Russia challenged by capital outflows, lures investment

By Andrew Jay Rosenbaum

ISTANBUL

The Russian government is working on new measures to attract investment, an official told Anadolu Agency.

In an interview on the sidelines of the G20, Vladimir Tkachenko, director of Europe and North America at the Russian Economy Ministry, talks about how Russia can attract investment despite significant capital flight.

"We are trying to bring back capital from Russian companies that are keeping their funds offshore, and we are going to create incentives to bring in new investment," Tkachenko said.

Capital flight from Russia has been substantial. According to the Central Bank of Russia, $151 billion left the country ın 2014, up from $61 billion in 2013.

"We also know that an untold amount is held by Russian companies in offshore centers like Cyprus. We are trying to bring that money back," Tkachenko said.

On June 9, Russian president Vladimir Putin signed into law a bill offering tax amnesty not only to Russian companies holding capital offshore, but also to individuals, without regard to the way these funds were acquired or earned.

Is the tax amnesty working? "We have no statistıcs as yet." Tkachenko said, "But we have seen tax amnesty work in the past." In 2007, Russia offered a similar tax amnesty that brought back only about $130 million, according to a study by PricewaterhouseCoopers published in 2014.

"We will also be promoting areas of our economy that have been particularly successful," Tkachenko said. "The agriculture and automotive sectors are doing very well, even in the crisis. We expect these sectors to continue to attract investment despite the crisis. Our defense industry should also be a target for foreign capital."

Russia took in about $12 billion in foreign direct investment in 2014, according to World Economic Forum statistics, about 10 percent of total European FDI. That was down from about $40 billion in 2013.

Are sanctions imposed on Russia by the West for its involvement in Ukraine affecting FDI?

"Sanctions don't work," Tkachenko said. "They hurt those who impose them more than those who suffer them."