Investment climate. Investment attractiveness
For a start it is worth giving a definition to investments. They represent a set of costs of labor, monetary, material resources invested in expanded reproduction, fixed assets of branches of the national economy.
For the Russian economy, this term is relatively new. If we talk about a centralized planning system, then such a concept as gross capital investments was made up, which consisted of the costs of reproduction of OF, including the costs of their repair.
What is the concept under consideration?
The term “investment” implies a broader concept: it includes real investments (close to capital investments in content) and portfolio (investments in bonds, stocks, and other securities that are tied directly to the title of the owner and give the right to receive income from them ).
The latter are also called financial.They can be regarded either as an additional source of capex, or as the subject of an exchange game. However, a certain part of financial investments is an investment precisely in the shares of successful enterprises of various branches of material production. They are by nature the same direct investment in production.
The objectives of a competent investment policy
- Formation of an investment climate favorable for increasing investment activity of a primarily non-state sector.
- State support of the most important life-supporting industries and the social sphere against the background of increasing the efficiency of capital investments.
- Attracting private foreign and private investment in the reconstruction of enterprises.
Investment climate: factors
In Russia, this factor was recently given insufficient attention, now the state began to realize the need for a well-built investment policy and, most importantly, it began to take the right actions. So, over the past few years, one can observe a number of changes in its change: for example, the elimination of structural distortions in our economy is gradually taking place.However, the state is aware of the lack of a quick automatic effect as an increase in investment and production growth while reducing the level of inflation and interest rates.
First of all, this is due to 2 factors:
1. Lack of willingness to receive investment: enterprises are not ready for proper disbursement of funds due to poor management quality.
2. This leads to the lack of investors' willingness to invest in unreformed enterprises due to high risks (insecurity of property rights, substantial risk of non-return on investment due to illiterate management) and the inability to establish an adequate level of risk (lack of transparency of the current financial condition of companies, their liquidity and investment activity) .
Investment climate: definition, role
Its importance is determined by the selectivity of the directed investments, which is related to the fact that the capital market is constantly developing in favor of the producer, since the requirements for so-called free financial resources, as a rule, exceed the possibility of accumulating such.
So, the investment climate is a combination of political, financial, economic, socio-cultural, legal conditions prevailing in a particular country, establishing the effectiveness of investment, the quality of infrastructure (entrepreneurial), the degree of risk in capital investments.
Most often, capital is directed to such zones that provide high profitability, stable liquidity and security. Investors first of all take into account the probability of investment risks as the possibility of non-achievement (incomplete achievement) of the goals set.
To establish investment risks, special methods are used to calculate critical points, probabilistic stepwise assessment, adjustment of parameters, sensitivity analysis, etc.
Investment Promotion Factors
In other words, those that form a favorable investment climate, namely:
- Great potential of the domestic market.
- Low level of competition.
- Acceptable cost of labor, financial, raw materials.
- Increased profit margin.
- Stable tax system.
- Effective state support.
Factors impeding the development of investment activity
An unfavorable investment climate implies:
- Political instability.
- Adverse macroeconomic indicators (high level of refinancing rate, inflation, external, internal debt, negative dynamics of economic development, budget deficit and balance of payments).
- The high level of transaction costs.
- Social tensions (religious, ethnic unrest, corruption, bureaucracy, strikes, lower living standards of the middle class).
- Underdevelopment of legislation that regulates both the investment sector and the investment infrastructure as a whole.
- Adverse from a production point of view, depreciation policy.
These are the main factors that may characterize the investment attractiveness, a special role among them is assigned to legal stability, it is fixed in the legislation of most countries as a clause on the non-use of new legislation for a fixed period of time, which limits the rights of subjects of investment activity, worsens the conditions for its implementation relatively previously existing.
What are the possibilities of attracting investment climate?
Objectively, they are related to the investment climate in a particular country. Subjectively, these opportunities depend on the existing investment image, formed under the influence of real processes of the evolution of entrepreneurship, and special targeted incentive or restrictive inflows of foreign investments carried out both within the country and on the world stage.
The investment climate in Russia is regulated by the state through:
- Expansion of the resource potential, development of the regulatory framework, market infrastructure.
- Development of special measures of state support, protection of investors (tax incentives, guarantees, subsidies, etc.).
Our state strongly promotes the formation and further stabilization of the designated investment image through the work of the Advisory Council, which oversees foreign investment in Russia, as well as the issue of shares in accordance with the Munich negotiation process, the elimination of the so-called double taxation,strengthening the activity of legislative bodies regarding the provision of education to the most important investment areas (creation of a favorable regime, conditions for the functioning of foreign investments, drawing up concession contracts, various kinds of agreements on production sharing, formation of a zone of special economic status).
The investment climate is estimated using special methods. So, for countries with a transitional type of economy, as well as for developing countries, the “Bury index” method is used. This is a synthetic indicator, which is the sum of points of expert assessments of special indicator factors that determine the individual aspects of the investment climate. Then, according to the results of calculations, countries are ranked, which is then taken into account in the process of making an investment decision.
Foreign direct and portfolio investments in our country
The main ways to attract foreign investment:
- Registration in the Russian territory of companies that are fully owned by foreign capital.
- Favorable investment climate in the region through the formation of the FEZ.
- Attracting foreign capital in the form of a business through the formation of joint ventures (including the sale of large stakes in our joint stock companies to foreign investors).
- Attraction of foreign capital on the basis of concessions, agreements on production sharing.
In order for foreign direct investment to increase in Russia, it is necessary to develop a comprehensive state program. Based on the experience of most foreign countries, in addition to measures aimed at the general improvement of the macroeconomic, political situation, it is necessary to introduce others:
- Formation of a really effective complex preferential system for foreign investors in individual industries and regions, due to which investment attractiveness will also increase.
- The introduction of a stable economic, foreign trade legislation, as well as the regulatory framework for production sharing and concession.
- The introduction of private land ownership.
- A clear division of ownership between economic entities, as well as between local and federal authorities.
- Reducing the heavy tax burden, simplifying the tax structure.
- Development of insurance mechanisms for foreign investments.
As for the portfolio, their goal is to invest the invested funds in the securities of successful enterprises, issued by government agencies or local authorities to get the maximum benefit on the money invested. It is important to note that a portfolio investor takes the position of a so-called outside observer with respect to an enterprise - an object of investment; he often does not interfere in his management processes.
Attracting foreign financial investments is also an important task for our economy. Through foreign portfolio investors it becomes possible to solve a number of economic problems:
- accumulation of borrowed funds by domestic enterprises in order to implement relevant projects by placing debt securities of our issuers among foreign financial investors;
- effective restructuring of the Russian foreign debt through its conversion into government bonds with their further placement among foreign investors;
- replenishing the own capital of our enterprises for long-term development by placing shares of domestic joint-stock companies among foreign portfolio investors;
- replenishment of the local, federal budget of the subjects of the Russian Federation through the placement of debt securities issued by certain authorities among foreign investors.
Two main streams of foreign financial investments attracted to our country:
- Investments of financial investors in bonds, shares of domestic joint-stock companies, which freely circulate both in our and in the foreign market.
- Investments of foreign financial investors in internal, external debt obligations of the Russian Federation, securities issued by subjects of the Russian Federation.
The main ways to improve the investment climate in our country
The increasing role played by investment liberalization today. Improving the investment climate can be achieved through the use of special measures to liberalize the entire investment process, in particular the introduction of a preferential mode of investment, liberalization of the regulation of property rights, simplification of licensing procedures, weakening state control.
The essence of the National rating of the investment climate of the subjects of the Russian Federation
This is an element of an integrated system for improving IC in the regions of our country through the development of motivational tools of regional authorities, an effective mechanism for the exchange of effective practices. The national investment climate rating is based on a dialogue between government and business.
Its goal is to assess the key factors in the formation of a favorable IC. An analysis of how the investment climate in the region has improved thanks to the efforts of regional authorities.
The essence of the investment forecast
Obviously, for advanced reproduction, a search for additional materials and financial resources is necessary. Thus, the search for such sources, as well as the establishment of the required volume - these are the most acute problems that can be solved using the investment forecast.
Medium and short-term forecasts are based on long-term calculations. Among long-term forecasts, investment and innovation dominate. Their important role is justified by the need to implement long-term actions, as well as the presence of substantial capital.In this regard, the task of the rational work of the company is the determination of the optimal volume of production (sales) and the required costs, taking into account the already existing (prospective) technologies.
So, the main thing in determining the optimal volume of production and costs is the calculation of the required amount of fixed capital for further development.
Of all the decisions taken by the firm, the rationale for long-term costs, namely capital investment, research institute costs and investment, has the greatest complexity, risk and uncertainty. It is they who in the future will determine the company's position in the market. So, the investment policy is part of its strategy, which is aimed at increasing assets to generate substantial profits in the future. Just like any other strategic plan, the investment policy should include a forecast of the degree of project efficiency.
To make investment forecasts, it is necessary to justify the choice of the relevant projects, and then the best of them. This can be done through the following methods:
- the rate of return on invested capital;
- cash flow;
- discounting funds.
The article dealt with such concepts as investments, investment policy and its factors. Considered in detail the investment climate in Russia, ways to improve it.
To summarize all of the above, it can be emphasized that attracting foreign investment in our economy is one of the most necessary conditions for Russia’s exit from the current economic situation. This requires significant rule-making, organizational efforts both from the Russian authorities (federal, regional), and from individual enterprises and financial institutions. Generally, the latter should be focused on the following:
- improvement of the Russian investment climate, stabilization of the legislative, economic situation, as well as the creation of an effective economic legislation;
- the organization of a competent domestic Russian capital market, which should ensure the full interconnection of the securities market and the real sector.