Russia's policies frighten foreign investors: Ernst & Young

Moscow - Foreign investors see prospects in the Russian market but are frightened away by the country's non-transparent policies, according to a poll by British auditing firm Ernst & Young.

The poll of 150 international private equity funds showed respondents were most of all attracted by the prospects of the Russian market (75 percent), telecommunications infrastructure (69 percent), cheap labour (69 percent) and the high labour skills level (68 percent).

The least attractive feature for investors was non-transparent political, legislative and administrative environment (64 percent), the unstable political environment (56 percent) and insufficient support measures from public authorities (56 percent).

The negative view is reinforced by a perceived lack of innovation and the dominant role of state-owned enterprises, the report said.

Although investors remain cautious, investment projects continue to flow.

In April 2012, more than 48 percent of surveyed foreign private equity funds were planning to invest more capital in Russia, compared with 25 percent in October 2011, the report said.

Russian companies are interested in foreign investment due to limited public placement opportunities, difficult debt markets and high levels of accumulated debt, the survey said.

New investment is most likely to come from those foreign companies already operating in Russia -- 64 percent of these investors are planning to increase their operations in Russia and another 31 percent are set to maintain operations in the country.

Companies not already established in Russia are more reluctant, with 86 percent of them not planning to invest in Russia.

Seventy percent of investors believe Russia will be more attractive in the next three years, the survey said.