By potential the superiority of the European three of okrugs is not so significant although here also 60 % of all leader regions belong to the above listed okrugs.

    Altogether according to rating assessments 33 regions have been among the  ten leaders by potential as well as by risks during  all the years, 20 of them being again from Central,  North-Western, and Privolzhsky federal okrugs 

    If representation frequency of regions of each Federal okrug among the leaders is to be taken into consideration here the first place goes to North-Western okrug followed by Urals, Central and Privolzhsky okrugs. But Far Eastern okrug has never been represented in the list of leaders: by all appearances neighboring China as an investment phenomenon is not an authority for us and even not an example. 

    The investment nucleus of Russia revealed in the last rating located between Moscow and St.Petersburg for the time being does not possess enough stability of a favorable investment climate. Its centre shifted to North-West to St.Petersburg because Moscow and Moscow Region lowered their investment attractiveness. Tver Region has fallen out of it and Leningrad Region has sharply increased the risk. At the same time the investment climate has considerably improved in Volgograd and Yaroslavl regions. /4/

    In order for this wave of investment attractiveness to move further to the periphery subcentres should form there – regions with minimum investment risks should arise.

    In the first place Tatarstan which already had minimum risk in 1998 and 1999 ratings as well as Krasnodar and Perm Territories, Bashkortostan, Nizhy Novgorod, Rostov, Samara and Tyumen regions can lay claim to the role of such subcentres. /4/

 

     3. Structure of foreign investment in 2000-2009 /10/

    3.1 Structure of foreign investment by its kinds in 2000-2009

    The situation with foreign investment changed significantly in the XXI century. An important break-through was British Petroleum’s decision to invest US$6.7 billion in Russia’s petroleum industry in 2003.  Since then, the total amount of the investment grew steadily with very high rates.

    Total foreign investment for 2004 was US$40.5 billion, with consumer goods and services and construction receiving the largest shares among the economic sectors. In 2005 the figure rose to US$53.6 billion, with the heaviest investments coming from Luxembourg, Cyprus, the Netherlands, Germany, Britain, the United States, and France (see chart 2). Foreign direct investment for 2005 was US$13 billion. Increases of 42 percent in overall investment and 44 percent in foreign direct investment, compared with the same period in 2005, were reported in the first half of 2006 (see chart 1). Moreover, by the end of September 2006 the amount of investment was 35323 mln $./5/

    A very important issue is a change in target industry structure. The main matter is constant increase of investment in manufacturing structure and high decrease of investment in 2005 in resource extraction. Also there is increase in investment in wholesale and retail trade and repair sphere. This trend shows that the character of the investment was changing. There was a shift from resource-extraction oriented investment to investment in manufacturing, which was certainly better for the economy, as manufacturing sphere gives more opportunities for further development and makes the economy more competitive.

    In January-September 2007, According to the estimates of the Federal Service of State Statistics the volume of foreign investments inflow into Russia amounted to 87,9 billion USD, that 2,5 times exceeds the value in January-September 2006.

    The foreign direct investment (FDI) volume for the same period increased by a factor of 1,9 and made 19,6 billion USD. Loans received from foreign joint enterprise owners increased by a factor of 4,4 – up to 9,7 billion USD — and became the basis of FDI growth.

    Foreign investors’ contributions to the share capital of Russian companies increased by a factor of 1,5 and made 9 billion USD.

    At the same time, the share of FDI in the total amount of foreign investments inflow decreased from 29,1% in January-September 2006 to 22,3% in January-September 2007.

    The amount of other investments increased by a factor of 2,7 and amounted to 66,7 billion USD in January-September 2007, and their share in the total amount of investments for the same period grew from 69% in January-September 2006 to 75,9% in January-September 2007.

    The volume of portfolio investments went up 2,3 times compared to the corresponding period of last year to 1,5 billion USD, that is 1,8% of the total amount of investments.

    

    

    Source: www.rosgosstat.ru

          Great Britain was the leader of investment inflow into Russia raising up investments by a factor of 3,8 (vs. January-September 2006) up to 20,7 billion USD, followed by the Netherlands (17,2 bln USD), Cyprus (11,9 bln USD), and Luxemburg (8,1 bln USD). The major foreign investors kept their ranking: Cyprus (19,8% of the total amount of cumulative foreign investments), the Netherlands (18,2%),  Luxembourg (15,3%), Great Britain (12,2%). These countries provided for 65,5% of the total amount of cumulative foreign investments, including 72,3% of the total amount of cumulative direct foreign investments and 60,5% of other investments. /6/

    Actually, the amount of the attracted Foreign Investment in 2007 in Russia was a record. The total amount of cumulative foreign investments in Russian economy amounted to 120,8 billion USD at the end of September 2007, that is 52,2% growth to the level of the end of September 2006. /7/

    As of the end of 2008 (see appendices №1) accumulated foreign capital in Russia made 264.6 billion USD which is by 19.9% more compared to the previous year. The highest specific weight in the accumulated foreign capital falls on other investments made on the return basis – 51.6% (by the end of 2007 – 50.2%), the share of direct investments made 46.3% (46.7%), portfolio investments- 2.1% (3.1%).

    Main investors in 2008 were Cyprus, The United Kingdom (Great Britain), the Netherlands, Germany, Luxemburg, France, the Virgin (British) Islands. The share of these countries made 77.0% of the total volume of accumulated foreign investments, 79.4% of total volume of accumulated direct foreign investments.

    In 2008 Russian economy received 103.8 billion dollar foreign investments which are by 14.2% less than in 2007. In the first quarter of 2008 17.3 billion USD foreign investments came (by 29.9% less than for the corresponding period of the previous year), in the second quarter – 29.3 billion USD (by 18.0% less), in the third quarter – 29.2 billion USD (by 6.1% more), in the fourth quarter – 28.0 billion USD (by 15.2% less).                   

    Russia saw an inflow of $54.7bn in foreign investment in the first nine months of 2009, 27.8 percent less than in the same period a year earlier. As reported earlier, the flow stood at $12bn in the first quarter of 2009, 30.3 percent below the previous year’s respective figure, at $20.2bn in Q2 (a decrease of 31.2 percent), and at $22.5bn in Q3 (a decrease of 22.9 percent).

    Repaid foreign investment which Russia had received earlier stood at $50.6bn for 9M of 2009, 5.3 percent above the 9M 2008 figure. Of the total, some $12.1bn was repaid in Q1 (down 15.3 percent), $19.7bn in Q2 (down 1.2 percent), and $18.8bn in Q3 (up 36.2 percent from the previous year’s figure).

    Accrued foreign capital in the Russian economy reached $262.4bn, up 4.4 percent from 2008, with the largest share claimed by the ‘other repayable investment’ category (55.7 percent against 50.7 percent as of the end of September 2008), with the proportion of direct investment at 39.7 percent (46.9 percent in 2008) and that of portfolio investment at 4.6 percent (2.4 percent).

    From January to September 2009, the countries making the largest investments in Russia were also Luxembourg, the Netherlands, Cyprus, Germany, the UK, France, the United States, Ireland, British Virgin Islands, and Japan, together accounting for some 83.7 percent of the total accrued foreign investment./10/

     

    3.2 Structure of foreign investment by industry in 2005-2007

    Russia is most actively encouraging the participation of foreign companies in the oil and gas sector, not only for their capital contribution, but also for their advanced technology and experience. Nearly all the major international oil companies and many smaller ones have expressed interest in participating in the exploration and development of Russia's oil and gas reserves and willingness to commit modern technology and billions of dollars of capital on a long-term basis, provided Russia creates investment conditions compatible with international practice and which take account of the long-term character of investments in this sector. Such conditions include an opportunity to share in the production generated by the investment, a clear and reasonable tax regime which allows an equitable return on investment, a stable set of rules, and an equal opportunity to obtain and exercise rights to the oil and gas fields.

    In 2005, there has been great increase in manufacturing and wholesale/retail sector as foreign investors started understanding the increasing purchasing power of Russians and lots of new plants were opened. However, the situation with Sakhalin 2 project, when Russian government has made all possible to give controlling package of shares to “Gazprom” even though Shell, Mitsui and Mitshubishi were ready to pay more, has lead to the decrease of interest of some multinational organization to invest in Russia.

    In fact, Russian government is, of course, more interested in the investments and development of high technologies and manufacturing. However, even such kind of investments can be harmful for Russian producers. For example, after Ford, General Motors, Renault and other producers of cars have opened their plants in Russia, there has been great decrease in the demand of AvtoVAZ production.

    In January-September 2007, an increase took place in the share of wholesale and retail trade by a factor of 2 in comparison with January-September 2006. The foreign investment inflow into manufacturing activity and extraction of minerals increased by 2 times, but the shares of this kinds of economic activity in the total amount of foreign investment inflow into Russia slightly went down to 24,6% and 17,3% correspondingly compared to January-September 2006. /9/

     

 

     4. Risks in the sphere of international entrepreneurship

    4.1. Main methods of risk assessment and management.

    As risk is a danger of loss by an enterprise of resources or gains its quantitative measure may be determined in absolute and relative indices.

    In the absolute expression risk can be determined by the size of possible losses in material-tangible (natural or physical) or value (monetary) form, if the type of such loss can be measured in such a form.

    In the relative expression risk is determined as a value of possible losses related to a certain base which is usually accepted as:

    а) property status of an entrepreneur;

    b) total input of resources to this type of entrepreneurial activity;

    c) expected gains (profit) from entrepreneurship.

     Losses themselves called forth by various risks may take different forms:

1. material losses – additional spendings or direct losses of equipment, property, products, raw materials, energy and other resources;
2. labor losses – days lost (in man-hours, man-days, etc.);
3. financial losses – direct  monetary damage, associated with unforeseen  payments, fines, taxes, defaults on debts, reduction of gains due to landslide of prices, intensification of inflation, change in the exchange rate of national currency, etc.; 
4. special losses in the form of damage to life and health of people, environment, entrepreneur’s image and also because of other unfavorable socio-psychological and political phenomena.

    The measure of risk and probability of occurrence of losses connected to it are directly linked to the change of conditions of project implementation or operation of an enterprise in time. It is exactly for this reason that calculated risks and current risks are distinguished.

    A calculated risk is a risk which is determined at business-project preparation stage. A current risk is a risk which is assessed in the course of the project implementation. In unfavorable concurrence of circumstances a current risk can exceed not only a calculated risk but also marginal limits of risk determined for the given project which in its turn may lead to cessation of the project or to making significant amendments to it.

    By time factor risk can be subdivided into: long-term risk connected with development in future and short-term risk which depends on the factors linked to the market. /9/

    4.2. Main types of risk

    Table 5 Main types of risk 

 

           While determining the level of risk depending on the size of losses several areas are usually singled out:

           а) no-risk area, to which zero losses correspond or even negative (surplus of profits over the expected ones);

           b) area of admissible risk is an area within which given kind of entrepreneurial activity retains its financial viability i.e. there are losses but they are less than expected gains (profit of payments); limits of this area correspond to the level of losses equal to calculated  profits; 

           c) critical risk area is an area characterized by the possibility of losses which exceed the size of expected gains and reach the size of monetary receipts i.e. the sum of expenditures and gains;

           d)  catastrophic risk area is an area of losses which exceed receipts and in their maximum may reach (or exceed) the size of own capital or property of an entrepreneur.

           There are various methods to assess business risks – theoretical (on the basis of logical reasoning), empirical (on the basis of extrapolation of previous trends) and applied methods which in their turn are divided into statistical (on the basis of loss statistics studies), expert (e.g. on the basis of generalizing opinions and experience of businessmen and specialists) and analytical-calculated (on the basis of economic-mathematical models).

           Nowadays one of the most prevailing versions of assessing risk levels (especially country-wise) is an assessment carried out by specialized rating agencies which calculate also the so-called investment ratings.

           Investment ratings is understood to be the assessment of the capability of a borrower (country, firm, etc.) to meet his engagement on timely payment of principal sum of the debt and its interests in accordance with terms and conditions of an agreement.

           There are several authoritative rating agencies in the world – “Standard and Poor’s”, “Moody’s” and others which rate countries and individual economic entities – companies, banks, etc. But it should be noted that these ratings assess credit risk of a country not business risk therefore their rise can hardly result in considerable inflow of foreign investments especially direct ones.

            Independent ratings are the ratings given to individual countries. They play an important role in assessing investment risks concerning all economic entities of the country. Here no economic entity situated on the territory of the country may have the rating exceeding the rating of this country. This fact raises the importance of independent ratings still more. /9/

           4.3 Peculiarities of business risks in Russia

 

           The analysis of the comparatively short (a little more than a decade) experience of implementing joint projects with the participation of foreign investors in Russia has made it possible to reveal a number of specific risks inherent in Russian economy with which not only foreign investors but also Russian participant should recon. These risks are connected with such factors external to joint ventures as instability and imperfection of legislative base, high level of monopolization of certain segments of economy, instability of the financial-credit system, certain vacuum in the field of objective packaged information on the state of development of industrial and other enterprises. In Russia in many cases tedious bureaucratic procedures remain: negotiations between potential partners sometimes last for 1-2 years, signing and approval of contracts take 2-3 months, endorsement and acquisition of a license take 2-3 more months. Very often these procedures are so complicated and intricate that it allowed some specialist to speak about a new type of risk - “bureaucratic” one.

           Besides Russian enterprises do not pay enough attention to revealing and forecasting organizational risks connected in the first place with the quality of management which is caused by inadequate training and lack of experience of Russian managers, by their ignorance of risk and investment projects efficiency assessment techniques accepted in the West, by lack of a management team that ensures continuity when changes in the top management staff of an enterprise take place. As a result such cases happen when a viable project actually went to pieces because of the illness of a director and inability of his deputies to properly manage the project. A reliable and competent team of managers could prevent such cases.

           While setting up a joint venture in Russia special attention should be paid to analyzing and assessing its stability. The point is at present the Russian market of raw materials and components is monopolized to a considerable degree making possible the price dictate of suppliers. There are facts when after a positive decision on the participation of a foreign investor in financing of a project the prices of partner companies were increased many times. In order to minimize such risks small enterprises can stock materials and components whose market is monopolized. Large enterprises can undertake certain organizational legal measures (e.g. stipulate in the agreement certain conditions and strict sanctions for their non-compliance) to prevent sudden increase of prices