Information and methods

Starting provisions

Two characteristics are used for defining investment attractiveness: investment risk and investment potential.

Investment risk represents the likelihood of the loss of investments or income from investments. The integral risk evaluation consists of seven different risk types. A region’s rank in terms of each kind of risk is determined according to its relative deviation from the Russian national average risk, which equals one.

Investment potential takes macroeconomic characteristics into account, such as the geographical concentration of industrial facilities, consumer demand, and other factors. The aggregate investment potential of a region consists of eight individual potential factors, each of which in turn is defined by an entire group of indicators. Each region’s potential ranking depends on a quantitative estimate of its potential as a portion of the total potential of all 89 Russian regions.

The general indicators for potential or risk were calculated as the weighted totals of the individual potential or risk factors. Indicators were totaled, each according to its own weighted coefficient. A region’s final ranking was calculated according to the total weighted sum of the individual factors. As a result, each region has a qualitative rating in addition to its rank, reflecting how great investment potential is and how great the risk to investment in that particular region.

The results of the research are presented in tables, charts and a map, showing distribution, dynamics and grouping of regions according to investment risks and potentials and their constituents, and also explanatory text. The rating proper is the division of regions by overall potential and integral risk into 12 categories (table 2, charts 6 and 7 and the map).

More than 100 basic qualitative and quantitative characteristics have been used in the analysis of investment risk and potential constituents. The main sources of information are data of the Federal statistics committee, Ministry of finance of the RF, Ministry of economic development and trade of the RF, Central Bank of the RF, Ministry of tax and duties of the RF, Ministry of natural resources of the RF, Ministry of internal affairs of the RF, law database “Konsultant Plus-Regions” databases of "Expert RA" rating agency. Information on cellular communication and internet in the regions was provided by company iKS-Consulting. The results of the federal and regional elections were obtained at the web-site of Central Election Committee of the RF and election committees of regions. Besides, in making the rating we used information on legislation, strategies and programs of development presented on the sites of regions and also mailed by some administrations on their own initiative.

Estimation of the contribution weight of each of the integral risk or potential component was done through special interviewing of experts from Russian and foreign investment and consulting companies. This year among the experts there were a lot of heads and specialists of German companies working in Russia – members of the German Economy Delegation in Russia. We also asked for expert opinion heads of investment departments of some regions.

The results of the comparison of expert weights of different types of risk and potential are presented on chart 5. Experts still attach much importance to legislative and political risks and also to labor potential in forming favorable investment climate.

Necessary changes

A peculiar feature of the present, ninth rating is that there have been revised the system of regions` numbering in tables and charts. In all the previous ratings the numbers of regions corresponded to their numbers in the system of economic regions of the former USSR. Nowadays this system is not valid any more and has been exchanged for the numeration according to federal districts in statistics.

Last year was notable for some important events in political, economic and social life of the whole country and some of its regions, due to which the position of some regions in the investment rating changed dramatically.

In 2003-2004 the “political landscape” of Russia has changed completely: there were held Duma and presidential elections, also highest officials were elected in 30 regions. Besides, in estimating political risks we took into consideration such facts as interethnic tension in the region, law suits against governors, resignations of regional governments etc. These changes were to the best advantage of Moscow, Perm, Kemerovo and Tomsk provinces, who have gone up in the rating of political risk by more than 40 positions in a year. Altai territory, Republic of Kabardin-Balkaria and Yaroslav province lost most of all.

Stirring up of federal and regional law-making, new laws appearance led to redistribution of regions according to the level of legislative risk. Average change of this risk rank in 2004 was 20 position as compared to 2003. For instance, Khakass Republic improved its rank by 69 positions, Yamalo-Nenetsky autonomous okrug – by 59 positions, and Alaniya (North Ossetiya) Republic – by 53 positions. Vice versa, the legislative risk has increased drastically in Tatarstan, Altai and Komi Republics.

New risk factors predetermined a more thorough approach to social, criminal and ecological risks. Thus, in social risks for the first time we took in to account such a frequent happening in small regional towns as heating grids accidents and also the poverty level (see table 6 and table 7). In calculating ecological risk besides the intensity of economic activity impact on the environment we took into account comprehensive estimation of climatic conditions of human life according to O. Nazarevsky`s technique developed back in seventies.

Finally, the criminal risk was estimated with all the possible completeness including the frequency of terrorist acts. Among the types of investment potential the procedure of estimating infrastructural potential has undergone most changes. The data provided by iKS-Consulting allowed to adequately estimate this type of potential taking into account internet and cellular communication coverage in regions (see table 12 and table 13).