BRIC

Investors should give Russia a second look

November 4, 2013: 1:14 PM ET

Things in Russia aren't as bad as Western media makes it seem, and the good outweighs the bad for foreigners looking to make investments there.

By Maelle Gavet

Moscow

Moscow

FORTUNE -- Earlier this year, I encountered a Western journalist who was scouring the streets of Moscow looking for homeless people to film. He seemed disappointed when he was unable to find any to include in his footage, which was meant to depict the "real Russia."

I'm not sure what exactly he was expecting -- perhaps people swigging from vodka bottles astride bears in the middle of Red Square -- but his attitude is unfortunately typical of much of the Western media's approach to reporting on my adopted country.

Russia is more than vodka, cold temperatures, Pussy Riot, anti-gay legislation, squabbling oligarchs, and the occasional jailing of a prominent opponent to its President. You simply can't boil down such a vast, vibrant, and complex country to just a few talking points.

Not that they aren't legitimate topics for stories a free press should be reporting on, and one cannot deny that there are many questions about how personal freedoms and opposition to the Kremlin, among other issues, are handled in this country. But things aren't as bad here as Western media makes it seem, and the good outweighs the bad for foreigners looking to make investments in Russia.

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As the CEO of Ozon, the largest e-commerce group in Russia, I've had many conversations with professional investors. A common sentiment that surfaces is the need to factor in a higher risk ratio when investing in Russia, compared to almost anywhere else in the world. When pressed for an explanation, the typical answer is that Russia is unfathomably vast and not a democracy -- and thus inherently risky.

It's hard to argue that Russia is anything but vast, of course. In fact, it's a rapidly developing mega-market of 142 million consumers (and counting). A member of the World Trade Organization since 2012, Russia has become the ninth-largest consumer market in the world. It is the biggest mobile phone market in Europe, with an estimated 260 million phones in use (according to ACM Consulting), and an online population of 68 million (according to a 2012 Internet World Stats report). And this year, Ernst & Young ranked Russia as the sixth most attractive region in the world for foreign direct investments.

We can keep digging up relevant numbers, such as Russia's historically low unemployment rate (5.4%), but the key message is that there's reason to be optimistic about the country's economy and growth prospects, especially in the digital realm.

As for some investors' stated problem with Russia not being a democracy, I'd argue that democracy and a stable business environment are two quite different things. Just look at what happened in the democratic republic of Cyprus, where the banking system collapsed seemingly overnight. Or the way investors have been pumping money into China for years, despite the fact that there's less freedom of expression -- or indeed, democracy, for that matter – there than in Russia.

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And what to say about corruption, another thing often to be a reason for investors not to bother with looking at opportunities in Russia? As someone who has been running a large cross-border company with 2,000 employees across five businesses in Russia, I can comment based on personal experience. Ozon operates a zero-tolerance policy when it comes to any form of corruption and hasn't paid a single bribe in its 15 years of operation. We've managed to grow without money flowing through a shadowy culture of bribes, sweeteners, and pay-offs, which means others can, too.

Of course corruption occurs -- and I would argue it happens in a lot of countries, including many Western nations -- but the question is how prevalent it really is, and whether the effect on the stability of the business environment is as big as some media and investors make it out to be.

In my experience, bureaucracy is a bigger problem. In Russia, it's a beast that must constantly be fed and whose appetite never wanes. Legislation is exquisitely complex and paper-based, requiring battalions of lawyers and accountants, and from executives like me, signatures in triplicate. Complexities are layered into almost every aspect of daily business life, to the point where you can get "caught" for not following obscure laws you never even knew existed.

Another area in urgent need of an overhaul is basic infrastructure, such as transport and communications. Despite Russia's growing wealth, rich history and world-class school system, the country does not yet have the roads or broadband connections (let alone speeds) necessary to underpin rapid growth.

While Russia undoubtedly still has a long way to go by Western standards, there has never been a better time in history to be born here. People have simply never been better off.

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The country, a leading global energy exporter, has never been more industrialized, and its labor force has never been more educated, with increasing disposable incomes to spend both online and offline.

While the global financial crisis has wrought lasting havoc across the world, Russia's economic performance has remained relatively strong. None of the country's banks have collapsed and, for all its flaws, government has provided a stable political environment, demonstrating that it can control inflation.

According to Morgan Stanley, Russia has low external debt of just 31% of GDP and last year ran a current account surplus of 3.6% of GDP, alongside a fiscal surplus of 0.4%. How many Western countries could say the same?

Moreover, educational standards are high in Russia, with technical education outperforming that of most, if not all, European nations. It's not surprising that Russian coders often outright dominate computer-programming contests held worldwide.

In the U.S., private investors tend to be awash with funds, but with competition so fierce, they are forced to spend their time scouring for worthwhile opportunities. In Russia, it's the other way around. The ecosystem is much younger, meaning there aren't that many startups, while those that do exist often struggle to raise capital.

Bottom line: Russia is often mistakenly viewed as a "risky country" for investments -- for all the wrong reasons. The reality is that there are bad things going on here, but arguably nothing that doesn't happen elsewhere too. Another reality is that the Russian economy is strong, the growth potential for many of its enterprises genuine, and the potential for significant returns on investments high. Ignore at your own peril.

Maelle Gavet (@MaelleGavet) is CEO of OZON, the largest online retailer in Russia. In 2012 she was featured in Fortune's 40 Under 40. 

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