Russian Federation
Discover more about the economic history and investment potential of the Russian Federation.
Learn about the country’s prime investment companies and investors.
Economic History in Brief
The Russian Federation is a sovereign country in Eastern Europe and North Asia. It is composed of 85 constituent regions, grouped into nine federal districts under the administration of presidential envoys. Known as the largest country in the world, the Russian Federation covers 17,125,200 square kilometres – over an eighth of the inhabited land area of earth. It is populated by more than 144 million people. The country has massive deposits of natural resources, particularly oil and natural gas. By nominal GDP, the Russian Federation has the 12th largest global economy, and the 6th largest by PPP. Greater political stability and a higher level of domestic consumption reinforced economic growth in Russia around the turn of the 21st century.
After a fall in oil and gas prices following the global recession, economic growth slowed as it was primarily driven by non-traded goods and services for the local market. Over US$170 billion were invested in Russia in 2013. US$26 billion of that investment were allocated to enterprises, plants, stores, and retail chains. By the following year, over 1,700 foreign companies were registered in Russia, a large percentage of which were joint ventures with foreign involvement.
Investment Opportunities
The Russian Federation has an upper-middle income mixed economy. Over 80% of Russian exports abroad are comprised of natural gas, oil, timber, and metals. In an article published by Bloomberg, it was stated that Russia is regarded as having a more advanced economic development than most other resource-rich countries. It is also considered to be advanced it its industry, science, and educational traditions. Russia has an economically active population, estimated at over 70 million people.
The largest share of foreign investment in Russia – 23% – is made in the wholesale and retail trade as well as in the repair of motor vehicles and motorcycles industry. The manufacturing, insurance and finance sectors occupy around 19% of the market share each, and mining and quarrying just over 13%. Other areas of investment are real estate, construction, information and communication, transportation and storage, rental and leasing, electricity, gas, and agriculture.
Russia has established free trade agreements with countries that are part of the Commonwealth of Independent States (CIS) as well as a variety of other countries including Montenegro and Serbia. Subject to conditions, products that come from these countries are exempt from customs duty payable for being imported, making investment in Russia significantly more attractive.
Companies Investing in Russia
PwC, one of the key investment companies in the world, has a strong presence in Russia. Over 2,500 executives work in 10 PwC offices throughout the country.
In September 2016, DMG MORI, the German-Japanese manufacturer of lathes and cutting machine tools, started production lines in Russia after signing a special investment contract with the Russian Ministry of Industry and Trade. DMG set up a factory in Ulyanovsk and plans to increase localization up to 70%, and to export around 5% of products. Earlier in the year Germany’s Daimler also made the decision to localize production of a major brand. Plans are for a Mercedes Benz production line at a new plant near Moscow, with the German investor pumping over US$279 million into the factory, and subsequently producing over 20,000 cars a year as well as providing employment for around 1,000 people. Another major car manufacturer, Great Wall Motors (GWM), also decided to build a plant in Russia in the Tula Region. A total of US$500 million is allocated to the project, which is known for being the first Chinese vehicle plant that has four production processes in the Russian Federation.
One Indian pharmaceutical company, Sun Pharma, invested in Russia by acquiring the Russian pharmaceutical company Biosintez for US$60 Million.
Investors with Interests in Russia
As a partner and regional development leader of PwC Russia, Maxim Matsiborko is a major influence over investors interested in Russian investment opprotunities. According to Matsiborko, each region has its own characteristics that open up massive potential for a variety of business projects.
Martin Gedalin, founder of Lumia Capital, is an American investor focused on prediction markets, and has made 13 investments in Russia.
Managing partner of One Way Ventures and former managing director of Techstars, Semyon Dukach, hails from Boston and has made 89 investments in Russia, several of which relate to the IoT field.
New York-based French entrepreneur and investor Fabrice Grinda, founder and CEO of OLX, has made significant investments in Russia. Grinda considers the Russian Federation to be an important aspect of his professional life, and was selected as a keynote speaker on the topic with Loic Lemeur at LeWeb. The entrepreneur claims that the country has a booming startup ecosystem and a rapidly growing Internet economy, and yet they face problems unlike any that could be experienced in the United States, such as logistics and theft. Despite these challenges, over 75% of Grinda’s investments are made outside the United States in markets like Russia and Brazil.
According to Pascal Sorio, CEO of AstraZeneca, a global pharmaceutical giant, the company has a long-standing commitment to working with the Russian Federation.
Conclusion
Despite considerable bureaucracy and corruption in the Russian Federation, and legislation changing at a rapid rate, almost everyone in the government has realised that there is a great necessity to implement structural economic reformation. Even with the introduction of sanctions against Russia and a massive decline in oil and gas prices, the Russian Federation remains a country with huge potential in terms of investment. The sheer size of the country, along with its wealth of natural resources, is only part of what makes it an economically viable investment destination. Investments made in the country fall across a wide range of industries, like automotive manufacturing and technology and, in recent years, particularly the pharmaceutical industry.
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