1 August 2012, 19:06

A country of great opportunities and serious challenges

A country of great opportunities and serious challenges

Risks for doing business in Russia are diminishing and the economy as a whole is gaining stability, Ernst&Young experts believe. In their latest rating of 148 countries, Russia has risen from last year’s 49th place to the 28th. However, Russia’s economic growth is still impeded by the high degree of government regulation, Ernst&Young points out.

The aim of such ratings is to estimate the risks and opportunities for mergers and acquisitions in this or that country. Twenty-three factors are used for the analysis, among them the level of technological development, the extent of government regulation and the development of the financial sector. The US is leading in aggregate. China, Singapore and the UK are among the top ten countries.

Russia is among the top 30 this year. Interestingly, it has left its BRICS partners behind: Brazil is in the 34th place in the rating and India in the 38th. Ernst&Young analysts point out that the main role was played by the improved infrastructural and technological factors. The so-called social and economic index, which is the level of human potential, has become a priority. Russia with its 95% has left the US behind and is second only to China. Ernst&Young experts believe that political factors are an obstacle for the growth of Russia’s attraction for foreign investors. High corruption and government regulation of business are considered ‘the most alarming’ factors. The first reason is indeed the main obstacle for economic development until today. As for government regulation of business, it is not a very explicit issue, economist Maxim Bratersky says.

"The market and the government have different interests. Markets thrive on extraterritoriality, they want to act independently with the aim of maximising their profits. The government has different aims. It should take care of national security and social stability. The economic balance is achieved through this confrontation. Figuratively speaking, if the government does not interfere the markets will reach the peak of their effectiveness but there will be no place for humans in such an economy.”

At present, Russia is implementing its plans of mass privatization of state assets, experts point out. This privatisation is not restricted to the financial sphere, it is going on in the energy sector as well and the energy sector is of paramount importance to the country. On the other hand, to a certain extent it was government regulation that triggered the demonopolisation process in the Russian economy, Vice-President of the Business Russia public organization Alexander Osipov says.

“Starting from 2009, we can see the positive effect of government regulation. The government has elaborated a competition development programme which enumerates absolutely all factors that stifle competition, damage market availability, interfere with the demand for services and resources. The main thing is that this programme has laid the foundation of the anti-monopoly policy, the competition policy of developing many industries. This is directly linked with the market of mergers and acquisitions.”

Another conclusion made by Ernst&Young, which surprised experts, is that Russia has one of the lowest levels of political stability in the world, only 18%. It is the same as in Egypt and many times as low as in Qatar which narrowly escaped a military coup in April this year.

Even though some Ernst&Young estimates are debatable, experts point out the final results of the investigation. Ernst&Young states a great potential of the Russian market for mergers and acquisitions. According to forecasts, competition on the Russian market will grow in the near future and foreign investors will show great interest in it.

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