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The state of the legal environment is a core factor determining inflow of foreign capital into a country. Russia will need to continue improving its judicial system and foreign currency regulation, streamlining federal and regional laws, ensuring effective legal protection of trade secrets, eliminating excessive regulatory pressure on business, etc.
Foreign direct investment in the Russian economy grew by 62% in 2016 to USD 19 billion, even though globally it fell by 13% to USD 1.52 trillion (UNCAD).
At the same time, Russia saw a decline of foreign investment in new projects: from USD 14.1 billion in 2015 to USD 12.9 billion in 2016. The biggest investors of 2016 came from Germany (EUR 2.05 billion in 9M 2016) and China (mostly state-owned companies). Only five new projects were announced in January 2017, their aggregate amount at an unprecedented monthly low of USD 34 million.
Obstacles to investment are created by the general economic uncertainty, lack of definite prospects of achieving a steady economic growth rate, a complicated geopolitical situation, and an imperfect legal environment in the country. Participants of the 2016 St. Petersburg International Economic Forum named the weakness of property rights institutes in Russia as the second biggest barrier for investment after fears of economic stagnation.
At present, investors name the following legal obstacles:
However, the Russian jurisdiction also has certain benefits that make it appealing for investors.
Still, many investors prefer to protect their property rights and assets in a foreign jurisdiction (usually in England), which, for them, is more transparent and predictable, and ensures access to foreign courts, if necessary. This is true not only about setting up a business in Russia, but also about stock market trading.