Anton Kabakov spoke at SPIEF 2019 expert group meeting

The annual meeting of the expert group of the Agency for Strategic Initiatives was held on June 08, 2019 as part of St. Petersburg International Economic Forum. This expert group focuses, in particular, on monitoring and supervising the introduction of models simplifying business procedures and increasing investment prospects in St. Petersburg.

Anton Kabakov, Partner at Forte Tax & Law, spoke at this event about the particularities of interacting with foreign investors. This topic is particularly relevant on the back of the three-fold decrease in direct foreign investments in Russia in 2018 compared with 2017.

In his presentation, Anton mentioned two factors which, in his opinion, directly affect potential foreign investors: perception of the business climate and risk premium.

Anton noted for the first factor, on one hand, that the business climate in Russia is not yet at the highest level but, judging by the annual survey conducted by Doing Business in Russia, it is getting better every year. On the other hand, the perception of the business climate in Russia is getting worse on the back high-profile negative legal events, which, in the minds of foreign investors, bring into question the rule of law and the judicial system in Russia. Referring to the research conducted by Daniel Kahneman, Anton noted that the behavior of investors, like most people, is irrational and based on preconception. That is why investors often perceive sensational events as the norm although they are essentially an exception to the rule. So events that are sensationally reported in the media often have a greater impact on potential investors than the actual state of affairs in the country.

Anton also talked about premium risk. Because of these sensational negative events, most investors perceive Russia as a high-risk country in terms of investment. Moreover, investors always seek more profit for taking additional risk, but Russian law does not provide for a high risk premium for investors. According to Anton, to attract investors, the state should first set up mechanisms that allow increasing the risk premium – and if not by increasing revenue, then by reducing expenses.