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Last Updated: Wednesday, 11 October 2006, 13:26 GMT 14:26 UK
Russia struggles to attract investment
By Jan Repa
Europe analyst, BBC News

Russian President Vladimir Putin in Dresden
Vladimir Putin is on the lookout for good deals
Russia's President Vladimir Putin is wrapping up a tour of Germany, during which much of the emphasis has been on business deals.

Mr Putin and German Chancellor Angela Merkel have met five times so far this year.

The Russian Itar-Tass news agency points out that German direct investment in Russia, since the break-up of the Soviet Union, totals $10bn (5.4bn), making Germany one of the biggest investors in Russia.

However, this is actually a very modest figure by international standards.

Between 1991 and the end of 2004, Russia received about $54bn of new foreign investment - about $400 per inhabitant.

Compare this with Argentina's $2,000. Or Poland, with a per capita figure of $2,500, or the Czech Republic's $4,000.

France has in the past 10 years pulled in $7,000 of new foreign investment per person. Belgium receives more than $90,000 per capita.

'Cavalier'

A look at where Russia's foreign investors are coming from is quite revealing.

America is source number one.

But in second place is Cyprus: in effect, this is Russian money, salted away during the 1990s, now finding its way home.

The Virgin Islands - a British tax haven in the Caribbean - invest more in Russia than Japan.

Despite occasional claims that Russia is in danger of selling out to foreigners, the percentage of capital growth in Russia that can be attributed to direct foreign investment is just 6% - one of the lowest figures in the developed world.

The world average is 22% - or nearly four times greater. In fact, the Russian level is comparable to that of Bosnia.

What have foreigners been investing in Russia? More than half the money has gone on transport, mining and food.

The Financial Times newspaper this week described official Russian treatment of foreign investors as "cavalier".

Coinciding with President Putin's visit to Germany, the Russians announced that they would be developing the vast Shtokman natural gas field - reckoned to be the biggest in world - by themselves, without foreign help.

Western experts are frankly sceptical that this can be achieved.




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