Clean up if you want investment, OECD tells Russia

Russia must do more than lift its currency controls if it wants bigger foreign investment, and should avoid closing off too many sectors in the name of strategic or security interests, the OECD said on Wednesday.
Russia, which hosts a summit of the Group of Eight economic powers later this month for the first time, ended all remaining restrictions on capital account currency movements on July 1 and says it expects the move to boost investment in the country.
Corruption and a lack of clear, reliable rules remained a big hurdle to foreigners, as could a proposed law on protection of certain sectors, said the Organisation for Economic Co-operation and Development, which groups 30 mostly industrialised nations. "Our main message is that it's good for you (Russia) to be a clear and reliable partner," Blanka Kalinova of the OECD's investment division, told Reuters.
The OECD, which conducted a review of investment policy in non-member Russia, welcomed the abolition of currency controls, which in essence makes the rouble a convertible currency just like the dollar, making it simpler to acquire Russian assets.
"But if it's to have a sustained impact, the authorities need at the same time to accompany it with other measures, including adequate reporting on transactions and robust prudential oversight of financial institutions," the OECD said.
Foreign direct investment was below the international average at 3 percent of Russian gross domestic product in 2005, and much of that appeared to be reinvested money that had been held offshore, not foreign investment per se, the OECD said.
Some 28 percent of so-called foreign direct investment in 2005 came from Cyprus, it said in a statement. "Corruption remains a big problem. Greater transparency is needed...new regulations are often introduced without prior consultation with firms and this adds to the lack of policy predictability," the statement said.
Analysts and asset managers outside Russia say the move, while welcome, is unlikely to trigger a flash-flood of foreign demand for rouble-denominated assets.