What attracts investors to Russia? In 2007, foreign capital inflow into the non-public economic sector doubled to $80bn against the previous year. This points to growing confidence in the Russian economy.
The economy’s sustainable growth pace and significant foreign reserves, which exceed $530bn and are the third biggest in the world, have made the Russian rouble attractive and the most stable currency alongside the euro. Russian authorities are determined to make the rouble one of the regional reserve currencies in the near future. The government believes that this will further improve the country’s investment climate.
Investors in Russia are protected by Russian legislation and by over 50 intergovernmental agreements on investment protection. In the past eight years, the Russian stock market index has surged 12-fold, posting the best result in the world. Capitalisation of Russian companies in 2008 equalled 90% of GDP. It will continue to grow, and so will the number of Russian companies among the world’s leading firms.
Last year, the Russian economy received over $200bn in foreign investment, of which $52bn was direct investment. Of this sum, over $186bn came from EU countries.
Again, the biggest investors were Cyprus, the Netherlands, Luxembourg, Britain, Ireland, Germany, France and Switzerland. The structure of foreign direct investment (FDI) has changed visibly, and now the bulk of it, 32%, goes to manufacturing and only 19.5% to mining. Many foreign companies have long been doing successful business in Russia or cooperating with the country. Some European companies now prefer to reinvest the profit they receive in Russia in development of their Russian business. This is what IKEA is doing.
Given the growing revenues from oil and gas exports, Russia’s budget for the first six months of 2008 had an 8% surplus. This is a new record.
Investor’s Guide What sectors of the Russian economy will soon need major investments, both from the budget and from the private sectors? The sum in question is something Russia could not have dreamt of even five years ago.
Transport Development Programme Investment for this purpose is estimated at RUR13tn ($553bn, or €356.6bn). Of this sum, 40% will be provided by the federal budget. The rest will come from investors, both Russian and foreign. The programme embraces railways, roads and airports. In 2010-2015, it will mainly focus on road construction. Foreign investors will find truly great prospects here.
Programme of Power Generation Development until 2020 The programme envisages putting into operation over 40 GW of generating capacity within the next five years and the construction of almost 100,000 km (62,150 miles) of power grids. Investment in the project will total some RUR20tn, or about $1tn.
Nanotechnology and Innovation The programmes for development of nanotechnologies, civil aviation and shipbuilding call for investment of tens of billions of roubles.
Vladimir Putin’s Investment Commission In April, Russia adopted a law on foreign investment in commercial organisations that are of strategic importance for the country’s national security. A commission, chaired by Prime Minister Vladimir Putin, has been set up to consider investment in strategic sectors and issue necessary permits.
When asked by your correspondent about how such permits would be issued, Zhukov said, “In such cases, the Federal Anti-trust Service will prepare all the necessary papers, the investor will have to submit the required documents, and then the issue will be discussed at the commission’s meeting and a decision will be made. This procedure has been specified in the law on foreign investment.
This procedure is fairly transparent.” Zhukov pointed out that for a majority of foreign investors the restrictions applied only if they wanted to buy over 50% of a company or over 25% if it is a state-owned investment fund. Obviously, some industries, such as oil and gas production, have tougher restrictions (10%). A lot is yet to be done to improve Russia’s investment climate, including curbing inflation. The country has already adopted a relevant programme.
Advisory Council on Foreign Investment Zhukov told European businessmen that Russia had an important tool for foreign investors’ communication with the government in the Advisory Council on Foreign Investment. It was set up in 1994 and includes about 30 top executives of the leading Western companies that have offices in Moscow.
Investment in Sochi On July 4, 2007, Sochi was elected to host the 2014 Winter Olympic Games. The Russian government has adopted and is already implementing the Programme for construction of Olympic facilities and development of Sochi as a mountain resort.
The planned investment projects will make Sochi one of the hottest investment destinations in Europe. The programme, which is being carried out as a public-private partnership, gives broad opportunities to foreign investors, who can invest in hotels, tourist centres and some sports facilities. The responsibility for the programme’s implementation lies with the state-owned corporation Olympstroy, which has been set up specifically for this purpose. It is accountable to the Russian Ministry for Regional Development. Foreign investors have a unique opportunity to take part in the construction of facilities in Sochi.
In 2009, the Sochi 2014 Organising Committee will launch its sponsorship programme, and any company can become the exclusive partner of the Sochi Olympics. Private investors may thoroughly study the construction programme, which includes about 220 projects, such as sports facilities, road infrastructure, water treatment plants, hotels, an airport, power plants, etc. Tenders will be held for each of the projects.
More information is available at Olympstroy’s website at www.sc-olymptroy.ru (currently only in Russian). The website of the Organising Committee (whose Supervisory Board is chaired by Zhukov) at http://sochi2014.com also offers information about tenders, including in English.
We hope that Zhukov’s invitation to foreign investors to put their money in Russia, its development programmes and the construction of Olympic facilities in Sochi will be accepted on the scale Russia needs. After all, the programmes in question cost trillions of dollars.
