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The lesser intensity of investment inflows in the real sector of the economy in 2002 was observed at the background of persistence of the sectoral structure of investment. The share of investment in fixed assets of manufacturing industries has stabilized at about the level observed in the preceding year and made 48.7 %.

As the share of investment in industry stabilized at 42,7 %, the proportions of investment across the sectors of the economy were practically completely determined by the decrease of investment in transport. As compared with the figures registered in 2001, the share of investment aimed at the development of transport fell by 4.0 p. p. At the same time, the share of investment expenditures for communications grew by 1.0 p. p.

and housing construction by 2.1 p. p.

In 2002, the decreasing share of fuel complex in the total amount of investment in fixed assets in the economy on the whole and in industry is a significant factor behind the nature and dynamics of investment demand. Investment in the fuel and energy complex made 20.6 % of the total amount of investment in fixed assets of all sectors of the economy in 2002 decreasing by 1.5 p. p. in comparison with the figures registered in the preceding year. Taking into account the fact that transport, communications, and the fuel complex account for almost of the total amount of investment in the national economy, it becomes evident that the financial and economic standing of these industries has the most strong impact on the dynamics and structure of investment demand.

Fuel industry maintains its dominating position in the structure of investment, its share makes 48.9 % of the total investment in industry; at the same time, almost 30 % of investment flows in oil extracting industry, 11 % - in natural gas industry. In spite of the fact that in 2002 there was observed an increase in the share of investment in the processing sector of the economy, it shall be taken into account that the share of investment intensive industries account for 6.8 % and industries of the consumer complex account for 4.6 % of the total investment in industry. Under the existing age, technology, and reproduction structure of fixed assets, low rates of investment in manufacturing industries are a factor slowing down the rates of economic growth.

1.0.-0.--1.-2001-2000 2002-Fig. 1. Changes in the structure of investment across industries in 2002 through 2002, in % Table Structure of investment in fixed assets across sources of financing in January through September of 2001 through 2002, in % of the total 2001 Investment in fixed assets 100,0 100, Including 1. Internal funds 49,4 48,Of which:

Profits at the disposal of organizations 24,0 20,Amortization 18,5 23,2. Borrowed funds 50,6 52,Of which:

Budgetary means 20,4 19, Including:

Federal budget 5,8 6,Budgets of RF subjects 12,2 12,Bank credits 4,4 4,Borrowed funds 4,9 6,Extra-budgetary funds 2,6 2,Other 28,3 19,Foreign investment (out of the total investment in fixed 4,6 4,assets) Source: RF Goskomstat Industry Oil extraction Food industry Power engineering Ferrous metallurgy Forestry Oil processing Construction materials Fuel industry Natural gas industry Mechanical engineering As concerns the structure of the sources of financing of investment in fixed assets in 2002, the share of internal funds decreased, while the share of borrowings grew. The share of own funds decreased at the expense of profits, which declined from 24 % in 2001 to 20.5 % in 2002. Partially, the decline in the share of profits was compensated by increasing share of depreciation from 18.5 % to 23.5 %. In the situation, where proceeds of enterprises are diminishing, the internal funds are limited, and it is impossible to borrow funds for a long term, the Russias economy reproduces the conditions provoking deceleration of rates of internal investment demand. The investment dynamics are negatively affected by the lack of a developed mechanism of transformation of household savings.

As concerns the structure of borrowings, in 2002 there was registered an increase in the share of bank credits. No doubt, that a positive factor behind this process improving investment ranking of Russia. In 2002, the international ranking agency Standard & Poor's three times upgraded Russias rankings. The last time the agency upgraded the Russias ranking on December 5, 2002: the long term sovereign forex denominated liabilities ranking was increased by 1 degree to BB level, and by 2 degrees (from BB- to BB+) as concerns liabilities denominated in domestic currency, what is the maximal Russias ranking according to the S & P scale over the whole period. The forecast of rankings remain stable. O. Izryadnova Foreign investment in the Russia's economy As on January 1, 2002, the accumulated foreign capital in the Russias economy, including the investment from CIS member countries, made US $ 42.9 billion. The total amount of foreign investment in the nonfinancial sector of the Russian economy (not taking into account the monetary and credit regulating authorities, commercial and savings banks, and including Ruble denominated investment in US $ equivalent made US $ 19.78 million in 2002. A positive development was that for the first time in the last 3 years investment from Russia corresponded to the amount of foreign investment in the Russias economy.

Foreign investment in Russia and Russias investment abroad in 1999 through 1999 2000 2001 Investment in RF Investment from RF Source: RF Goskomstat Fig. A decline in the share of foreign direct investment in the aggregate investment in the Russias economy is a negative factor of the investment activity in the Russias economy.

The major share of foreign investment in the Russias economy in 2002, similarly to previous years, consisted of other investment formed primarily at the expense of credits of international financial organizations and funds investors assign for purchase of state securities. The European Bank of Reconstruction and Development (EBRD) is the largest non-state creditor of Russia. In 2002, EBRD investment in the Russias economy increased by 50 per cent in comparison with the figures registered in the preceding year making Euro 1.29 billion (in 2002, EBRD made one third of its aggregate investment in Russia).

US $ million The changes in the amounts of foreign investment across sectors of the Russias economy were uneven, what resulted in structural shifts: the share of investment in non-production sphere grew.

Table The structure of foreign investment in the Russia's economy Total, US $ mil.. In % of the preceding year In % of total Total Direct Portf. Other Total Direct Portf. Other Direct Portf. Other 1998 11 773 3 361 191 8 221 - 4,2 - 37,0 -72,0 30,9 43,4 5,5 51,6,2 times 1999 9 560 4 260 31 5 269 - 18,8 26,7 - 35,9 44,6 0,3 55,less 4,7 times 2000 10 958 4 429 145 6 384 14,6 4,0 21,2 40,4 1,3 58,more 3,1 times 2001 14 258 3 980 451 9 827 30,1 - 10,1 53,9 27,9 3,2 68,more 2002 19 780 4 002 472 15 306 38,7 0,6 4,7 55,8 20,2 2,4 77,Source: RF Goskomstat.

Table Sectoral structure of foreign investment in the Russias economy in 2000 through 2002.

Total, US $ mil.. In % of the preceding year In % of total 2000 2001 2002 2000 2001 2002 2000 2001 Industry 4 721 5 662 7 332 - 3,2 19,9 29,5 43,1 39,7 37,Transport and 1 947 1 259 610 114,7 - 35,3 - 51,5 17,8 8,8 3,communications Trade and public catering 1 954 5 290 8 800 20,5 170,7 66,4 17,8 37,1 44,Commercial activities 271 792 1 355 42,6 192,3 71,1 2,5 5,6 6,relating to market servicing Finance, credit, insurance, 274 127 130 140,4 -53,6 2,4 2,5 0,9 0,pensions Other sectors 1 791 1 128 1 553 - 3,2 - 37,0 37,7 16,3 7,9 7,Source: RF Goskomstat In the last years, in the investment preferences of foreign investors there persists the stable growth of the specific weight of trade and public catering, since this sector is characterized by short payback periods. At the same time, 86.7 % of the total investment in this sphere made in 2002 were formed by other investment, which mostly comprise credits.

Industry is the second sphere in terms of attraction of foreign investment. The significant changes in the structure of foreign investment in industry made in 2002 occurred due to the fact that foreign investment in the Russias fuel and energy complex increased almost twofold, while investment in metallurgy grew by 59.%. A decline in the amounts of foreign investment in base industries in 2002 as compared with 2001 figures was registered in mechanical engineering and metalworking (- 30.3 %) and food industry (- 22 %).

In 2002, direct investment in industry increased by 10.2 % in comparison with the figures registered in 2001 and made US $ 1932 million (48.2 % of the aggregate foreign investment in the Russias economy).

Other investment in industry grew by 43.3 % over the same period and made US $ 5246 billion (34.3 % of the aggregate other investment in the RF economy). Portfolio foreign investment in industry declined by 37.9 %.

As concerns the regional distribution of foreign investment, it shall be noted that foreign investment continue to concentrate in 15 RF subjects due to their higher investment attractiveness. In 2002, the highest rates of growth in foreign investment were registered in the Siberian federal okrug (2.4 times in comparison with the level observed in 2001). Foreign investment in the Far East federal okrug increased by 48.9 % in comparison with the figures registered in 2001, while investment in the Central and Ural federal okrugs grew by 47.2 % and 41.0 % respectively. At the same time, foreign investment in North-West and South federal okrugs declined by 10.9 % and 40.5 % respectively in 2002.

Sectoral structure of foreign investment in industry in 2000 through 2002 26.5% 16.5% 4.3% 33.7% 4.6% 6.7% 7.8% 2001 18.1% 27.5% 4.3% 27.3% 4.9% 12.4% 5.6% 2000 13.2% 37.8% 5.4% 23.2% 5.1% 10.0% 5.3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Fuel industry Food industry Wood working, pulp and paper industry Metallurgy Chemistry and Petrochemistry Mechanical engineering and metal working Other industries Source: RF Goskomstat.

In 2002, investment from 93 countries exporting capitals flowed in the Russias economy (in 2001 countries). Five largest investing countries accounted for 63.8 % of the total amount of foreign investment accumulated by January 1, 2002, while the respective indicators registered in 2000 and 2001 made 73.2 % and 67.7 %. Five largest investing countries also account for 60.1 % of direct accumulated investment, 67.% and 55.2 % of portfolio and other investment respectively (in 2001 the respective indicators made 63.7 %, 57.9 % and 72.9 %).

Table The structure of accumulated foreign investment as broken down by major investing countries.

Accumulated by 01.01.2003, US $ mil. Change to 01.01.2002, % Total Direct Portfolio Other Total Direct Portfolio Other USA 5 522 4 220 68 1 234 - 1,8 3,4 - 24,4 - 15, 13,Germany 8 146 1 714 384 6 048 33,8 13,4 33, France 3 033 303 0,1 2 730 - 7,6 -14,4 0,0 - 6,UK 5 054 2190 128 2 736 32,6 15,4 1,6 53,Cyprus 5 627 3 927 305 1 395 6,0 5,3 - 34,8 25,The Netherlands 2 850 2 398 21 431 12,1 11,6 - 4,5 15,Other countries 12 696 5 599 567 6 530 41,5 26,0 14,3 62,Total 42 928 20 351 1 473 21 104 20,5 12,0 19,8 30,Source: RF Goskomstat.

At the background of growth in investment from other countries, the inflow of capital from USA declined and made US $ 1.1 billion (- 29.4 % in comparison with the respective period of the preceding year), French and Dutch investment decreased by 1.4 % and 6.5 % making US $ 1.2 billion and US $ 1.17 billion respectively. In the preceding year, German investment made US $ 4 billion (3.2 times above the respective indicator in 2001), and UK investment made US $ 2.3 billion (+ 46.2 % as compared with the figures registered in 2001). For the geographical structure of the inflow foreign investment in the Russias economy, see the diagram below:

Geographical structure of foreign investment in the Russias economy in 2000 through 5.9% 5.7% 11.8% 11.5% 20.2% 11.5% 33.4% 8.8% 11.2% 16.3% 10.9% 8.7% 8.4% 35.7% 11.2% 14.5% 13.2% 5.5% 13.4% 6.8% 35.4% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% the Netherlands USA Cyprus UK Germany France Other countries Source: RF Goskomstat.

The priority sectors for German and British investors are trade and public catering, where they invested US $ 3065 million (76.6 % of the aggregate investment from Germany) and US $ 1071 million (47.2 % of the aggregate investment from UK) in 2002. US investors were interested in investment in industry (US $ 431 million, or 38 % of the total US investment).

An analysis of the business situation on the investment market reveals that the interest of foreign investors in Russia persists, what permits to hope that the amounts of foreign investment in the Russias economy will increase in 2003.

E. Ilyukhina Regions: attracting foreign investment This review focuses on the key specifics of attraction of foreign investment in Russias regions in 2002 in comparison with preceding post-crisis period (1999 through 2001).

A main persisting trend related to the distribution of foreign investments across regions is the instability of investment inflow. Certain regions demonstrated a stable growth or stable decline in investment in through 2002 (in Russia at large, the inflow of foreign direct investment was also unstable, however, the total amount of foreign investment has increased over the last years). The share of foreign direct investment in the total amount of investment also varied across regions (for instance, the Voronezh and Chelyabinsk oblasts may be singled out since there the stable increase in the total amount of investment was accompanied by the stable decline in direct investment).

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