Bleak investment outlook sours mood at Russia forum
By Alexander Winning
What are the chances that Western investors will rush back to Russia if a shaky ceasefire in Ukraine leads to a more lasting peace? Pretty slim, judging by a keynote speech at a recent Russia-focused investment conference in London.
Dmitri Trenin, director of the Carnegie Moscow Centre, told the conference organised by Sberbank CIB, the investment-banking arm of Russia’s top state-controlled lender, there was little prospect of significant Western investment in Russia over the next 5 years:
I would be surprised if much foreign direct investment flowed into Russia from Germany and other Western countries. But there will be more investment coming from China.
That can hardly have made pleasant listening for his hosts at Sberbank who had billed the event as a chance for European fund managers and companies to meet their Russian counterparts and explore investment opportunities. Russia desperately needs overseas capital – wealthy Russians and companies are prone to moving their cash overseas and there is some $150 billion worth of corporate debt due for repayment over the coming year. But sanctions imposed by the West over the Kremlin’s role in Ukraine are deterring even those who have seen Russia merely as a tactical, short-term way of making money.
Until last year, the picture was not too bleak in terms of bricks-and-mortar foreign direct investment (FDI) – into factories, real estate and mines. United Nations data show the FDI stock in Russia at almost $600 billion, a 100-fold rise from 1995 levels. That includes big-ticket investments by companies such as consumer goods giant PepsiCo and Danone as well as car makers Ford and Volkswagen. New commitments, however, are scarce as sanctions bite and Russia’s economy heads for a deep-freeze.
But Russia has trumpeted a pivot to Asia as a solution to its fraught relationship with the West. Western sanctions on key sectors of the Russian economy won’t hurt us because our friends in Beijing can always bail us out, so the Russian argument goes. Those backing the Asian pivot take Gazprom’s $400 billion gas supply deal with China that was sealed in May as evidence Russia isn’t reliant on the West.
Many analysts, however, question whether the terms of that deal were favourable to Moscow. Trenin in fact sees the China link as a negative for his country, which is already suffering from the state’s dominance in key sectors of the economy, corruption and weak rule of law.
If China helps you to sustain many of the ways that made you more inefficient, more corrupt than you need to be, then the crisis will have been partially wasted…I don’t think that Russia will become a dictatorship, but I see more economic nationalism, a partial rollback of globalisation, I see a strengthening of state capitalism.
Privately, some Russian executives attending the event agreed, calling Trenin’s assessment realistic. The organisers painted the conference as a success, citing a record 350 participants from 44 countries and more than 600 meetings. Will fresh investment deals result? The jury may be out for a while.