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The Russian Federation, the world’s largest country, with a land area of 17 million square kilometres and a population of 144 million, has attracted relatively little foreign direct investment (FDI). This modest performance of Russia in attracting FDI is particularly evident in comparison with other transition economies in Europe, which have received far more FDI, adjusted for population, and have also exhibited a positive correlation between FDI inputs and GDP growth rates. By the end of 2003 Russia had recorded a cumulative inflow of USD 26.1 billion, less than half China’s annual inflow for 2003 alone, and far below comparable absolute figures for the Czech Republic and Poland. Divided by population, the resulting...
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One of the fundamental reforms that were being introduced as the 2001 study was drafted concerns the Russian tax system. Based on their experience of the system in force during the 1990s, investors complained vociferously about the tax burden created not so much by the incidence of tax rates but by the multiplicity of different taxes levied and the methods of determining the tax base. Many structural aspects of the system contained an inherent bias against business activity, and its negative impact on entrepreneurs, both...
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The progress reviewed in Chapter 3 above presents an impressive number of concrete reform steps, supported by a large body of new or amended legislation. The resulting improvements in the overall investment environment should be evaluated against these criteria:
Is there an adequate, rules-based legal and regulatory environment for investment?
Does it apply consistently, for all, across the territory of the Russian Federation, or are there inconsistencies and regional variations?
Are the rules being properly implemented and enforced, or are they being thwarted through corrupt behaviour and rent-seeking by economic agents?
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A number of measures in several sectors of industry and services discriminate directly against foreign investors and are thus not consistent with the principle of non-discrimination embodied in international instruments such as the OECD Codes of Liberalisation or the National Treatment Instrument. Ownership quotas and other restrictions on foreign investment apply in agricultural land, banking and insurance as well as in the mass media, aviation and domestic transport sectors. In addition, reciprocity conditions apply to foreign participation in telecommunications, and the regulatory framework for the natural monopolies in the gas and electricity sectors sets limits on direct and indirect foreign ownership....
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