As Russia has recovered from the consequences of the 1998 crisis, the country is now experiencing a second wave of investment that has a chance to be more successful than the pre-crisis one. One reason for such optimistic forecasts is the increased attention from both regulating structures and participants in the market toward measures that could create a more transparent environment.

The results of a conference with representatives of Russia’s political, executive and business structures that took place in Moscow in late 2001 point to the existence of intentions to establish a transparent environment in Russia’s financial domain. This is particularly important in order to build up confidence in foreign investors, both corporate and private, as well as to make the whole financial system work effectively to attract investment, stimulate market capitalization growth and reduce the costs of the investment process in general.

It is impossible to overestimate the importance of making Russia’s financial sector into a transparent structure, especially given that Russia is currently viewed as one of the most promising destinations for foreign investments. Interest in Russia as an object for investment is stimulated by global macroeconomic trends, specifically economic slowdowns in the United States, Europe and Japan. Despite Russia’s unfavorable developments on the oil market, this year’s economic growth is expected to be equal to last year’s figure of 5 percent. Therefore, Russia is definitely attractive for venture capital, direct investment and portfolio investment.

Russia cannot maintain its present rate of economic growth solely at the expense of its owned funds. According to some sources, Russia’s self-investment potential equals approximately $150 billion, and at least $50 billion more are needed to keep the mills of the Russian economy running at full speed. In 2001, Russia only received only $8 billiob to $10 billion worth of foreign investment and, therefore, was running short of at least $40 billion.

The decisive role in the process of making Russia’s economy and finance more transparent is tending to shift from the state to the corporate and business sectors. Two sectors of the Russian economy — energy and telecoms — have served as economic engines and stimulated investor interest in industries that belong to the so-called "second tier." The present situation is very different from the 1997 stock-market boom. Back in 1997, foreign investors were choosing certain industries or sectors to invest in and did not pay too much attention to examining specific companies and their capitalization.

According to Konstantin Chernyshev, the head of the analytical department of brokerage company Nikoil, investors today are putting money into specific companies that are selected by thorough examination.

Owners and top managers in Russian companies and enterprises understand only too well that sizable investments will not arrive unless they do something to make their enterprises transparent. The problem is that they don’t really know what to do to achieve that goal.

Efforts to break the vicious circle are being made along the following two directions: 1) Regulatory measures imposed from the top, including information-disclosure requirements, state monitoring and control, legislative amendments, etc.; and2) transparency programs on the corporate level, i.e. self-imposed disclosure obligations.

Unfortunately, not much has been done in either of these directions. Although the government’s recent measures in the sphere of taxation have helped shed some light on the real situation of many enterprises, it is too early to say that the government has formulated a full-fledged policy in the sphere of corporate information disclosure.

Many experts are tending to pin their hopes on the business community. They propose that businesspeople formulate a conception of an economic information-disclosure policy and submit it to the government. In addition, they say, businesspeople should become more active in applying self-imposed transparency measures. The degree of transparency of any business or industry is determined by its corporate code, ethics code and other internal executive acts enforced by the business community, not the state.

(The author is a Moscow-based freelancer specializing in banking and investment issues)