Investment opportunities in Russia

With over $450 billion in its reserve that can help Moscow withstand almost any global economic shock, Russia has an upper-middle income mixed and transition economy. It is also the fifth-largest individual economy in Europe, and sixth-largest in the world by purchasing power parity. In terms of nominal GDP, Russia stands at the eleventh position in the globe. Located in Eastern Europe and Northern Asia. Covering an area of 17,125,200 square kilometres, Russia is the largest country in the world by area, spanning more than one-eighth of the Earth’s inhabited land area. This unique trend makes Russia an influential investment destination for both Asia and Europe. Russian contains over 30 per cent of the world’s natural resources. As per The World Bank estimates the total value of Russia’s natural resources is over $75 trillion US dollars. Thus energy revenues drive most of its growth. The abundance of oil, natural gas and precious metals, adds to the major share of Russia’s exports. This makes Russia an “energy superpower” of the world.

Russia has come a long way since the 1991 breakup of the Soviet Union and its command economy. Today, the government only owns the oil and gas industries leaving enormous scope for the private business to grow and function independently.

Besides this, many reforms undertaken by the Russian government have also helped the nation to become one of the most preferred investment destinations in the world. Ease of access and government facilitation centres adds to this convenience. With the focus of helping the investors and making Russia a premiere destination, Russian Investment Agency (RIA) was established on December 20th, 2013 in collaboration with the World Association of Investment Promotion Agencies (WAIPA). The non-profit non-governmental organization helps to attract direct foreign investments potential into the country. As stated by President Vladimir Putin, “Russia will always be open to foreign investments, cooperation and implementation of joint projects with representatives of all countries of the world”, RIA’s main goal is to be a single client centre for foreign direct investors interested in doing business in Russian Federation. From analysing the global trends, identification of priority sectors and groups of investors, preparation of information materials, publishing articles, meetings with investors, holding bilateral and multilateral negotiations, signing of agreements and contracts, and assistance and support at all stages of implementation of investment projects, the agency fits the needs of every investor.

Russia borders eighteen countries (the largest indicator in the world), including two countries, partially recognized. The border by land is with the following countries: Norway, Finland, Estonia, Latvia, Lithuania, Poland, Belarus, Ukraine, Abkhazia, Georgia, South Ossetia, Azerbaijan, Kazakhstan, China, Mongolia, North Korea. Russia is a member of international organizations such as the UN, CIS, EurAsEC, CAC, CSTO, SCO, APEC, BRICS and others. While all of Russia is a major investment magnet, regions that account of most of the foreign investment in Russia are, Moscow region, St. Petersburg, Kaluga region, Leningrad region, Chelyabinsk region, Arkhangelsk region, Nizhny Novgorod region and the Komi Republic. Of these Moscow gets the highest percentage of investment. Positive demographic indicators suggest a good mood in the society and citizens’ confidence in the future. Due to systemic reforms, Russia is starting to have a competitive advantage almost in all areas.

Russia has stable legislation aimed at protection of ownership and capital, investors and investments, as well as the developed judicial system. In some regions of Russia special legislation has been adopted, and special economic zones have been created. There are also special industrial clusters – production zones equipped with all necessary communication means and networks. The legislation in the sphere of public-private partnerships has been significantly improved.

Foreign investors are guaranteed certain property rights to their investments in the Russian Federation and profits earned in Russia. Foreign investments are regulated both on a Federal and regional level. According to the Federal law on foreign investments, certain limitations can be placed on foreign investors, but only if these limitations are required to protect constitutional guarantees such as the health, rights and lawful interests of citizens, or state defence and security measures.

Foreign investors are subject to the same treatment as Russian investors. Restrictions on business activities such as licensing, notifications and permission requirements apply to both Russian and foreign legal entities. Foreign investors are guaranteed the full and unconditional protection of their rights and interests. A foreign investor is entitled to recover losses caused by any unlawful action or omission by the Federal or regional state authorities under Russian civil legislation.

The property of a foreign investor or company with foreign participation cannot be seized by way of nationalization or requisition, except in cases stipulated by Russian Federal laws or international laws. In the case of requisition, the value of the seized property must be reimbursed to the foreign investor or company with foreign participation. In the case of nationalization, the value of the nationalized property and incurred losses must be reimbursed.

Over the past and current years the Government of the Russian Federation has adopted 42 State programs which cover all sectors of the national economy and the social sphere as well as elaborated “road maps” for their execution. The efforts of the state and corporate development institutions are aimed at the implementation of large investment, primarily, infrastructure projects. To ensure clean, safe and quick movement of resources, large transport projects such as modernization of Trans-Siberian railway, construction of high-speed railway line Moscow-Kazan, construction of Central motorway ring around Moscow have been in place. These projects are becoming the locomotives of regional development, allowing regions to increase their economic specialization and overall regional cooperation.

 Some of the key areas that have attracted foreign investors to Russia over the years are Healthcare projects, Agricultural projects, Leisure and entertainment projects, Industrial projects, Transportation and logistics projects, Minerals extraction and processing. The services industry is the biggest sector of the economy and accounts for most of Russia’s GDP. Within services, the most important segments are, wholesale and retail trade, repair of motor vehicles, motorcycles and personal and household goods; public administration, health and education; real estate and transport storage and communications. The industry contributes around 40% to total output. Mining, manufacturing and construction are the most important industry segments. The main assets of Russia are its abundant natural resources (oil, gas and metals) and its large and skilled workforce.

Key sectors that attract various investment opportunities in Russia:

 Energy sector: Though largely controlled by the government, Moscow provides an array of investors looking to invest in minerals extraction and processing processes. From providing logistical support to extraction machinery, investors can be part of Russia’s success story. The petroleum industry in Russia is one of the largest in the world. Russia has the largest reserves and is the largest exporter of natural gas. It has the second-largest coal reserves, the eighth largest oil reserves, and is the largest exporter, or second-largest exporter of oil in the world in absolute numbers.

 Mining sector: One of the leading producers and exporters of minerals and gold, Russia is the largest diamond-producing nation in the world. With an estimated production of over 40 million carats, the industry demands investors to provide experts in supporting the final deliverables. With the ice cap melting in the Arctic region, Russia will be further exposed to tap the area that contains large reserves of untapped oil and natural gas.

 Forestry: Still untapped, Russia occupies more than a fifth of the world’s forests making it the largest forest country in the world. However, the potential of Russian forests is underutilized and reflects not so good on its share of the global trade in forest products. Given the sheer volume of forest cover, the investors with the government of Russia have the opportunity to invest in the sector. From specialized machines, experts, manpower, and skilled labour to exposing the market to the world, the possibilities are limitless.

 Agriculture: With investment in organizational skills and technological modernization, Russia offers great end product adding significantly to its economy. The sector is an addition to the fishing industry and has room to double its production value. The investors can find possibilities in various sections including, export, machines, skilled labour, opening factories.

 Automotive sector: Employing over 900,000 people of the country’s total workforce, the automotive sector is the most sorted investment magnate in Russia. The industry supports around 2–3 million people indirectly and ads majorly to its economy. Russia is one of the largest car producers of the world and finds investors in almost every corner of the world.  The Russian automotive industry can be divided into four types of companies: local brand producers, foreign OEMs, joint ventures and Russian companies producing foreign brands. Investors have a plethora of economic activity to tap in Russia’s auto sector.

 Retail sector: It is estimated that the Russians spend about 60 per cent of their income on shopping, making for the highest percentage in Europe. This is because most Russians have their own home thus not spent on rent. The investors, therefore, have huge potential to exploit in shopping malls, a prime destination for spending money for the Russians. The emergence of the middle class in Russia also adds to this unique business proposition.

 Transportation: Russian Railways accounts for over 270,000 privately owned freight cars making it a hit property for the investors. Railways and other public modes of transportation help a majority of Russians to commute every day, calling for the investors to provide machines, skilled labour and logistics for the sector.

 Construction: The counter going through rapid change owing to modernisation and strong economy, the construction sector in Russia is taking giant strides each day. The sector attracts investors for the supply of dedicated experts, skilled labour and new building machinery.

 Besides these, some of the other sectors that are prone to investment possibilities are Insurance, Telecommunication, Electronics, Tourism and Information Technology. Some of the key indicators for FDI investors to consider Russia’s strong economic base; stable political environment after Vladimir Putin was re-elected in March 2018 for a six-year term; skilled workforce and it’s intermediate; low public debt on the economy; current account surplus and the comfort of foreign exchange reserves. Given the country’s growth and economic potential, Russia offers an immense possibility in the area of foreign investment. The economic reforms undertaken by Russia are also providing the vital push required. Russia ranks 28th, out of 190 countries, in the Doing Business 2020 ranking established by the World Bank, an increase of 3 places compared to the previous year.

 Russia has been a longstanding and time-tested partner for India. Development of India-Russia relations has been a key pillar of India’s foreign policy. Since the signing of “Declaration on the India-Russia Strategic Partnership” in October 2000 during the visit of President Putin, India-Russia ties have acquired a qualitatively new character with enhanced levels of cooperation in almost all areas of the bilateral relationship.

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