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“Russia Intends to Invest a Trillion Euros by 2030”
Russia is the world's largest country with a vast abundance of natural resources. It has the world's largest natural gas reserves and together with Saudi Arabia is one of the two leading exporters of crude oil. Most of its state revenues come from the export of raw materials. For around two years, state funds have been deployed to accelerate the modernization of the economy. To this end, cooperation with external partners is also taking place, and one of these is Nanostart, which reported its entry into the Russian market in April 2011. Together with RUSNANO and the governor of Perm, Nanostart is launching a regional nanotechnology fund for the Perm region. RUSNANO is a Russian company founded solely for the commercialization of nanotechnology innovations. It has a budget of USD 10 billion.
We talked to Alexander Markus, member of the Management Board of the German-Russian Chamber of Commerce in Moscow, about the Russian modernization campaign.
Germany is one of Russia’s most important trading partners. How can German companies benefit from the modernization campaign of the Russian state?
In terms of its territorial size, Russia is the world’s largest country, but just take a look at its population: at 142.9 million, it only has 74% more inhabitants than Germany, not even twice as many. However, geographically, is 48 times smaller than Russia. But of course, this isn’t really relevant when we are talking about nanotechnology (laughs).
Not long ago we were even the largest trading partner in terms of revenues. China and the Netherlands have now overtaken us.
…but we are still the most important partner for Russia
… yes, in terms of ‘importance’ in a macroeconomic context you’re certainly right: German companies mainly export plant, machines and increasingly also technology to Russia. A country that itself says that its industrial infrastructure still lags behind that of developed industrial nations by 20 years has a particular need for the kind of industrial commodities supplied by Germany.
Together with GTAI – German Trade & Invest – we have endeavored over the past year to list all projects currently planned in Russia as part of the modernization campaign. We have published the result as a brochure entitled Modernization Campaign in Russia: Handbook of Business Opportunities which can be obtained from GTAI. Taking all the projects together, Russia plans to invest a total of one trillion euros by 2030 - i.e. a one followed by twelve zeros, one thousand billion.
How reliable is this statement?
There are sure to be curtailments in the projects here and there and it will not be possible to implement everything. However, this figure was calculated before Russia was chosen to host the 2018 soccer World Cup. And unlike the 2014 Olympics in Sochi, a soccer World Cup is not concentrated on one region. Instead, Russia needs the requisite infrastructure in many parts of the country.
I think that these figures speak for themselves regarding the opportunities of German companies in Russia in the next 20 years.
Translating research results into commercial products is decisive for the economy. How does this look in Russia today?
This is the major challenge that Russia is facing: how can the cooperation between applied research and the world of business be stepped up? A representative of Bayer once summed this up very well: the company is only interested in research projects that generate added value for one of its products or through new products.
In view of this, it is very good that a state company such as RUSNANO is setting priorities precisely in this field and is also not afraid of cooperating intensively with foreign partners. And this is clearly thanks in no small part to the exceptional political standing of Anatoly Chubais, CEO of RUSNANO. There are not many state managers who can pull this off to the same extent in Russia.
Nanostart is not entering the Russian market alone but with two major Russian partners, one of which is RUSNANO. What advantage do German companies that work together with major partners in Russia have?
Only the really large companies survive in Russia without any cooperation with partners. However, it also depends very much on the sector in which you work and how you shape cooperation.
We generally advise normal medium-sized companies wishing to build up their business in Russia against founding a joint venture. The history of the past few years has simply shown that it is better in the long term to make a direct investment in, say, the development of a food production plant for cheese spread on a greenfield site and to retain full proprietary possession.
And what is the situation in other sectors?
If we’re talking about a business that is not set up as a normal b2c or if the customer itself is a state organization, then the situation really is different. In this case, it could well be that cooperation with a Russian partner is the basic requirement for successfully entering the market. For instance, this was also the case with Siemens for the construction of the new Sapsan high-speed train in Russia.
If you enter the market with a strong partner, then obviously many doors in Russia open more quickly than if you start to build up everything from scratch yourself.
However, you still need to do your normal business homework as with all projects in a foreign country, and consider very carefully how to protect your own interests. On no account should you underestimate the other party in the event of a conflict in the future.
How would you assess the Perm region as gateway to the Russian market?
In our last regional survey of German companies over the past year, the Perm region doesn’t fare that badly at all.
Particularly in terms of the hard location factors, i.e. economic potential, availability of raw materials and cooperation with financial institutions, the region scored strongly – with over five out of a total of six points. Regarding energy provision, IT infrastructure/Internet and telecommunications, German companies awarded a respectable 4.5 out of six possible points.
You’re underlining the hard factors; what about the soft location factors?
With the soft factors Perm only achieves similar scores to the hard location factors in terms of the qualification of the workforce and cooperation with local business partners. However, these are also very important factors for a successful investment.
Overall, it can probably be said that Perm is one of the regions that German companies have hitherto tended to underestimate.
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