The rating of investment attractiveness of a country is its place in the world according to the conditions in it for successful business. These conditions are assessed by specialized international and national rating agencies and associations.
What do international rating agencies do?
International rating agencies study general indicators across the country. They consider indicators such as:
- The probability of default.
- Barriers to market entry.
- Administrative barriers.
- Level of corruption.
- The amount of taxes.
- Cost of infrastructure resources.
- The condition of the infrastructure.
- Inflation rate.
- Labor cost.
These agencies include: Moody's, S&P, Dow & Johns. Their main task is to determine how favorable conditions are in the country, not only for profit, but also for preserving capital.
Field of Activities of National Rating Agencies
National rating agencies are studying the investment attractiveness of individual regions and companies. Based on the calculations, they create an internal investment rating of the regions and all companies located in the territory of a particular state. In Russia, employees of various rating agencies do this. The most famous are the MICEX and the RTS, which work together with the Moscow Stock Exchange. The rating of investment attractiveness is based on specially developed evaluation and analysis criteria.
What is it for?
The rating of national attractiveness is needed both for the investor and for the country. An investor needs the data of rating agencies to assess the correlation of profit level and investment risk. For the country - to determine with which direction to act in order to attract investors. What are the advantages and disadvantages of this or that territory, what changes should be introduced into the legislation? What needs to be changed or corrected in order to make the country attractive, achieve high ratings and attract as many assets as possible?
What you need to do to raise the level of the country
The rating of the investment climate is calculated on the basis of what conditions the state offers for investors, both external and internal. The following is a list of conditions that the state should provide if it sets the task of attracting investment in the country:
- Legal regulation. The simpler and faster the paperwork is, the lower the investor's costs and the risks of losing money before starting a business in the country.
- Low level of corruption. Bribes, kickbacks, a low level of qualification of officials - all this increases the risk of capital loss for the investor, and therefore, is a negative factor with which the state is obliged to fight.
- Low taxes. Low tax countries are most attractive to investors.
- Simplicity of registration and submission of tax and accounting statements.
- The stability of the national currency.
- Low level of social and political tension in the country.
- Low rates for utilities.
- Cheap raw materials.
- The availability of cheap labor, both low-skilled and highly skilled.
- Information support of the state.
- Availability of infrastructure.
- Debugged logistics.
- The presence of a market for manufactured products.
It is advisable that the country has created all of the conditions listed. However, if a country does not have all the conditions for some reason, but only some of them, this does not mean that it does not have investment attractiveness, just the state can use its strengths to increase its investment rating. A prime example is China. In the early 90s, China, lacking a developed infrastructure and highly skilled workforce, was able to attract investors with low barriers to entry, cheap labor and low taxes. To produce goods in China and sell them all over the world turned out to be more profitable than in any other country. Today, China is the second economy in the world. He was able to improve the conditions and his investment rating became even higher.
Possible investment risks
The main condition for attracting an investor is the stability of the country's economy and the security of invested capital. When choosing a country or region for capital investment, the investor always evaluates first of all the possible risks. The following are the main investor fears:
- Nationalization of the enterprise.
- High level of corruption, new requirements and requisitions that suddenly arose.
- High inflation.
- High probability of natural disasters.
- Criminalization of the region.
- Too frequent checks.
- Lack of business culture of partners, non-compliance with the terms of contracts.
- The risk of tax increases.
- Political and social risks (strikes, revolutions).
Minimization of these risks depends entirely on the policy of the leadership of the country or region. Not everywhere, the authorities understand the need to solve the problem of attracting investment, raising the investment rating. So the states of Africa and Latin America, which are considered the countries with the most attractive climatic and geographical conditions for investment, are still living in poverty. Citizens are in poverty, the country is not developing economically. The investment rating of such countries is very low.
State in Russia
Russia has its own methods and tools for determining the rating of the investment climate in the whole country and separately for each region. Despite the sanctions, the Russian Federation remains attractive to both domestic and foreign investors. Positive parties that are attractive to investors are:
- Large unsaturated market, low competition.
- Cheap highly skilled workforce.
- Developed, albeit outdated, infrastructure.
- Affordable raw materials base, low tariffs.
- Availability of tax benefits and subsidies.
- The absence of social and political upheaval over the past 10-15 years.
- Stable power, adequate government.
The state does everything in order to show the country from the best side. First of all, to attract investors by political stability, a high level of development of the scientific base, attractive tax rates. But, despite all efforts, in Russia there are still a number of problems that need to be solved. One of the main problems is poor protection of private property, a high level of bureaucratization, and a complex tax system. Therefore, investors are afraid to invest in long-term projects, preferring to invest in companies engaged in mining.
Internal rating, ranking of regions of the Russian Federation
Russia is a large country and on its territory, in different regions, the conditions for investors are different. In some regions they are better, others worse. It all depends on the geographical location of the region, the availability of raw materials, infrastructure, manufacturing enterprises, research institutes, and climatic conditions on its territory. However, if a region does not have any advantages, this does not mean that it cannot claim a high position in the investment rating in Russia. Much depends not only on what went to the region or republic after the collapse of the USSR, but also on what measures the investment team is improving to improve the investment climate.
Exchange rating of Russian companies
Many investors prefer not to build a business from scratch, but to invest in existing companies. Naturally, they seek to invest in the most successful, high-income companies. For such investors in Russia there is a national stock exchange - Mosbirzha, which has its own ranking system - MICEX and RTS. They include analysis and evaluation of about 50 of the most successful Russian companies. By the level and dynamics of the MICEX and RTS movements, the investor can evaluate the national rating of the investment climate in Russia.
How external rating agencies evaluate the attractiveness of the Russian Federation
The opinion of analysts of international rating agencies has a strong influence on decisions made by investors. Despite the sanctions and the decline in economic growth, international rating agencies give high assessments of the state of Russia. Although in 2014-2015, the credit and investment rating of the Russian Federation was downgraded to the pre-default level. Foreign partners expected a sharp economic collapse of 7-10% and, as a result, unrest, but this did not happen. Although the economy slowed down, it continued to grow. As a result, the national investment rating returned to its previous level.
International rating agencies and associations evaluate the attractiveness of both the country as a whole and individual regions. Moscow and the Moscow region, St. Petersburg and the Leningrad region, as well as the Far East and some cities of Siberia (Tyumen, Yekaterinburg) are especially distinguished.
Measures to increase investment attractiveness
Another topic that also needs to be explored. National ratings of investment attractiveness of Russian regions began to be carried out only a few years ago. Over the past 15 years, the country has been actively developing. The first results appeared and the opportunity to evaluate what has already been done, to determine what else needs to be done. A methodology was developed to increase the investment attractiveness of the regions. Engaged in it for quite some time. The basis was the experience of regions and cities that have reached a high level of development and which, according to the latest data, have taken the highest places in the national rating of investment attractiveness. In essence, the following is recommended for improvement:
- Simplify redundant verification procedures.
- Convert workflow to electronic format.
- To increase the quantity and quality of services at the MFC.
- Reduce the time required for state examination.
- Standardize the forms of documents and their number in a package.
- Introduce standard administrative regulations for the provision of public services.
- Use typical tasks and contracts that investors understand.
As a basis for the development of recommendations, the practices of the most successful regions of the Russian Federation were used: Tatarstan, Moscow and St. Petersburg. The rating of the investment climate is compiled annually, published in economic publications (“Expert”) and discussed at the St. Petersburg Economic Forum.