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Russia: Investors Hope For Large Profits Despite Troubles

London, 15 June 1998 (RFE/RL) -- Former Russian Finance Minister Boris Fedorov says the Russian market is massively undervalued with many sectors offering "super profits" for discerning investors over the next few years.

Fedorov, now chairman of the board of the United Financial Group, and still a Duma deputy, says Russia cannot be compared with Poland or Hungary because of the immense scale of its economy.

Pointing out that Russia has two and a half million registered legal business entities, he says no one really knows what is going on in these companies and enterprises, apart from the first 200 or so that are best known.

He says thousands of companies offer "potentially very interesting investments," although, since the distribution of market information is inefficient, investors need special insights in order to capitalize.

Fedorov gives his views in an interview with "Investing in Russia," a glossy new English-language financial journal focusing on investment opportunities across the vast Russian market. Some analysts say food processing, beverages, transport, pharmaceuticals and cosmetics offer some of the most lucrative opportunities.

Fedorov says international investors are being lured to Russia from Mexico, Brazil and other emerging markets, encouraged by the "huge number of opportunities" that it offers. He says these investors, with specialist knowledge of how emerging markets behave, "realize that there are three to five years left when super-profits can be earned in Russia."

Publication of the interview came this month after the financial slide that hit the Russian economy, further depressing its stock markets, which are among the worst performing in 1998. But Fedorov says he is optimistic about the future despite persistent problems.

These problems include unrealistic budget targets; the failure to collect taxes; the embezzlement of state funds; and the fact that millions are still directly dependent on state handouts. Fedorov says the government lacks the political will to tackle the non-payment of taxes. He said if it cannot persuade the rich and powerful (what he calls "the high and mighty") to pay taxes, what chance is there of getting millions of ordinary people to pay up?

He said in "absolutely outrageous cases" where people earn millions of dollars a year, and pay no taxes at all, they should be dealt with "publicly." He also said the government cannot demand that people pay their taxes if the government itself owes money to the people. He said the pension system has to be changed because far too much is taken out of the wages bill for various social funds.

Fedorov said the government needs to establish a normal investment climate by attacking extortion, bribery and bureaucracy, the main obstacles to serious foreign investment.

He expressed confidence that a new Russia is being created, albeit slowly and inconsistently, that will eventually occupy a prominent place in the world economy. He concluded: "Then we will discuss Russian investment in the West more than we are now discussing Western investments in Russia."