Volume of foreign investment is increasing again

Domestic economy becomes attractive not only for investors from Russia, but also for foreign businessmen

After a long-time break caused by sanctions, rouble devaluation and oil prices fall, foreign investment is back to Russia. What are the reasons for foreign capital inflow? Why does foreign investment play such an important role for the economic development?

Foreign capital enters the domestic market through various ways, depending on strategic goals of investors. The importance of foreign direct investment (FDI) is explained by its key role in provision of developing markets with advanced technologies and management systems. FDI is connected with long-term investor’s control over business activity of the recipient company in another country, which means it is aimed at long-run cooperation instead of instantaneous profit, thus giving quality to the economic growth.

In the June 2016 Newsletter, Information agency Credinform reported about reduction of investment volume to the country’s economy as of year-end 2015 to the lowest level since 2002. In the second quarter of 2016, after the long-time break, FDI begins to demonstrate indicators comparable with pre-sanction.

Foreign direct investment to Russia according to the Bank of Russia, $ bln, for the period from IQ 2012 to IIQ 2016Picture 1. Foreign direct investment to Russia according to the Bank of Russia, $ bln, for the period from IQ 2012 to IIQ 2016

As the diagram shows (see picture 1), the volume of FDI in the IIQ 2016 amounted to $ 7,1 bln, which exceeds data for the whole 2015 ($ 6,4 bln) and is comparable to pre-sanction figures. Some experts suppose the return of the Russian capital from offshores to the national jurisdiction is at the back of FDI inflow growth, as a result of the economy deoffshorization measures and tighten the anti-offshore legislation in the world. Undoubtedly, a revival of the foreign business interest takes place. Various investigations record growth of optimism concerning business in Russia among European entrepreneurs. Businessmen observe high potential and large volume of the Russian market, as well as its positive development despite of unsatisfactory economic situation.

One of the results of foreign investment is establishment of the Russian companies with foreign capital participation. According to the Information and analytical system Globas-i® of Credinform agency, currently 41 071 legal entities with foreign participation are registered in Russia. 32 832 of them are majority owned by foreign investors. Most of companies with foreign participation – over 70% - are registered in Moscow, Moscow region, Saint-Petersburg and Leningrad region.

Location of companies with foreign participation by the subjects of RFPicture 2. Location of companies with foreign participation by the subjects of RF

Speaking about activity types, the most investment-attractive companies are engaged in wholesale, construction, renting and own or rented immovable property management. The table 1 contains Top-10 of activities of the Russian legal entities with foreign participation.

Table 1. The most popular activity types of the Russian companies with foreign participation

Activity type Number of companies Share, %
1 Construction of residential and non-residential buildings 1 787 4,35
2 Non-specialised wholesale trade 1 233 3,00
3 Renting and operating of own or leased real estate 1 182 2,88
4 Business and management consultancy activities 1 018 2,48
5 Buying and selling of own real estate 981 2,39
6 Renting and operating of own or leased real estate 956 2,33
7 Other transportation support activities 646 1,57
8 Management of real estate on a fee or contract basis 591 1,44
9 Computer programming activities 550 1,34
10 Other financial service activities, except insurance and pension funding n.e.c. 512 1,25

By the projections of experts, the year of 2017 can be bright for Russia in terms of increase in foreign investment inflow. The country’s economy becomes more attractive and convincing than markets of other countries. At the same time, net capital outflow, which is formed mostly by repayments of the private sector’s external debts, reduced to $10,5 bln in the first half-year, i.e. almost in 5 times compared to the same period of 2015. It also counts in favor of easing of the situation. Relief or lifting of sanctions can be a significant impetus for foreign investment, but even in the current conditions the Russian economy offers enough sectors free from limitations and having substantial growth potential at reducing level of risk and instability.

Procedure of the provision of information from the Unified State Real Estate Registry

On the 1st of January 2017 the Federal law №218-FZ «On state registration of real estate» dated 13.07.2015 will come into force, which provides for the formation of the Unified State Real Estate Registry (USRRE) only in electronic form. USRRE must include preexisting separately: real estate cadastre, register of real property rights, register of borders, registry cases, cadastral maps and document journals.

Extracts’ forms from USRRE, structure and types of data, procedure of filling forms, format requirements of documents with information from USRRE are approved by the order №378 of the Ministry of Economic Development of the Russian Federation dated 20.06.2016 (was registered in the Ministry of Justice of the Russian Federation on 24.08.2016, №43384), entering also into force from January 1, 2017.

The order introduced, in particular, the following forms of extracts from USRRE:

  • on characteristics and registered rights for a real estate unit;
  • on the transfer of rights for a real estate unit;
  • on the rights of an individual for available or previously held real estate units;
  • on the date of receipt of the application for the state cadastral registration or state registration of rights and the documents attached thereto.

In addition, the types of data delivery from USRRE are defined. It may be cadastral plans of territories; notifications and information on persons, who received data about a real estate unit, or on the lack of information about such persons; notifications about the lack of information in USRRE; decisions on the refusal to provide information.

The data from USRRE should be provided by the Federal Service for State Registration, Cadastre and Cartography (Rosreestr), including by its subordinate federal budgetary institutions, in electronic form or on paper, in the form of copies of documents, being the basis of entering the information into USRRE, as an extract from USRRE or in the form defined particularly by the Ministry of Economic Development of the RF.

By providing information from USRRE the information and telecommunication public networks will be used, among them are the Unified portal of public and municipal services, official website of Rosreestr, the Federal Public information system of maintaining of the Unified State Registry of real estate.

In accordance with the Federal Law №218-FZ, the data from USRRE, excluding information, the access to which is restricted on security reasons by the legislation, should be provided be the registration authorities of rights on real estate on the basis of the requests of any person. About the status of the request the citizens will be informed via e-mail or SMS messages. In the case of a request directly to the website of Rosreestr its status will be individually monitored through the service «Check Request Status on-line».

In addition, the general terms of the cadastral registration of real estate and state registration of rights and real estate transactions are reduced. Thus, the Law gives 3 working days for state registration of rights on the basis of notarized transactions, certificates of inheritance, ownership certificates on a share in the common property of spouses, or 1 business day - for inflow of such statements and documents in electronic form. Five working days are given for cadastral registration, seven business days - for the state registration of rights and transactions, and by cadastre registration and state registration of rights, carrying out at the same time, – ten working days.

The fees paid for the provision of information from USRRE are set by the order №291 of the Ministry of Economic Development of the Russian Federation dated 05.10.2016 since the 1st of January 2017. For example, the fee for an extract from USRRE about a real estate unit on paper for natural persons and public authorities will be 750 rubles, and in electronic form - 300 rubles. For legal entities, respectively – 2 200 rubles and 600 rubles. Thus, charge rates are increased from 3 to 5 times against the existing.

Presently Rosreestr prepares its technical and information resources to ensure proper satisfying the requirements of the Federal Law №218-FZ «On state registration of real estate».

The scale of this work is testified, though being a little out-of-date, by the information on the total number of issued extracts and statements from current Unified State Register of Rights on Real Estate and Transactions Therewith (USRRE). Thus, according to Rosreestr itself, more than 157 000 of such documents were given in 2010, and in 2011– more than 69 000.