EY: foreigners see moderate improvement in Russia’s business climate

Sixty-one percent of foreign companies have seen an improvement in Russia’s business climate in the past year, the U.S.-Russia Business Council reported, citing a new  Russian-language report  by EY.

The number of positive reviews is the largest among Asian companies (78%), followed by U.S. and EU companies (64% and 49%, respectively).

Eighty-five percent of the foreign firms surveyed expect “slow expansion” of their business in Russia in the next three years. Growth expectations are the highest among healthcare and pharmaceutical companies (44%), followed by construction (40%) and energy (36%) firms. Most companies link growth expectations to new product launches and 40% to higher production volumes.

Half of the companies plan to expand their operations to Russia’s central and northwestern regions. In choosing new investment destinations, Asian firms prioritize local tax benefits while U.S. companies value opportunities for direct dialog with local authorities and the availability of skilled workers.

Forty-one percent of Asian companies plan to increase investment in Russia this year, as do 29% of U.S. or EU firms. In 2019, the total volume of new investment by the companies surveyed is estimated at $6.5bn, of which 44% would go to the energy and extractive sectors.

Although most companies included in the report (62%) noted adverse effects of sanctions on their businesses, 58% suffered only “modest” revenue losses due to sanctions. Among the negative effects of sanctions, 44% pointed to an overall contraction of the Russian market, 27% cited limited access to financing, 25% complained about supply chain disruptions, and 24% were concerned about reputational risks. Only 8% of foreign firms had to shut down existing projects and 7% had to cancel prospective projects in Russia due to sanctions.

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