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Russia Opens to Foreign Investors after Economic Fall


Russia is opening to foreign investors again, courting such people as California Governor Arnold Schwarznegger and working to join the World Trade Organization next year. Our correspondent reports on Russia's push to join the global investment community.

Empty office buildings dot Moscow's skyline, remnants of Russia's economic crash last year.


And recovery this year is anemic as Russia grows at half the rates of China, India and Brazil.

That was much on the minds of foreign investors at a recent conference in Moscow, including former British Ambassador to Russia Tony Brenton, now an adviser for Lloyds Insurance. "Everyone is very conscious that Russia had a truly awful recession. The economy collapsed by nearly nine percent. The Russian authorities claimed to have learned some sharp lessons from that," he said.

Many foreign investors consider Russia a risky investment. But the Kremlin hopes to ease those fears by finally joining the World Trade Organization after nearly two decades of delays.

"Perhaps when Russia gets into the WTO, which we expect to happen next spring, then Russia will be receiving a kind of an imprimatur to the world that it is OK to come out here and invest. So it's a split between those who have been here and realize that they can flourish here and those who haven't looked at Russia yet," said Andrew Somers, president of the American Chamber of Commerce in Russia.

California Governor Arnold Schwarzenegger and a team of high-tech American investors got a close look recently, returning the favor of Russian President Dmitry Medvedev's visit to Silicon Valley earlier this year. Schwarzenegger called Russia a gold mine of economic opportunity.

"It's just so extraordinary. There are so many opportunities here in Russia. You just look at this and say, 'Oh my God.' It's almost like looking at a gold mine or a diamond mine, and all you have to do is go in there and get it," he said.

But, despite such high-profile backers, and a five-year, $50 billion privatization program in the works, many of Russia's companies are still under state control.

"I think investors will be looking for assurances that they have some grip on the way those state companies can go and on the way those state companies can sort themselves out internally, because there are some fantastically inefficient Russian state companies," Brenton said.

Another risk is massive corruption in Russia.

Alexander Lebedev, a major shareholder in Aeroflot, charges that business rivals paid police to raid his bank recently.

And the global organization Transparency International ranks Russia 154th out of 178 countries in global corruption, making Russia the most corrupt country in Europe.

"I would call the trend something like corrupt stabilization," said Elena Panfilova, the group's representative in Russia.

Despite these obstacles, some foreign companies do well here. Within three years, Russia is expected to have the largest car market in Europe.

South Korean carmaker Hyundai just opened a car plant here.

The French car company Renault is seeking to double its investment in a state-controlled car manufacturer.

"I am sure there will be new names coming, but it tends not to be a quick decision to come to Russia," said Andrew Cranston, a senior partner for the international accounting firm KPMG, who has been working in Russia for 15 years.

When American investors do come here, they experience less and less culture shock. Starbucks is spreading across Moscow. Miller just opened a brewery. And Hilton Hotels and Holiday Inns have announced big expansion plans for Russia.

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