Russia's minister of trade and industry makes the case for Russia as a good place for European companies to do business.
In the summer of 1990, Russia declared its independence from the Soviet Union. In the two decades since then, much has changed. Emerging economies have come to the forefront, lighting up a path to growth through the shadows of a financial crisis.
While many European investors are keen to incorporate the markets of the BRIC countries – Brazil, Russia, India and China – into their portfolios, some are still hesitant to move into Russia.
I can understand their dilemma. They want access to Russian growth and our rising middle class, but they also want to minimise their exposure to the risk involved in entering a new market. So, as we enter a period of continued economic uncertainty, I would like to point to several trends that I hope will tip the balance for European investors deciding on entering the Russian market.
It is first important to see where we have come from. Back in 1992, we had some big challenges to contend with – curbing hyperinflation, steadying the exchange rate and halting the decline in output. Over the past decade, however, the average Russian's income has increased from $2,000 (€1,630) to $13,000 (€10,580), and today we have $512 billion (€417bn) in foreign reserves, an unemployment rate of 5.4%, subdued inflation and healthy consumer appetite. And we are continuing to achieve economic growth while financial uncertainty casts its shadow across world markets – in the first quarter of 2012 our gross domestic product grew by 4.9%, well above the government's own 4% forecast.
Our economic relationship with Europe is stronger than ever. Currently, we have 17 individual bilateral modernisation partnerships with European countries, and at the EU level our trade increased almost 30% in 2011, to over $370bn (€301bn). Last month's EU-Russia summit in St. Petersburg demonstrated how far we have progressed, with discussions on the table including greater bilateral trade, visa-free travel, and human rights. At the same time, the Russian Federation's full membership of the World Trade Organization in 2012, our chairing of the G20 group of rich countries in 2013, and our efforts to join the Organisation for Economic Co-operation and Development (OECD) in 2014, will strengthen our future economy and bring us into international frameworks of good economic governance.
For specific investment opportunities with a minimum exposure to risk, consider the multinational companies that are thriving in Russia. McDonalds, Proctor & Gamble and Ford are all currently growing their customer base, while Renault-Nissan and Coca-Cola have demonstrated their confidence in Russia through several recent high-profile deals. Indeed, investors put almost $53bn (€43bn) into the Russian economy in 2011 alone. This ‘business-friendly' climate was reinforced at the St. Petersburg International Economic Forum, with the announcement of a business leader, Boris Titov, as the new entrepreneurial ombudsman for Russia.
Untapped investment opportunities also exist in Russian infrastructure projects, with the government encouraging public-private partnerships (PPPs) particularly in the transport sector, to attract private investment. A case in point is the high-speed railway from St. Petersburg to Moscow. Its opening is planned to coincide with Russia's hosting of the 2018 FIFA World Cup. The overall cost for the railway construction is estimated to be $35.1bn (€28.6bn), 70% of which will be met by the state and 30% from private investors.
President Vladimir Putin reinforced opportunities for investors on the day of his inauguration, by signing a decree that simplifies business regulation and tax-reporting requirements. This move also enables European companies to participate directly in bids for certain infrastructure projects. Whilst this presents clear business opportunities, I believe that European companies must be prepared to contribute their fair share, and bring to the table modern technology, experience in organising production, and big export orders.
On the world stage
Lastly, I would point to Russia's intention to host international mega-events, such as the Sochi 2014 Winter Olympic and Paralympic Games and 2018 FIFA World Cup. Opening our doors gives rise to further investment prospects and participation from European companies. Take for example Ekaterinburg: Russia's fourth-largest city is capitalising on its expertise in science and technology in its bid to host the World Expo 2020. The city is investing billions in urban infrastructure, including modern transport systems, technical parks and one of the world's largest housing developments. Events of this scale give Russia the opportunity to share its modern, investment-friendly climate with European partners.
Overall, looking at our journey over the past 20 years and bearing in mind our current economic climate, I hope European investors share my optimism that partnership with Russia will continue to offer sustained and successful economic growth.
Denis Manturov is Russia's minister of industry and trade.