modernization of infrastructure would save money.

There are several reasons for this lack of interest. First, inadequate legislation that does not contain special clauses regulating relations within public-private partnerships (PPP). In fact, there is no formal definition of the term PPP, no concept for its development, and no list of industries where such partnerships could be used.

Also, Russia's legislation lags behind reality. For example, the 2007 law on the protection of electronic databases was to come into force on January 1, 2010. However, the action has been postponed because state agencies are not ready to monitor the process, Alexander Krupnov, president of the Infocommunication Services Market Participants Union (Infocommunication Union), said at the forum.

Another reason for business' lukewarm attitude to infrastructure projects is the global economic downturn. Russian companies lack funds for such projects and are not prepared to invest in projects with recoupment periods of 15-20 years, which entail high economic and political risks.

Indeed, modern Russia is widely different from the country it was 20 years ago, when ownership rights were only mentioned in history textbooks.

Another factor hindering long-term investment is tax legislation. On the one hand, profit taxes in Russia are lower than in the EU and other countries: 20% compared to 33% in China (15% in free economic zones), 35% in India and 34% in Italy. But this advantage is neutralized by Russia's complicated system of fiscal administration and selective use of law during economic disputes.

Weakness of the state and widespread corruption also discourage investment in infrastructure. Rampant corruption at all stages of project coordination increases costs and investment risks. Nobody in Russia can guarantee that high-ranking officials will not change the rules of the game during an ongoing project.

In other words, the Russian authorities must amend legislation, cut back corruption and provide sufficient long-term guarantees to investors to encourage business' involvement in long-term infrastructure projects.

MOSCOW. (RIA Novosti economic commentator Maria Selivanova)

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.