Discussion

Ex. 12. Read and discuss the texts.

a) Say what hinders the influx of foreign capital to Russia.

a) Foreign investors participating in the Russian market see that there are many difficulties and important differences in the structure and behavior of the Russian market. Though risky, investing in Russia gives many opportunities to earn profits and superprofits. Some investors managed to achieve remarkable returns by implementing strategies specifically tailored to the Russian market.

Foreign investments are coming to Russia as direct investments, i.e. financial participation in the creation of joint ventures and fully foreign-owned firms, and indirect or portfolio investments, i.e. purchase of stock, without sharing in the institution's management.

However, the influx of foreign capital is still insufficient. The process is hindered by high interest rates, inadequate tax and customs legislation.

Russian investment industry is developing rather rapidly. Russian investors are beginning to play a prominent role in Russia and abroad. Along with investing their own resources, they participate in investment auctions, help to allocate investment from international financial organizations.

Over the last three months, Russian mutual funds, known as payeviye investitsionniye fondy (PIFs), have collected $12 million. Though the money invested in mutual funds equals a mere 0.02%-0.05% of the Russian population's savings, this fact shows that people are prepared to invest. Russian mutual funds invest in government securities and equities. The main problem in investment activities in Russia is objective valuation of fund assets – Russia still lacks officially recognized valuation centers.

Russian investors have a tremendous potential for growth.

Words you may need:

superprofit n сверхприбыль

strategies tailored (to) стратегия, разработанная с учетом определенных требований

influx n приток

hinder v затруднять

mutual fund взаимный фонд

valuation n оценка

b) Discuss and compare the investment climate in Brazil and in Great Britain,

B) Brazil Attracts Foreign Investors

Increasing numbers of foreign investors are looking toward Brazil as their gateway into the Latin American market. As a result, there has been a dramatic increase in merger and acquisition activity, with more than half of the deals including foreign investors. The sectors involved range from chemicals and petroleum to agribusiness and finance. Brazil's privatisation program has also given outside investment an additional boost.

Trade between the US, however, has deteriorated, with accusations that US import policies are restrictive. Consequently, the US accounts for a steadily decreasing share of Brazil's exports. In 1990 the US share was 25% and is expected to drop to 15% by the year 2000. Therefore, Brazil's exporters are turning more and more to other Latin American countries and to Europe for future increases in sales.

C) Investment in the uk

In recent decades the UK has invested a smaller share of GDP than other industrialised countries – around 18% of GDP, compared with the OECD average of almost 21%. This has left a legacy of low capital stock per worker. Following growth of around 4% a year in the 1980s, investment in the UK declined during the recession of the early 1990s. However, in 1997 investment (gross fixed capital formation) at constant 1995 prices increased by 6.1%, the fastest rate of growth since 1988. Business investment rose by 8.8%, with private sector investment in dwellings up by 7%, although investment by general government fell by 9.1%. During the second quarter of 1998 overall investment at 1995 prices was 5.7% higher than a year earlier, with a stronger rise in business investment (7.1%) and a sharp rise in investment by general government (of 26.1%).

Business investment has been helped by the high level of inward investment. In recent years, the UK has received the greatest share of inward investment into the European Union, including over 40% of Japanese investment and about 40% of US investment.

Words you may need:

gateway n ворота

merger n слияние

acquisition n приобретение

legacy n наследство, наследие

gross fixed capital formation валовые вложения в основной капитал

dwellings n жилье

Ex. 13. Read the dialogue, sum up its content and act it out.

Foreign Investments in Russia

Foreigner. Speaking about investment you often say "capital investment". Do you use the two

words interchangeably?

Russian: Yes, investment is rather a new word for Russian economy. Under centrally planned economy we used the term "gross capital investments" meaning all spendings for reproduction of fixed assets, including spendings for their full recovery.

F:. I see. What does the term "investment", the way you use it now, embrace?

R.: Capital expenditure on property, tangible and intellectual assets, including entrepreneurial activities, with a view to income, capital gains or social benefits.

F.: Thank you for this clarification. But whatever term is used, you are not happy about the volume of foreign investment in Russia. It remains very small relative to the size of the economy and attractive opportunities available, doesn't it?

R.: Yes, in spite of the country's vast market, cheap labour and enormous mineral resources, foreign investors are not very active in this country.

F.: The reasons are only too well known, I'm afraid. They are: unstable macroeconomic environment, political uncertainties, and the lack of clarity and consistency in the legal and fiscal treatment of foreign investment.

R.: You are right. Unfortunately, all this has dampened interest among potential foreign investors towards Russia. But we need foreign investments badly. Our government is trying to attract investors, to facilitate foreigners' entry into Russian business.

F.: Well, but it's a fact that there are still many restrictions affecting foreign investors here. They range from minor restrictions to total interdiction. For example, foreign investors can own land only through joint ventures.

R.: That can't be denied. But the government is encouraging foreign participation, for example, in the privatization process.

F.: Yes, the start of auctions of enterprise shares and other measures are likely to increase the role of outside investors and may also have a positive effect on the volume of foreign investment in Russia.

R.: Hopefully, it will speed up the ongoing reforms and the structural adjustment.

F.: World experience has shown on many occasions that foreign investments can become a vital element of a country's economic progress. Through what channels are foreign investments coming to Russia?

R.: Mainly in the form of foreign direct investments and portfolio investments.

F.: Foreign direct investment in Russia is most typically in the form of joint ventures, isn't it?

R.: Yes, besides there are fully foreign-owned enterprises. The most important recipient sectors are: machine-building, metal processing, the fuel and energy sectors, trade and public catering. But we are not satisfied with the investment level, as I've said. The figures for portfolio investments are not encouraging either.

F.: Figures are figures, but some foreign investors believe that Russian stocks are worth buying and the market really offers good investment opportunities.

Words you may need:

capital investment капиталовложения

interchangeably adv (зд.) одно вместо другого

gross capital investment валовые капиталовложения

reproduction n воспроизводство

full recovery полное восстановление

intellectual assets интеллектуальные активы

clarification n разъяснение

uncertainty n неопределенность

clarity n ясность

consistency n последовательность

to dampen interest ослаблять интерес

interdiction n запрет

Ex. 14. Give extensive answers to these discussion questions:

1. What is investment?

2. What do investment activities depend on?

3. Why have investment activities become a fundamental feature of international economic development?

4. What are the major channels of foreign investments?

5. How do you assess the investment climate in Russia (activities of Russian and foreign investors)?

6. What can increase the inflow of foreign investment to Russia?