Russia is considered to be one of the best investment destinations for 2017 as it has clearly shifted from its recovery mode to a growth mode
This post first appeared on Russia Insider
Paul Goncharoff is Chairman, Disciplinary Committee, National Association of Corporate Directors, Russia
Now that the election and inauguration show in the US is over, we are entering a time to assess what plans and actions are likely to be implemented with Donald Trump leading a majority Republican government. From the new head of the US Treasury we hear that sanctions directed at Russia will remain supported and in place, unless and until some as yet unspecified future decisions are made. There is a great deal on Trumps plate and I doubt that easing or removing sanctions against Russia is an immediate priority.
From Russia, the views are hopeful that factual clarity will transcend over-the- top politicized opinions in reinvigorating US-Russia relations. Despite the roadblocks and sanctions, this past year Russian stock as well as bond markets have risen by 50% boosted by the fastest local manufacturing growth since 2011. Increased efficiencies and experience in import substitution, higher energy prices and the hope that this new U.S. presidency will apply the same America vision by understanding and accepting Russia’s almost identical position of supporting the national interest.
As of this writing Russia is considered to be one of the best investment destinations for 2017 as it has clearly shifted from its recovery mode to a growth mode. The Russian bond market is also seeing benefits with new shares floated and the profitable ruble carry trade will most likely continue to attract. Corporate results within Russian companies have already bettered their 10-year average, better that their pre-sanctions high during 2012.
Russian corporate results have also been encouraging. Earnings-per- share, a measure of profitability, recently surpassed their 10-year average for the first time since 2012 with earnings surpassing even the recent strong growth in oil prices.
On the high technology front, while some funds were scared away by the negative tar brushing of the Russian market, others have seen their faith and patience rewarded by interesting developments. One example: The incubator at Mendeleev Russian University of Chemistry and Technology has developed a five dimensional (5D) digital data storage technology using Nano-structured quartz glass to store information. This technology enables users to save up to five bits of data per dot instead of only one as with conventional storage solutions. These new discs can store as much as a terabyte (1,024 GByte) of information. Additionally these quartz discs are uniquely stable to several outside factors such as fire, high pressure, temperature, and electromagnetic fields without losing any data.
Where politicized worldviews and their sanctions have done damage to American business, mostly by playing off unfounded fears to enter the Russian market. The German Linde AG had no reservations or fears in doing so in spite of sanctions. They have contracted with Gazprom to provide processing technology for the 49 billion cubic meters per year Amur natural gas processing plant now under construction near Svobodny in Russia’s Far-East Amur region. This agreement with Germany’s Linde is based on enhanced collaboration on:
• Process technologies, engineering, and services related to the treatment and liquefaction of natural gas.
• Localization of respective equipment production in Russia.
• Helium production, including joint investment in, production, and operation
The plant will process gas from the Yakutia and Irkutsk gas production centers, extracting valuable components for petrochemical and other industries in both domestic and foreign markets. Of the estimated $1 billion plus spent on just this one facility, US manufacturers are not participating. Aside from the sanctions, few if any American companies have taken any steps to localize and manufacture key components in Russia within the energy field.
The “made in Russia” legislation also plays a role in ensuring that certain minimal percentages of components are actually physically produced in Russia. Several Asian and European companies like Linde, by committing to long term Russia involvement, have complied with the new legislation and are now participating in this and similar projects.
A further $2 to $3 billion are earmarked for developing energy infrastructure throughout the Russian Far East in 2017 and 2018. According to OPKO Russian Market Partners several Asian and European manufacturers have now decided to start the documentation and applications process to establish manufacturing facilities in country to enable at least some form of manufacturing operations by end 2017 – mid 2018.
Thinking ahead and projecting, once the energy network in the Russian Far East is sufficiently robust, the follow-on effects of increased active broad-spectrum economic development in these regions will have the energy foundation to bloom, serving the Eurasian markets. My hope is that common sense will prevail and the artificially whipped-up political impasse between Washington and Moscow will be resolved in the equitable national interest of each, in a businesslike manner. This would open the economic doors between two countries, which have far too many common interests to be pouting and petulantly wasting any more precious time.
This post first appeared on Russia Insider
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