Our expert on this issue is Dmitry Baranov, a leading expert at Finam Management

What negative/positive impacts are to be expected from the Strategic Sectors Law?

The legislation in the strategic sectors basically meets all the modern business demands and has not been cardinally revised in the last years. But its practical application has changed as it has become much more stringent as more rigid measures have been adopted to enforce it. This stemmed from the fact the government has opted for the restoration of the state control over the economy, including the strategic sectors. This partly can be explained by the fact that up to 2000 the Russian legislation was in the formative stage and the transfer of assets then from hands to hands was not always legal and/or was accompanied with serious infringements of the laws. But another explanation is the fact that the authorities have chosen such economic vector of development, whereby only the state’s view on economic development is the only correct one. But only history will tell whether such approach is good or not.

How will this law impact on the other sectors of the Russian economy?

In my opinion, the laws regulating the other sectors of the Russian economy are working effectively as they meet all the needs of all the participants in the Russian economic process. But in practice, the measures to enforce these laws in the economy, including the non-strategic sectors, has become unfairly rigid and lopsided over the past eight years. This lopsidedness is seen more vividly when the most severe punitive options are being applied in cases, where there are different penalties for violations. Also, the tax authorities, courts and other law-enforcement agencies frequently side unequivocally with the government in corporate disputes with businesses. Consequently, entrepreneurs are finding it increasingly more difficult to defend their businesses. If this policy could be explained by national interests and security expediency in the strategic sectors so as to prevent “entrepreneurs from selling off their motherland,” such explanations fail to justify the state’s actions in the non-strategic sectors. The only plausible explanation is the need to return to the days, when the government owned everything and no one was responsible for anything.

Do you expect this law to impact positively/negatively on the in/outflow of foreign direct investments into/out of Russia, and if yes, how?

No, this legislation will not influence the in/outflow of FDIs into/out of Russia because it more or less meets the modern requirements of investment legislations and, besides, it is similar to the legislations in developed countries. Moreover, everyone wishing to invest in Russia has already got acquainted with the new law. Indeed, most foreign investors are not so much interested in legislations per se, but in how such laws are implemented in a country, how comfortable the local businesses feel in the economy, and finally, the general political and social conditions prevailing in that country. In reality, the volume of inbound FDIs is more sensitive to the actual steps being taken by the state, its enforcement of and compliance with the laws, as well as the creation of a normal investment climate in the country. Thus, if the authorities want the volume of Russia-bound FDIs to increase, it should create a legal framework, where investors will be sure that if they actually fall ill — in all senses of this word — that they have guaranteed protection, pending, of course, on their scrupulous compliance with the laws.

Are there similar legislations in other countries, such as the EU states, United States and Japan?

Yes, similar laws regulating foreign investments in strategic economic sectors exist in all these and several other countries. However, the radical difference is that the ‘principle of presumption of innocence’ exists in other countries, while the principle of the presumption of ‘state expediency’ operates in Russia. This means the state decides, at its own discretion, who is right and who is guilty, who should be punished for the slightest violations and whom to reward for actions that would land their perpetrators in custody for several years in other countries. One can only hope that this situation in Russia will change for the better soon, or at least, start developing toward such direction.