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Fig. Inflow of Foreign Investments in Extractive and Processing Industries in 2004Minerals extraction Processing industry Source: Federal State Statistics Service Fig. Geographic Structure of Foreign Investments in Russian Economy in 2005-35,0% 30,0% 25,0% 20,0% 15,0% 10,0% 5,0% 0,0% Netherlands USA Cyprus Great Britain Germany France Luxemburg Others 2005, % 2006,00% 2007, % 2005, USD mln 2006, USD mln 2007, USD mln Source: Federal State Statistics Service.

Distribution of foreign investments by regions in 2007 testifies that the concentration of foreign investments in Moscow has increased. In 2007 there were USD 70 bln (57.9% of total foreign investments in the Russian Federation) invested in Moscow, the figure being three times as big as the figure of 2006. Increase ..

I quarter I quarter I quarter I quarter II quarter II quarter II quarter II quarter III quarter IV quarter III quarter IV quarter III quarter IV quarter III quarter IV quarter USD mln.

as % to the total in direct investments in Moscow economy is estimated to be 21% as compared with 2006. At the same time 70% of foreign investments in Moscow was directed to foodstuffs industry. A quarter of the total foreign investments in the Russian economy in 2007 (about USD 30 bln) was received by St Petersburg. At the same time it was noticed that foreign investors started to pay more attention to other regions of Russia. USD 5 bln of foreign investments was attracted to the economy of Moscow region. Over 2007 foreign investments in St Petersburg region have increased by 1.8 times (up to USD 1.0 bln), in Nizhnii Novgorod region by 1.9 up to USD 409.6 mln, in Novosibirsk region by 2.7 times (up to USD 219.9 mln), in Omsk region - by 27.9% (up to 600.7 mln). Khabarovsk krai attracted USD 248 mln of foreign investments, which is by 14.0% more than the figure of the previous year.

As for geographic aspect, as a result of 2007 the biggest amount of USD 26.3 bln (21.8% of the total amount of foreign investments made into the Russian economy over the period given) was directed from the Great Britain, USD 20.7 bln (17.1%) from Cyprus and USD 18.8 bln (15.5%) from the Netherlands.

In 2007 it was investments from the Great Britain that extended most dynamically increasing by 3.times as compared with 2006. Investments from Cyprus expanded by 2.0 times, from France by 2.2 times, from the Netherlands by 2.8 times, from Luxemburg by 1.9 times. Investments from Germany remained at the level of the previous year.

Fig. Investments of \five Leading Investing Countries in 2004-Germany Great Britain Cyprus Netherlands Luxemburg Source: Federal State Statistics Service Quarter-by-quarter dynamics of investments made by five leading investing countries is of alternate nature. Over 2007 on the whole the shares of the Netherlands and the Great Britain have increased significantly from 12.0 and 12.7% in 2006 to 15.5% and 21.8% in 2007, correspondingly. Shares of the Cyprus, Germany, the USA and Luxemburg have reduced. The share of France in the geographic structure of foreign investments has changed but little, remaining at the level of 5.5%.

As a result of 2007 Ireland became one of ten leading investing countries, after sinking into the Russian Federation USD 5.2 bln or 4.3% of the total amount of foreign investments. Main interest of the investors from Ireland was concentrated on the sphere of transport and communication, into which 53.7% of Irish investments into the Russian Federation was directed.

British entrepreneurs continued to invest into trade, sinking into these sphere 4.6 times more in 2007 than in 2006. As a result of 2007 the share of trade was 64.2% of the total investments in the Russian Federation from the Great Britain (in 2006 52.1%). The share of processing industries in investments from the Great Britain increased from 22.2% in 2006 to 27.7% in 2007.

In the structure of investments in Russia from the Netherlands the share of fossil fuels extraction has increased from 55.2% in 2006 to 67.1% in 2007.

In 2007 it was trade, operations with real estate and construction that was the most attractive for investors from Cyprus, they invested into these spheres 45.5%, 19.0%, 4.7% of the total investments from Cyprus into the Russian Federation, correspondingly. In 2006 the main directions of Cyprus investments in the Russian ..

I quarter I quarter I quarter I quarter II quarter II quarter II quarter II quarter III quarter IV quarter III quarter IV quarter III quarter IV quarter III quarter IV quarter economy was processing industry and operations with real estate, accounting for 39.1% and 26.4% of the total investments from the Cyprus, correspondingly.

According to the state of affaires by the end of December 2007 accumulated foreign investments not taking into account the bodies for monetary and credit regulation, commercial and saving banks, including investment in rubles, recalculated to US dollars, was equal to USD 220.6 bln, which by 54.3% exceeds the corresponding figure of the beginning of the year.

Fig. Geographic Structure of Foreign Investments by Branches of Russian Industry in Financial activity 33,0% 9,3% 57,7% Trade 16,7% 19,9% 35,7% 27,7% Transport and communication 20,1% 13,7% 41,4% 24,8% Processing industry 22,8% 13,4% 14,5% 49,3% Extractive industry 72,8% 4,7% 6,4% 16,1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Netherlands Luxenburg Cyprus Great Britain Switzerland Ireland France Other countries Source: Federal State Statistics Service Table 3.

Accumulated Foreign Investments By Investing Countries Accumulated by 01.01.2008, as USD mln Change by 01.01.2007, % Total Direct Portfolio Other Total Direct Portfolio Other USA 8 579 3 635 1 207 3 737 111.4% 79.2% 238.1% 143.6% Germany 11 786 4 494 98 7 194 96.1% 135.4% 5.8% 99.3% France 5 919 1 554 31 4 334 160.0% 146.9% - 164.1% Great Britain 29 235 3 438 2 314 23 483 247.7% 118.3% 1369.2% 269.1% Cyprus 49 593 35 426 1 700 12 467 153.7% 155.4% 125.2% 153.5% Netherlands 39 068 35 254 52 3 762 166.6% 183.3% 83.9% 90.5% Luxembourg 29 161 735 219 28 207 127.5% 125.2% 107.9% 127.7% Other countries 47 254 18 524 1 107 27 623 163.7% 138.3% 121.5% 189.7% Total 220 595 103 060 6 728 110 807 154.3% 151.8% 137.3% 158.0% Source: Federal State Statistics Service.

In structure of foreign investments, accrued by the end of December 2007, it is other investments that prevail, their share being equal to 50.2%. The similar figure for direct foreign investments was equal to 46.7%.

Ratings of world agencies Fitch, Moody's and S&P are one of the main indicators for new investors entering Russian market and for the willingness of those currently operating to increase the volume of investments. In December 2007 international rating agency Moody's testified rating of state obligations in national and foreign currencies at the level of Baa2 that was given to Russia earlier. S&P had also sustained sovereign credit rating of Russia as BBB+, forecast being Stable.

Investment Fund of the Russian Federation and Its New Operational Procedures I. Sokolov With its Resolution of March 1, 2008, # 134 On approval of procedures of formation and use of budgetary appropriations of the Investment Fund of the Russian Federation the Government seeks to abrogate the earlier existed restrictions in the legal regulation of one of the most capitalized development institutions in Russia. This paper presents an analysis of main modifications in the legal base of Investment Fund and their possible future implications.

The Investment Fund of the Russian Federation (hereinafter referred to as Investment Fund) was established by Resolution of the RF Government of November 23, 2005, # 694 On Investment Fund of the Russian Federation. Investment Fund became a national pioneer development institution, which was supposed to operate in the frame of the public-private partnership mechanism. By contrast to other development institutions emerged in 2006-07 (Vneshekonombank, Special Economic Zones, the Russian Venture Company, the public corporation Rostekhnologii, the Housing and Utilities Reforming Fund, among others), the lineaments of Investment Fund became the absence of an organizational and legal form, for according to Art.

179.2 of the Budget Code of RF, it is a targeted item in the federal budget, to be used for the sake of implementation of investment projects carried out on the basis of principles of the public-private partnership.

This imposes certain constraints both on forms of consumption of its financial resources and on procedures of managing its assets. Originally, the managerial mandate was delegated to the Federal Agency on Management of Special Economic Zones, which reported to the RF Ministry of Economic Development and Trade. Later, in the late-2007, as per Resolution of the RF Government of October 25, 2007, On some matters of the structure and organization of operations of the Ministry of Economic Development of RF the mandate was reassigned to the RF Ministry of Regional Development. Given that the Regulation on Investment Fund did not consider specificity of the latters operations, as the Regulation failed to provide for regions to vigorously employ this financial instrument to address their investment challenges, one had to introduce certain amendments to the legal base underpinning the Funds operations.

The amendments primarily concerned directions of provision of the government support. The list of the directions was specified, rather than extended. The initially existed directions that concerned development of the nationwide infrastructure (including the social one) and innovations, including design of the respective documentation, were complemented by projects on financing creation and/or reconstruction of objects planned for implementation in the frame of concession agreements.

Worth a particular notice is the fact that this support is still granted solely to investment projects, which were selected basing on their significance for the nation - suffice it to reference the requirement of a minimal design value of a project, which was set at the level of Rb. 5bn. Such huge projects should be implemented basing upon principles of risk sharing between the government and private capital and maintenance of the balance of interests of its participants.

It should also be noted that an investment project does not constitute a program of development of priority directions across the Federation. Rather, it is conceived of as an unfolding over time set of measures aimed at achieving desirable goals of the project; it also has a specific localization and requires considerable amount of investment.

It was the 2006 Act on the federal budget that for the first time ever provided for establishment of a Rb.

69.7bn.-worth Investment Fund. These resources remain practically unclaimed and were transferred for 2007. With account of the data on the 2008-10 federal budget, the structure of Investment Funds annual volume is as follows: 2007 Rb. 110.6bn (+ another 90bn in extra transfers resultedimg from sales of YUKOSs assets), 2008 89.2bn, 2009- 109.5bn., 2010 -76.5bn.

Thus, between today and 2010 the volume of the Fund roughly accounts for Rb. 545.5bn. This is a very provisional assessment, and, given the Ministry of Regional Developments ambitions, this amount is very likely to be raised.

It is worthwhile to note that the new version of the Investment Funds legal base no longer specifies sources of its funds, but only reference that the federal budget for a given financial year sets the amount of budgetary allocations that form the Funds annual volume.

Another substantial modification became bringing of forms of provision of state support in line with the Budgetary Code of RF. In the past, the most popular form of such support was the so-called co-financing of an investment project on specific contract arrangements, the essence of which the budget legislation failed to specify. By contrast, the current version of the Procedures employs forms of provision of the Funds re sources as stipulated in the Budgetary Code. These are: budgetary investment in objects of capital construction that fall under public property, granting subsidies to lower-tier budgets for the purpose of creation of a regional or municipal property and design of the respective documentation. It should also be emphasized that the earlier existed investment in authorized capital of open-end joint stock companies and provision of state guarantees by the Russian Federation are now complemented by the possibility for channeling the Investment Funds resources to investment funds established in the RF Subjects.

As concerns other issues, the document has undergone no dramatic changes. The procedure of consideration of projects has remained a two-stage one a project is first assessed at an investment commission under the RF Ministry of Regional Development and, consequently, by a Cabinet commission on projects of nationwide significance. The last stage is approval of the project at the Cabinet meeting.

It is envisaged that the government will fund business projects worth not less than Rb. 5bn. during five years, with a private investor contributing with at least 25% of their cost.

Selection of projects is still based upon two types of criteria, that is, quantitative and qualitative ones. The most significant qualitative criteria are: consistency of the problem addressed in the course of the project implementation with objectives of the RFs socio-economic development, with public investment for the medium-term perspective, and sectoral development strategies, and generation of positive social effects engendered by the project implementation.

The qualitative criteria are:

- general economic efficiency of the project, which manifests itself in contribution by the project into the rise in the regional gross product and the domestic gross product. The obligation to calculate this particular indicator was laid upon the RF Ministry of Economic Development and Trade, while it had been previously required from the investor organization;

- fiscal efficiency (rise in tax revenues);

- financial efficiency (the internal return rate and net present value).

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