Russia’s Finance Minister Anton Siluanov said earlier this week that the country’s economic growth is being held back by lack of investment caused by businesses not trusting the government, Forbes reported.
Investment rose by 1% y/y in 2Q19, after a 2.6% y/y contraction in 1Q19, but the overall investment level remains woefully inadequate to spur growth in the country.
Most of the investment being made is coming from the government. The second quarter increase reflected higher government military and R&D spending.
Siluanov said there was roughly 30 trillion rubles ($466 billion) currently sitting in businesses’ bank accounts – more than the entire state-backed investment programme for the next six years. Instead of reinvesting profits into growth, Russian companies have elected instead to pay out record high dividends, which are twice the level of the MSCI Emerging Markets (EM) benchmark dividend yield rate and currently stand at around 6% a year.
“Business doesn’t trust the state, and therefore does not want to put this money into the economy,” said Siluanov, adding that in order to achieve economic growth of 3%, Russia needs to attract investment worth at least 25% of GDP. Currently, Russia’s investment stands at 20.6% of GDP, reports BMB.
However, according to bne Intellinews, the government is not sitting on its hands. October has seen it debate a new investment protection bill, designed to give domestic investors some reassurances. There are two competing versions of the bill, put forward by the Ministry of Finance and Deputy Prime Minister Dmitry Kozak, respectively.
On October 12 Russian Prime Minister Dmitry Medvedev chose the Ministry of Finance version, but told officials to incorporate many of the ideas from the Kozak version, which was widely considered to be radically liberal and offer some of the strongest investor protection in the emerging world.