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Closing Case FDI in Russia Website — http://www.gazprom.ru Case Discussion Questions
Internet Exploration Question This case focuses on the obstacles that are preventing an increase in foreign direct investment (FDI) in Russia. Recently, Russia has witnessed an unprecedented capital flight. In 1996, some $22.3 billion left the country, most of it illegally. In contrast, a mere $2.2 billion in foreign investment flowed into the country during the same period. The most apparent reason for the lack of FDI in Russia is the myriad of risks involved in doing business in the country. The tax code is complicate and randomly enforced, the legal system is weak and vague, and the country's privatization laws discriminate against foreign investors. Despite these obstacles, in an attempt to attract much-needed FDI, the government of Boris Yeltsin has tried to be proactive. For example, in 1997, Yeltsin announced that Russia's oil and gas industries were open to foreign investment. This initiative alone could have opened the doors to billion of dollars a year of foreign investment inflow. However, before making substantial commitments, many Western companies are insisting on stronger legal and tax guarantees. So far, the Russian government has not been forthcoming with the types of concessions that will facilitate major commitments from foreign companies. The difficulties of doing business in Russia illustrate how complicated it is to do business in some countries. Although the payoffs may seem high, a company should be fully aware of the potential pitfalls before they invest. An excellent tool that any firm can use to gain a quick assessment of the business climate in a foreign country is through "country reports" prepared by the U.S. State Department. These reports, which are mandated by U.S. law, provide a detailed assessment of the economic policy and trade practices of the countries in which the U.S. has significant economic or trade relationships. The U.S. Department of State's Country Report on Russia is available at {http://www.state.gov/www/ issues/economic/trade_reports/ europe98/russia98.html}. Spend some time looking over the report (which is just nine pages) and answer the following questions. First, what is the current status of structural reform in Russia? Second, what are the most significant barriers to U.S. exports in Russia? |
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