Russia

A politically motivated attack on Russia’s second-largest oil company Yukos and the government’s apparent indecision over the economic direction of the country have kept investors in Russia on edge. These factors, plus the rise in terrorist attacks, pushed it out of AT Kearney’s top 10 most attractive investment destinations, into 11th place. However, the economy is still expected to grow by 6.9% in 2004, slightly down from 7.3% in 2003. And in the first nine months of the year, the country attracted $29.1bn in foreign investment, including portfolio investment, up almost 40% on the same period last year.

In a separate survey of oil and gas investors, Russia came second only to Australia – indeed, its significant hydrocarbon reserves are considered an important prospect. As one of the fastest growing economies in the world, investors are finding it hard not to consider Russia, in particular its large and booming internal market with a population of 145 million and increasing income per capita.

With comparatively low levels of FDI, the competition for deals is less intense, often resulting in lower valuations for Russian companies. With the transfer of know-how, there is an opportunity to increase returns on investment substantially. To improve Russia’s attractiveness, the government has effected reforms, including moves to increase the clout of minority shareholders, and further deregulation of the economy.