Sep 18, 2007: Russia’s Risks Don’t Scare Investors

By Yekaterina Dranitsyna

Staff Writer

Despite the political uncertainty that makes investors concerned about risks, Russia still attracts foreign investment. The country could even be seen as “a safe haven of stability” compared to other economies, experts said Monday at the Fourth Annual Baltic Investor Conference: Rebuilding Russia – Russia’s Infrastructure Boom.

“Zubkov, the former head of the financial intelligence service, is unknown to the general public. Therefore his appointment as prime minister proves that the governmental administration will stick to its current political policy,” said Igor Yurgens, first vice president of Renaissance Capital investment group, chairman of the board of Renaissance Credit.

The Russian government is likely to keep increasing its participation in the national economy, Yurgens said, especially in the situation of budget surplus.

“Zubkov’s expressed ideas about state capitalism will be realized. Russia has no other choice, considering the demographic situation. The population is decreasing but the country has to support a large number of pensioners and children,” he said.

If Zubkov becomes president, the state will play an even larger role in the economy, the expert said. If a younger candidate like Dmitry Medvedev wins, Russia will keep a balance between the liberal economy and state dominated economy, Yurgens stated.

Yurgens forecasted that German Gref and Alexei Kudrin, known for their adherence to the ideas of liberal economy, could lose their jobs. “It could signal a change of political policy, further redistribution of assets and an inflow of state managers and financial resources into military and industrial enterprises,” he said.

“Major companies like Surgutneftegaz and Alrosa could become a part of state holdings,” Yurgens added.

Although the personality of the president has a larger impact on the national economy in Russia compared to western democracies, the Kremlin has nothing to gain from a crash or any serious changes on the Russian fund market, the experts assured foreign investors at the conference.

Roland Nash, senior strategist and head of the analytical department at Renaissance Capital, forecasted that volatility on the Russian fund market is likely to remain in the mid-term future.

Nash indicated that many factors that made the Russian economy grow were outside the control of the Russian government, including high oil prices, global economic growth and expanding credit.