OREANDA-NEWS. April 29, 2010. More foreign investors will flock to Russia this year because the macroeconomic situation is improving as a result of the government's anti-crisis measures, said Chris Osborne, chief executive of Troika Dialog's U.S. office.

Unlike other emerging markets such as Brazil, China and India, where inflation will grow over the year, Russia will see its inflation rate decrease by the end of 2010, Osborne said in an interview.

"For the first time in the post-Soviet era, Russia will see a period of sustained single-digit inflation below 10 percent," he said.

Troika Dialog's inflation forecast for Russia is 6 percent for 2010.

Foreign investors are also attracted to Russia because of falling interest rates and government spending, increasing currency and gold reserves, and low debt levels, Osborne told The Moscow Times.

But the government also faces hard work ahead if it wants to keep investors interested, he said.

Troika Dialog expects the country's economy to grow by 5.2 percent this year, which is higher than the government's forecast of 3 percent to 3.5 percent.

“Lower interest rates, lower inflation are a good economic background for investors," Osborne said.

While central banks in other emerging markets are raising their rates, the refinancing rate of the Central Bank in Russia has reached a new historic low of 8.25 percent on March 29.

Osborne said the Finance Ministry's attempts to cut government spending were key in attracting foreign investment.

"In 2010, there will be no increase in government spending compared with 2009, and this follows a period when there were 30 to 40 percent increases in spending in the two to three years leading up to the crisis," he said.

Russia also has very low public debt, while corporate debt levels are manageable, Osborne said.

"All this creates a very good macroeconomic basis for investment. And this will attract investors, including U.S. investors," he said.

The government still has to work on stabilizing the equity market, which dropped by about 80 percent during the crisis, scaring off long-term investors, Osborne said.

Turning Moscow into an international financial center will do a lot for improving the Russian investment climate, he said.

President Dmitry Medvedev said Tuesday that the creation of an international financial center in Moscow had been slowed down by the crisis.

The process will be overseen by Alexander Voloshin, head of Norilsk Nickel's board and ex-head of the presidential administration, Medvedev's economic aide Arkady Dvorkovich said.

But before trying to win over Europe, Osborne said Moscow should focus on the Commonwealth of Independent States and play to Russian strengths by becoming a center for commodities trading.

"Right now we have the U.S., Europe and Asia, which are providing a 24-hour trading cycle. I think Moscow could be a good bridge between Europe and Asia in terms of facilitating commodities trading," he said.

This will not contradict Medvedev's plan to diversify the oil-dependent Russian economy.

Modernizing the economy is necessary for the country's long-term development, but focusing on trading commodities gives Russia a competitive advantage, Osborne said.

Foreign investors are interested in Russia's modernization attempts because the markets would benefit from having a broader range of economic sectors to invest in.

The growth of Russia's middle class may attract foreign investors to the financial services segment, as well as to consumer-related segments such as food retail and processing, telecommunications and pharmaceuticals, Osborne said.

The government, however, needs to remove administrative barriers and convince foreign investors that their contracts with Russian companies will be enforced in case of a dispute, he noted, calling it “the most important thing.”

"Companies on the ground in Russia understand that the Russian courts actually are effective in ruling on contract disputes, but the impression abroad is very different," Osborne said.