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Analysis & Opinion
03.08.11 Burnishing Investment Credentials
By Tai Adelaja

Russian President Dmitry Medvedev formally launched one of his multi-element investment climate reform programs on Tuesday with the appointment of special envoys to promote regional investments. But rather than seeking new faces, as was widely expected, the president would be relying on high-ranking regional officials to put some shine on the country's tarnished investment climate.

"I have just signed an order conferring the status of an investment ombudsman on [some of] those present," Medvedev told a meeting of government officials tasked with aiding businesses at his Black Sea residence in Sochi. Seven of the eight investment ombudsmen appointed by the president are serving deputies to presidential representatives in federal districts. The only exception is in the Central Federal District, where an aide to the president's representative got the job.

President Medvedev first floated the idea of posting investment ombudsman to each of the country’s 83 regions during the session of the Modernization Development Committee that took place in Magnitogorsk in March. The Russian president expects the move to boost business opportunities and improve the country’s investment climate, which he described as “very bad.” Foreign investment, technology and confidence are all needed to achieve the country’s modernization, Medvedev said in televised remarks. The key role of regional investment ombudsmen is to help companies implement investment projects in a hassle-free way, by monitoring investment decisions made by regional governments, Medvedev said. The ombudsmen are also expected to know the investment laws of each region and provide counsel to help businesses develop their presence across the country. "If we don't improve the investment climate, we will not be able to move forward," the president said.

Many analysts praised the move, saying that it underscores the importance that the federal government now attaches to long-term economic development in the regions, which harbor the country’s huge economic potentials. "I believe this is an innovative step," Andrei Biryukov, a senior economist at HSBC, said. "The federal authorities can’t always get a handle on economic issues and other problems faced by investors in the regions. This requires someone resident in the region." However, appointing investment ombudsmen should be a stop-gap measure, as regional authorities can best handle their economic problems without dictates from the federal government, Biryukov said.

Prime Minister Vladimir Putin appointed First Deputy Prime Minister Igor Shuvalov as the federal investment ombudsman in October last year, despite a growing sense of foreboding by some investors that fairness and flexibility in investment matters could easily be lost in multiple layers of bureaucracy. But Shuvalov, who attended Tuesday’s meeting, tried to justify the fairness of that decision by pointing out how far and fast his office has moved to resolve a myriad of investors’ problems. Over the past year, he said, his office has received 76 complaints from investors, most of them dealing with administrative barriers and discrimination experienced by foreign companies. Shuvalov said 52 of those complaints were resolved "while the rest are currently being looked into."

Medvedev said, however, that the going has not been easy. "The government has been fighting on and on against administrative barriers, but new ones keep cropping up again and again," Medvedev told officials at the meeting. But that is not suggesting that the government should abandon such efforts, as "experience shows that two-thirds of these barriers exist in Russia's regions, and not in Moscow," Medvedev said. Regional ombudsmen must help to deal with complaints by investors on a fast-track basis, he said, adding that their primary task is to identify and eliminate the root cause of difficulties for businesses by paying particular attention to the systemic barriers which are embedded in both federal and regional legislations.

The Russian president said the newly-appointed ombudsmen could exercise enormous discretionary powers necessary to openly challenge the regional bureaucrats. "There should be no delay in this work," Medvedev said. "You have the authority and if necessary, you should contact the governors, the heads of municipalities as well as the territorial offices of presidential representatives." However, Shuvalov told reporters Tuesday that he would prefer the ombudsmen consult with him on “burning issues,” adding that it was necessary “to have a unified system within the framework of the whole country.”

Medvedev has staked his presidency on pulling the country out of economic stagnation, as the country's souring investment climate continues to spook foreign investors. Russia's economy was only able to attract investments worth $13.8 billion last year, compared with China's record $105.7 billion, Reuters reported. The Central Bank says the country will see net capital outflows reaching $30 billion to $35 billion this year, fuelled by uncertainty before a March 2012 presidential vote. To avert further damage to the economy, Medvedev ordered the investment ombudsmen to report back to his administration on progress made not later than October 1. They must also submit quarterly reports to the presidential administration and the Ministry of Economic Development on a regular basis, he said.
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