Russia opens up excellent opportunities for international investors, yet for many, the country still does not appear as an attractive place to invest capital. However, the BRICS investments reality is better than it might seem at first glance, and investors often overestimate the problems they might encounter in the Russian market.
Investor Perceptions of Russia
The image of Russia as an investment destination in the eyes of the global investment community is still not very clear. While many international investors increasingly see our country as a great place for doing business, there are still plenty who hold a different view. Why? I believe this is partly due to myths and stereotypes about Russia economy.
Investors can be divided into three groups based on their perception of Russia. The first includes companies and funds that have already invested here. They are quite well-informed about Russia and know that answers can be found to all emerging questions. Our research shows that nearly 70% of international investors who have invested in our country are satisfied with their results and continue to invest in foreign direct investment opportunities.
The second group consists of investors who have not yet invested in Russia but are currently exploring this possibility. Like the first group, they are well-informed about the country. They know that Russia’s macroeconomic dynamics are among the best in the world; that the middle class has tripled in size over the last five years; that the stock market and banking system assets have grown 20 and 40 times, respectively, over the past 12 years. These investors focus on very specific opportunities. For example, private equity funds specializing in infrastructure and chemical industries target sectors where they have the most expertise. Additionally, such investors recognize the importance of having a local partner. They understand that when entering new markets, such a partner is truly essential.
Finally, there is a large group of investors who are very poorly informed about Russia. Often, their ideas about the country are based on what they’ve read or heard in the mass media, leading to serious distortions in perception. These myths about Russia are exactly what keeps them from investing in emerging markets.
Debunking Common Myths
Such potential investors fully believe that the Russian economy is growing and opening new opportunities, but they see a major obstacle in bureaucracy and corruption. It is worth noting that over the last ten years, the Russian government has set itself the task of attracting foreign investors. And during all this time, there has not been a single case where a non-Russian fund or large private investor encountered any significant difficulties here.
Another common stereotype is that contracts and other obligations are not sufficiently respected or fully enforced in Russia. This is not true. Most Western companies doing business in Russia experience no difficulties with contract enforcement, although many foreign investors prefer to structure them so that all investment and business disputes fall under the jurisdiction of international arbitration in London, Stockholm, Paris, or New York. This indicates that in their perception, investing in Russia involves certain risks, but reality differs from perception. The work of the Russian Direct Investment Fund (RDIF) largely consists of alleviating such concerns. We achieve this through continuous dialogue with investors and comprehensive auditing when selecting and structuring projects. For insights on global economic trends, check [Link to related BRICS article].
We strive to ensure that investors have no reasons not to invest in Russia. We actively work with the government to provide guarantees in one form or another, as well as assistance in implementing specific infrastructure projects to make their economics more attractive for foreign investors. We persistently work to reduce the perception of Russian risk, which, although still high, is gradually decreasing. Moreover, the practice of co-investing is very convincing, as foreign investors see that all risks are shared with them. According to IMF reports on foreign direct investment, emerging economies like Russia show strong potential .
Successful Investments by RDIF
In its first year of operation, RDIF invested $500 million of its own funds in Russia and attracted another $1.9 billion from foreign investors. In 2012, we invested $50 million by participating in the initial public offering (IPO) of the “Mother and Child” network of perinatal clinics, Russia’s leading private provider of medical services for women and children. As co-investors in this deal, we attracted the American giant BlackRock, as well as Russian Partners, a subsidiary of the American private equity fund Siguler Guff, which manages over $10 billion. Thanks to the rapid growth of the Russian middle class, the company’s business is growing quickly, and since the IPO, “Mother and Child” shares have risen by about 45%.
Another example of this approach is our participation in last year’s IPO of the Moscow Exchange, where we invested $80 million ourselves and attracted as co-investors the China Investment Corporation (CIC), the European Bank for Reconstruction and Development (EBRD), Cartesian Group, and BlackRock. We are confident that the Moscow Exchange has enormous potential, and in the future, its shareholders will receive good returns on their investments.
Future with BRICS
The arrival of leading global companies in Russia also greatly helps convince others to invest in the country. Potential investors become much more open and receptive when they see market leaders—for example, CIC or the Japan Bank for International Cooperation (JBIC), with which RDIF signed an agreement in April to create a new Russian-investment platform worth $1 billion—expressing support and saying: “Yes, we want to invest in Russia” and “Yes, we believe in Russia.” Especially when they see leading representatives of the global investment community on our International Expert Council.
As part of its strategy, RDIF builds partnerships with countries like Japan and China, which, among other things, allow for establishing the broadest connections at lower levels, opening access to all investors and companies in these countries. For example, we are preparing to announce the start of a large-scale partnership with one of the Arab investment funds in the near future. And, of course, we see enormous potential in BRICS as both a source and destination for direct foreign investments in emerging markets.
The main structure responsible for developing mutually beneficial investment relations among our five countries will be the BRICS Business Council, whose creation was officially announced at the organization’s April summit in Durban, South Africa. As Russia’s representative on the Council, I am confident that it will become a very important tool for strengthening our ties and increasing the volume of mutual capital investments. We have already held meetings with almost all our foreign colleagues on the Council, each of whom belongs to the circle of the most influential politicians and businessmen at home.
This does not mean that BRICS countries are interested in expanding business opportunities exclusively with each other. If we have a project or idea, thanks to the already established connections, we can effectively use this communication channel to achieve practical results. Moreover, the participation in the BRICS Business Council of only five representatives from each country significantly facilitates dialogue and makes the entire structure manageable.
I would like to emphasize that we are focused on achieving practical results and accelerating the investment process, as well as expanding interaction within BRICS overall. This approach has already yielded certain fruits in such a short time, and we expect a significant increase in investment inflows to Russia, as well as to other organization countries.
About the Russian Direct Investment Fund (RDIF)
RDIF is a direct investment fund with a capitalization of $10 billion, created by the Russian government to make investments in leading companies of the fastest-growing and most promising sectors of the country’s economy.
The fund was established in 2011 at the initiative of the President and Prime Minister of Russia. In all deals, RDIF acts as a co-investor alongside the largest international investors, playing the role of a catalyst in attracting direct investments to Russia.
Over its existence, RDIF has invested more than $2 billion, of which $500 million are the fund’s own funds, and more than $1.8 billion are co-investors’ investments.
RDIF has attracted $2.5 billion in foreign capital to the Russian economy, building a series of long-term strategic partnerships.
Kirill Dmitriev CEO of the Russian Direct Investment Fund (RDIF), Member of the BRICS Business Council from Russia
In conclusion, the reality of BRICS investments in Russia surpasses common perceptions, offering robust Russia economy growth and RDIF partnerships for savvy investors.
