In the next 10—20 years, direct investments by the population in the economy may be half as much as from the banking system. Now, US citizens, investing their money in development and construction companies, are raising investment profitability to 12—14%. The testing of similar projects is taking place in Russia. Progress was discussed at a sitting of the Integration International investors’ club which took place at the President Hotel in Moscow. It was dedicated to the search for new investment schemes.
From deposits to an equity market?
The Russian construction sphere needs investment badly. But it is impossible to satiate the market without increasing the inflow of capital funds into the economy on the whole.
Russia today is a bright example of the economics of state capitalism. The main investments in the real estate sector flow from either the budget or state corporations and foundations. It is logical that the state’s share in the economy has reached 70%.
Besides, the efficiency of state investments is far from perfect, and with the growth of the state financial deficit, the source is becoming shallow. But still, according to the assessment of Alexander Kogan, President of the Integration Club, and minister of the environment and natural resources of the Moscow region, neither foreign nor private money can compensate for the losses.
Meanwhile, there is money in the country. According to expert evaluation, the population has up to $500 bln either stashed away or as banking deposits. Not so long ago the bigger part of this money was spent on realty, but at present this type of investment is unprofitable.
As Alexei Prokhorov, the President’s Councilor at the General Invest holding, thinks, private investors should study all possible investment variants for the money to reach the real sectors of the economy, including construction. They have already become familiar with the deposit stage, and now it is time to assimilate the equity market.
According to the expert, it is more profitable to invest money in federal loan bonds. At present, these are pretty much the most reliable security papers, more profitable than investments in real estate, and on their way to being a good alternative to deposits.
It is necessary to look for new forms of investments; for example, direct investments. According to Alexei Prokhorov, in a few years, the necessity of banking services will lessen, and private investors will deal face-to face with large companies.
A number of experts also think that private investors do not have much chance of success, as in several years their blocks of shares will be concentrated in the hand of large players, which in turn enhances the risks of direct investment.
Where to invest
The success of the investment process also greatly depends on another factor – power. According to Alexander Kogan, the Russian government is coming over to the concept of management. It is focused on the process, not the result: specific performances are determined at each stage of the project’s implementation, for example, how much labour efficiency has increased, how polluting emissions have decreased, etc.
Investors’ ability to use the authorities’ intentions, to study and to analyze information, is very important in the investment process.
When the Central Ring Road was being designed, many people bought land plots along its route. A lot of money was invested in nearby construction industry enterprises (sand and gravel pits) and infrastructure projects.
A good opportunity to cover the outlay for hotels and other service objects in a short period of time is afforded by the 2018 Football World Championship. Another variant of money investment is to take part in the program of waste utilization, on which the government is planning to spend 150 bln roubles (about $2.3m). It is a very profitable investment – the waste may be recycled for valuable materials.
And some people understood this long ago. As Alexander Kogan put it, it is one of the most criminalized spheres: of the total 11m tons of waste annually carried to the Moscow region’s solid waste landfills, only 2.3 m tons are “shown” officially, i.e. about 20%. The rest is managed by shady schemes.
We may only guess as to who receives the vast sums of money in play, so strong resistance to the authorities’ plans to make the sphere legal and available for private and honest investments may be expected.
Would people like to invest?
Meanwhile, Russian markets are decreasing. The number of insurance companies has decreased almost twofold, leasing companies by 50%, and banking operations by 40%. The number of real estate agencies has decreased greatly, especially in Moscow.
Many construction companies have gone bankrupt or are close to it. At the same time, 80% of the population are not satisfied with their living conditions.
It is the logical result of weakened investment activity in Russia and the domination of the state capitalism model over the economy.
— Now we have to study the domestic economy to find working financial mechanisms, Mikhail Belyaev, Chief Specialist of the Institute of Stock Market and Management, thinks.
But it is becoming clearer and clearer that investment hunger cannot be explained only by the lack of financial tools and market reduction. One of the reasons is the atmosphere in society itself. According to polls, 20m Russians sometimes think of emigrating. These people will not invest in the Russian economy.
When the young see poor old people, they give up. And they will not gain confidence in the future unless pension reforms based on investments takes place. Instead, the state again freezes retirement savings, annihilates the investment aspect of the state pension... And it decreases the young’s desire to live in Russia.
The more people are dissatisfied with their lives, the less they will invest in the economy. And this correlation will grow, first arithmetically and then geometrically.
That’s what the Russian authorities should think about.
Vladimir GURVICH
Photo by the “Integration” IC press office