Investment rating: research, review, tips

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The rating of a country's investment attractiveness is its place in the world according to the conditions it has for successful business. These conditions are assessed by specialized international and national rating agencies and associations.

What international rating agencies do

International rating agencies are studying the overall performance across the country. They look at metrics like:

1. Probability of default.
2. Barriers to market entry.
3. Administrative barriers.
4. The level of corruption.
5. Amount of taxes.
6. Cost of infrastructure resources.
7. Infrastructure status.
8. Inflation rate.
9. Cost of labor.

Such agencies include: Moody's, S&P, Dow&Johns. Their main task is to determine how favorable conditions are in the country not only for profit, but also for capital preservation.

Area of activity of national rating agencies

National rating agenciesstudy the investment attractiveness of individual regions and companies. On the basis of calculations, they create an internal investment rating of regions and all companies located on the territory of a particular state. In Russia, this is done by employees of various rating agencies. The most famous are the MICEX and RTS, which work in conjunction with the Moscow Exchange. The rating of investment attractiveness is based on specially developed evaluation and analysis criteria.

What is it for

National attractiveness rating is needed both for the investor and for the country. An investor needs data from rating agencies to assess the ratio of the level of profit and the risk of investing funds. For the country - to determine in which direction to act in order to attract investors. What advantages and disadvantages does this or that territory have, what changes need to be made to the legislation? What needs to be changed or fixed to make the country attractive, achieve high ratings and attract as many assets as possible?

What needs to be done to raise the level of the country

The investment climate rating is calculated based on what conditions the state offers for investors, both external and internal. Below is a list of conditions that the state must ensure if it sets the goal of attracting investment to the country:

1. Legal regulation. The easier and faster it is to draw up documents, the lower the investor's costs and the lower the risk of losing money even beforestarting a business in the country.
2. Low level of corruption. Bribes, kickbacks, low qualifications of officials - all this increases the risk of losing capital for an investor, which means that it is a negative factor that the state must fight against.
3. Low taxes. Countries with low taxes are the most attractive for investors.
4. Ease of registration and submission of tax and accounting reports.
5. Stability of the national currency.
6. Low level of social and political tension in the country.
7. Low utility rates.
8. Cheap raw materials.
9. The availability of cheap labor, both low-skilled and highly skilled.
10. Information support of the state.
11. Availability of infrastructure.
12. Efficient logistics.
13. Availability of a market for manufactured products.

It is desirable that all the above conditions be created in the country. However, if for some reason a country does not have all the conditions, but only some of them, this does not mean that it does not have investment attractiveness, just that the state can use its strengths to improve its investment rating. A prime example is China. In the early 1990s, China, lacking a developed infrastructure and highly skilled workforce, was able to attract investors with low barriers to entry, cheap labor and low taxes. Producing goods in China and selling them around the world turned out to be more profitable than in any other country. Today China is the secondworld economy. He was able to improve the conditions and his investment rating became even higher.

Possible investment risks

The main condition for attracting an investor is the stability of the country's economy and the security of invested capital. When choosing a country or region for investing capital, the investor always evaluates, first of all, possible risks. The main fears of investors are listed below:

1. Nationalization of the enterprise.
2. High level of corruption, sudden new demands and requisitions.
3. High inflation.
4. High chance of natural disasters.
5. Criminalization of the region.
6. Checks too often.
7. Lack of business culture of partners, non-compliance with the terms of concluded contracts.
8. Risk of higher taxes.
9. Political and social risks (strikes, revolutions).

Minimization of these risks depends entirely on the policy of the leadership of the country or region. Not everywhere the authorities understand the need to solve the problem of attracting investment, improving the investment rating. So the states of Africa and Latin America, which are considered countries with the most attractive climatic and geographical conditions for investment, are still living in poverty. Citizens are poor, the country is not developing economically. The investment rating of such countries is very low.

State in Russia

Russia has its own methods andtools for determining the rating of the state of the investment climate in the whole country and separately for each region. Despite the sanctions, the Russian Federation remains attractive for both domestic and foreign investors. Positive aspects attractive to investors are:

1. Big unsaturated market, low competition.
2. Cheap highly skilled labor force.
3. Developed, albeit outdated, infrastructure.
4. Affordable resource base, low tariffs.
5. Availability of tax incentives and subsidies.
6. The absence of social and political upheavals in the last 10-15 years.
7. Stable power, adequate Government.

The state is doing everything to show the country from the best side. First of all, attract investors with political stability, a high level of development of the scientific base, and attractive tax rates. But, despite all the efforts, there are still a number of problems in Russia that need to be solved. One of the main problems is the weak protection of private property, a high level of bureaucratization, and a complex tax system. Therefore, investors are afraid to invest in long-term projects, preferring to invest in mining companies.

Internal rating, ranking of Russian regions

Russia is a large country and on its territory, in different regions, the conditions for investors are different. In some regions they are better, in others they are worse. It all depends onthe geographical position of the region, the availability of raw materials, infrastructure, processing enterprises, scientific institutes, and climatic conditions on its territory. However, if a particular region does not have any advantages, this does not mean that it cannot claim a high position in the investment rating in Russia. Much depends not only on what the region or republic got after the collapse of the USSR, but also on what measures the new management team is taking to improve the investment climate.

Market rating of Russian companies

Many investors prefer not to build a business from scratch, but to invest in already operating companies. Naturally, they tend to invest in the most successful companies with a high level of income. For such investors in Russia, there is a national stock exchange - the Moscow Exchange, which has its own ranking system - MICEX and RTS. They include analysis and evaluation of about 50 most successful Russian companies. According to the level and dynamics of the movement of the MICEX and RTS, an investor can assess the national rating of the investment climate in Russia.

How external rating agencies evaluate the attractiveness of the Russian Federation

The opinion of analysts from international rating agencies has a strong influence on the decisions made by investors. Despite the sanctions and the decline in economic growth, international rating agencies give high marks to the state of Russia. Although in 2014-2015 the credit and investment rating of the Russian Federation was downgraded topre-default level. Foreign partners expected a sharp collapse of the economy by 7-10% and, as a result, popular unrest, but this did not happen. The economy, though slowed down, continued to grow. As a result, the national investment rating returned to its previous level.

International rating agencies and associations assess the attractiveness of both the country as a whole and for individual regions. Particularly distinguished are Moscow and the Moscow region, St. Petersburg and the Leningrad region, as well as the Far East and some cities of Siberia (Tyumen, Yekaterinburg).

Measures to increase investment attractiveness

Another topic that also needs to be explored. National ratings of investment attractiveness of Russian regions began to be carried out only a few years ago. Over the past 15 years, the country has been actively developing. There are first results and an opportunity to assess what has already been done, to determine what else needs to be done. A methodology was developed to increase the investment attractiveness of the regions. Took care of it for quite some time. The experience of regions and cities that have reached a high level of development and, according to the latest data, have taken the highest places in the national rating of investment attractiveness, was taken as a basis. In essence, the following is recommended to improve the condition:

1. Simplify redundant verification procedures.
2. Convert document flow to electronic format.
3. Increase the quantity and quality of services at the MFC.
4. Shorten the passage timestate expertise.
5. Standardize the forms of documents and their number in the package.
6. Introduce standard administrative regulations for the provision of public services.
7. Use generic assignments and contracts that investors can understand.

The practices of the most successful regions of the Russian Federation: Tatarstan, Moscow and St. Petersburg were used as a basis for developing recommendations. The rating of the state of the investment climate is compiled annually, published in economic publications ("Expert") and discussed at the St. Petersburg Economic Forum.