“Compelling companies to invest in specific projects or confiscating sums are things of the same order,” said Natalia Orlova, chief economist at Alfa-Bank in Moscow. “For companies, this means the profitability of their business becomes less predictable.” The iffy economic outlook, along with Western sanctions and an often-unfriendly business climate, has kept companies cautious about committing new capital, frustrating Kremlin hopes of an economic breakthrough. Now officials are turning up the pressure for cash. “Firms are slowing or putting off investments, so all instruments have to be used,” said Vladimir Salnikov, deputy director of the Center for Macroeconomic Analysis and Short-Term Forecasting, a Moscow think tank. “This may not be the best stimulus, but it works.”
Last month, a top Kremlin aide shocked investors and tycoons with a proposal to raise taxes to capture 500bn roubles ($7.4bn) in “excess revenue” earned by some of its biggest mining, metals and chemicals companies – even including estimates for individual firms. Opposition from the business community and parts of the government scuttled that plan and the Kremlin settled for a gentler approach, offering special legal and tax preferences for companies to undertake big new investment projects – and meeting with the biggest players individually to make sure they sign up. The Finance Ministry is targeting 8tn roubles of additional investment under the new mechanism through 2024, when Putin’s current term ends, according to ministry spokesman Andrey Lavrov. Officials are meeting with company executives individually to identify projects and sign them up.
Companies say for the moment they’re hoping to get special terms for things they were planning to do anyway, rather than actually committing to new spending. “The politicians have to recognise that even if they appeal to international experience with harsh forms of compulsion or public-private partnership, they need to make sure the projects aren’t just wasted money,” said Valery Mironov, deputy head of the Development Center at Moscow’s Higher School of Economics.
Overall, the government says annual investment needs to rise by 19tn roubles from current levels by 2024 to meet Putin’s target for raising its share in GDP, according to Economy Minister Maxim Oreshkin. That would put Russia in the same league as Turkey, but still far below China’s 42%. The Kremlin is counting on government spending on new roads, railways and other infrastructure to contribute, along with big state companies.
Sources and photo-credits: Bloomberg, Gulf Times