Political Aspects of Investment Climate

As they attract investors, heads of administrations prolong their political life

In the previous publication of our investment rating we already speculated that there is a link between the political achievements of regional leaders and investment climate. This link received convincing proof this year (Table 26).

From the start of a new political cycle in 1999 to the time when this investment attractiveness rating was compiled, chief executive elections have been held in 68 Federation regions, with 42 regional leaders keeping their posts and new leaders elected in 26 regions.

Regional leaders lost their posts in regions where investment risk had risen to the utmost during their term in office. They include the Komi-Permyak autonomous district, which descended in investment risk rank to 72nd from 59th in 1997/1998, the Republic of Marii El (to 57th from 37th), Orenburg region (to 21st), Kursk region (to 27th), and Primorskii territory (to 30th). The situation i the last two regions, during Evgenii Nazdratenko and Aleksandr Rutskoi's administration respectively, was so complex that they were removed by different devices from taking part in elections.

In several constituent members of the Federation where regional leaders were re-elected, there were "alarm signals" for them. Vasilii Starodubtsev in Tula region (a descent in the risk rank of 14 positions) lost nearly 11% of the votes, and governor Yurii Lodkin of Bryansk region (a decline of the risk rank by 7 and of potential, by 9 positions) lost 12% of all votes.

People do mark real achievements of their regional leaders in shaping investment climate. At the new elections, the following leaders were again re-elected, winning 10% or more votes over previous elections: Kostroma region governor Viktor Shershunov (the region decreased its risk by 34 positions from 1997/1998), Kirov region governor Vladimir Sergeenkov (a decrease of risk of 33 positions), Udmurtian president Aleksandr Volkov (a risk improvement of 33 positions), Chita region governor Ravil' Geniatulin (a decrease of risk by 17 positions), and the governors of Vologda and Astrakhan regions and the Aginsk Buryat autonomous district.

One cannot help noting that there is a feedback feature. The intensification of the electoral race of itself materially increases investors' regional risks. It is no accident that the regions to climb the highest up the scale of the risk ranks were ones where elections were held before 1999.

If we also consider the fact that legislative and political risks are of the highest importance for potential investors, it becomes clear that the efforts of chief executives in Federation member regions to create a good investment climate are not merely a factor in attracting investments but to some degree also a warrant of a favorable outcome of elections for the regional leaders themselves.