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Financing a Business in Russia

For many businesses raising the money to start or grow their business can be hard work. Often, planning to expand your business abroad and after having knocked on the doors of potential funders in the homeland, you may consider taking advantage of the incentives you may find in the target country. Rarely it will happen in Russia, though a good and in-depth research, particularly at local or regional level, may have unexpected good results.

In fact, the Russian government has repeatedly emphasized foreign investments critical role in Russia's economic development, but has been reluctant to allow access in funding. In practice, the Government of Russia (GOR) tends to favor joint ventures with local entities, especially state-owned entities, or direct cash injections, particularly in Russias strategic sectors. This has been most obvious in the energy sector, in which the government continues to tighten its grip and typically limits foreign companies to minority stakes (often 20 to 25 percent) in larger projects. In the area of consumer products, however, international companies have been able to set up and expand their operations with relatively few restrictions.

At the federal level, Russia is establishing special economic zones, high-technology parks, and special tourist regions to encourage foreign investment. At the regional level, many local governments have developed laws and programs to attract foreigners, which include techno-parks near universities and export zones near ports and borders. Although federal tax reform aimed to create a level playing field for all investors and limit the scope of incentives regions can offer, large foreign investors continue to receive incentives from local authorities in practice. In addition, many local administrations view foreign investors as sources of cash for support of municipal services.

Be prepared to practice the art of lobbying, but be also aware that the current reorganisation of the legal environment does not facilitate the development of foreign investments in Russia. In spite of the opening of Russia to investments more than twenty years ago, Russian aids to foreign investments remain low. The Ministry of Economic Development and Trade of Russia can provide assistance regarding investment matters: http://www.economy.gov.ru.

Useful links are also the websites of regional Investment Promotional Agencies, which usually have translation in English. See for example http://eng.saminvest.ru/ or http://www.kaliningrad-rda.org/en/. Generally speaking once you have identified through market research which one is your target region (there are 89 regions in Russia), make sure you check if they have this kind of agency.

Useful information and official data are available on the Chamber of Commerce and Industry of he Russian Federation: http://eng.tpprf.ru/.

Another port of call can be the Association of European Business in the Russian Federation: http://www.aebrus.ru This association carries out activities to improve the Russian business and trade environment and to promote economic integration and partnership between the Russian Federation and the European Union.

The UK Manufacturing Technologies Association (MTA) (www.mta.org.uk) based in London opened an office in Ekaterinburg to assist in promoting the products of their member companies into the Russian market.

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