| 
  • If you are citizen of an European Union member nation, you may not use this service unless you are at least 16 years old.

  • You already know Dokkio is an AI-powered assistant to organize & manage your digital files & messages. Very soon, Dokkio will support Outlook as well as One Drive. Check it out today!

View
 

Russia

Page history last edited by Brian D Butler 11 years, 10 months ago

 

Understanding Russia:

 

 

 

 

Russia

Russia's conversion of former military enterprises to civilian production offers an opportunity to invest in concerns with a highly qualified workforce and access to modern technology and equipment. Russia leads the world in many areas of fundamental research and development, from eye microsurgery to space technology and this resource is now available to foreign partners.

 

Oil, gas and petrochemicals, scientific and technical areas, defense and conversion industries, machinery, transport, pharmaceuticals, telecommunications, agriculture, food processing and distribution all offer tremendous potential for investment. Other priority sectors are consumer goods manufacturing, general infrastructure, medical services and health.

 

Russia is important politically, and cant be pushed.  Why?  They sit on 50% of the worlds nuclear warheads, they are the worlds largest exporter of gas, and on of the top exporters of oil.  

 

Even with the crisis of 2008, despite the short-term issues, Russia is still a critical economic story, and a major oil producer with the third-largest monetary reserves in the world, behind Japan and China.

 

 

 

 

 

Table of Contents:


 

 

 

Doing Business in Russia:

 

course from MSU:  Doing Business in Russia
   Doing Business in Russia offers a general overview of the conditions for doing business in Russia today. It includes sections covering Russian social and business cultures, marketing distribution and sales channels in Russia, and supply chain management, as well as information on the costs of doing business in Russia and issues currently facing the country. This module also includes a case study on Russia’s Information and Communication Technology Infrastructure.


 

 

 

Geo Politics

 

National Security:

 

"Russian national security is dependent on two countries that became independent following the collapse. Belarus is the buffer between Russia and Europe on the North European Plain. Ukraine is the buffer between Russia and the Carpathian Mountains. From the Russian point of view, dominating these countries is less important than Europe and the United States not dominating them."  Read more: Geopolitical Journey, Part 4: Moldova | STRATFOR 

 

 

History

"The Russian empire-both the Czarist and Communist versions-was a vast, multinational entity. At its greatest extent, it stretched into the heart of Central Europe; at other times, it was smaller. But it was always an empire whose constituent parts were diverse, hostile to each other and restless. Two things tied the empire together."  Source Stratfor.com, read more here....

 

 

Geography and Economic Development:

 

Read more: economic development and geography

 

"The Russian steppe lies deep in the interior of the Eurasian landmass, and as such is subject to climatic conditions much more hostile to human habitation and agriculture than is the American Midwest. Even in those blessed good years when crops are abundant in Russia, it has no river network to allow for easy transport of products...Source: The Geography of Recession | STRATFOR:

 

The Geography of Recession

 

"Russia has no good warm-water ports to facilitate international trade.....Read more: The Geography of Recession | STRATFOR

 

 

 

GloboTrends Blog posts:

 

 

 

 

 

Productivity & the economy

 

How Russia could be more productive

The global economic slowdown hit Russia hard. Boosting productivity can help the country get back on its feet.

 

 

Economic Crises:

 

1.  1998 Russian financial crisis

2.  2008 Russian Financial Crisis

 

 

2008 Russian Financial Crisis

 

Before the fall in 2008, Russia was flush with money from sky-high oil prices, and cheap credit.  Back in 2007, Russia was confidently flush with FDI money (although nearly 75% of that money came in the form of loans and portfolio cash).  Consumers were spending, and business was thriving. 

 

But, in the fall of 2008, both oil prices fell and cheap-credit dried up.   The stock market fell hard and fast, and Russian companies that had borrowed money using stocks as collateral were suddenly facing crushing margin calls.  This put pressure on newly-privatized companies, forcing many to turn to the government for help.  When investors lost faith in the Russian financial system, they pulled money out in droves.   "Slumping commodities prices, the war with Georgia and the seizing up of global capital markets prompted investors to pull at least $190 billion from Russia since Aug. 8", BNP Paribas SA estimates.

 

With the fall of the price of oil and other natural resources, Russia suddenly faced a current account deficit.   Suddenly, Russia has gone from current account surplus to current account deficits.  

 

In a situation like this, you would expect the currency to depreciate to make up for this difference, but the Russian president has staked his political reputation on a "strong-Russia" policy and has framed the strong currency as a symbol of national pride (power and importance).  In an effort to defend the strong currency, Russia has been spending its foreign-reserves at an alarming rate.  Since August this year, Russia has burned through nearly 25% of its international reserves (nearly $140bn of $583 billion). 

 

Reserves:

 

 

 

http://www.bloomberg.com/apps/cbuilder?ticker1=RUREFEG%3AIND

 

 

Analysis:

 

Russia exports a lot of oil. But for a long time it tried to keep the ruble pegged (more or less) to a euro-dollar basket even as oil soared — and even as private capital poured into Russia. Russia though didn’t sterilize these inflows as effectively as China. The resulting rise in domestic inflation led Russia’s real exchange rate to appreciate quite significantly. Now, obviously, there is pressure for the ruble to depreciate in real terms. That could happen through deflation. Latvia has chosen this course. But investors — and Russians — believe that Russia will let the ruble depreciate in nominal terms to bring about the needed real depreciation. And until that process is complete, there isn’t much incentive to old rubles. See Slater and White in today’s Wall Street Journal. They quote Natalya Orlova, chief economist at Alfa Bank in Moscow:

 

“All the rubles that are out there have been turned into dollars. To get out of this spiral where everyone expects a devaluation will be very difficult.”

 

 

 

 

 

news:

 

 

 

Russia's Debt Rating Cut by S&P on Outflows, Reserves, Bloomberg, 12/2008

  • Russia has "raised interest rates twice last month and drained $143 billion, or about a quarter, of its foreign-currency reserves to prop up the ruble as oil prices plunged...
  • capial flight:  "Slumping commodities prices, the war with Georgia and the seizing up of global capital markets prompted investors to pull at least $190 billion from Russia since Aug. 8, BNP Paribas SA estimates."
  • currency:  The managed currency has slumped 16 percent against the dollar since August as investors withdrew about $190 billion from the country amid Russia's worst financial crisis since the 1998 debt default, according to BNP data....The ruble was little changed at 31.6096 against the central bank’s basket of dollar and euro after slumping to 31.6236 last week, the weakest level since March 2005.
  • current account deficits expected:  "S&P said it expected Russia's current-account surplus to swing into a deficit equivalent to 2.6 percent of gross domestic product next year, compared with a surplus of 5 percent in 2008 due to a "sharp deterioration in the country's terms of trade," the statement said"
  • GDP expected to go negative: "Russia's GDP growth should decline "sharply" in 2009, it added."
  • Sovereign wealth funds needed: "Russia may need to use all of the money in its two oil funds to cover its budget deficit and recapitalize banks, should oil prices stay at about current levels. The National Wellbeing Fund and the Reserve Fund held a combined $209 billion as of Dec. 1."

 

S&P lowers Russia's sovereign credit ratings,  Marketwatch, Dec 2008

  • Reserves falling  "Since August this year, Russia's international reserves have fallen from $583 billion to $455 billion."
  • The RTS stock index has tumbled 72% year-to-date
  • Continued defense of the ruble postpones the inevitable exchange-rate adjustment given risks that commodity prices will remain under pressure, Ribakova said. In addition,
  • high interest rates are stifling GDP growth

 

 

 

 

Russian Stock Market falls:

 

source: http://www.rts.ru/en/  Russian Trading System

 

The Russian stock market has lost nearly 80% of its value since May 1st, 2008.

 

 

Major Russian stock market RTS Index with S&P 500 and Oil Spot Prices. All data are in percentages to 1 May 2008 values. A - Vladmir Putin criticises Mechel; B - 2008 South Ossetia war starts; C - Recognition of Abkhazia and South Ossetia by Russia; D - Alexei Kudrin "no systematic crisis" speech; E - measures to save major banks are adopted by the Russian government; F - Global financial crisis of September–October 2008; G - President Dmitri Medvedev announced additional bailout financing

 

 

 

 

Energy Industry:

 

Russia, the world’s largest energy producer.Energy, including crude oil and natural gas, accounted for 73 percent of exports to countries outside of the former Soviet Union except for the three Baltic states, in the first 10 months of the year, the Federal Customs Service said today.  But, with the fall of oil prices (The price of Russia's Urals blend of crude oil was $39.54 today, a 72 percent drop from its July high of 142.50 per barrel), Russia is sure to suffer.

 

 

Oil Industry in Russia:

 

As of 2005, oil industry and related services account for at least 40 per cent of the gross domestic product of Russia.

 

Oil pipelines in Europe

 

 

Natural gas pipelines in Europe

 

see more in our discussion on commodities and oil prices

 

 

 

Natural Resources:

 

The mineral-packed Ural Mountains and the vast oil, gas, coal, and timber reserves of Siberia and the Russian Far East make Russia rich in natural resources. However, most such resources are located in remote and climatically unfavorable areas that are difficult to develop and far from Russian ports. Oil and gas exports continue to be the main source of hard currency. Russia is a leading producer and exporter of minerals, gold, and all major fuels. The Russian fishing industry is the world's fourth-largest, behind Japan, the United States, and China. Natural resources, especially energy, dominate Russian exports. Ninety percent of Russian exports to the United States are minerals or other raw materials.

 

 

Banks in Russia:

 

http://en.wikipedia.org/wiki/Category:Banks_of_Russia

 

Companies in Russia:

 

http://en.wikipedia.org/wiki/Category:Companies_of_Russia_by_industry

 

 

Privatization v Nationalization:

 

Private initiative, freed up by the market reforms of the 1990s, became the main force behind Russia's economic recovery after the 1998 crisis. Growth was particularly strong in sectors that were not weighed down by any Soviet legacy, such as mobile telecoms. But private ownership was also transforming Soviet-era behemoths.

 

The financial crisis may lead to renationalisation by stealth, Economist 12/2008

  • "a lot of people in the Kremlin would like to take back the companies that were privatised in the 1990s. Back then the oligarchs lent money to the cash-strapped state and got assets at knock-down prices in return. Now it is the companies that are in debt, whereas the state is cash-rich and can buy the assets back cheaply. To make them even cheaper, government officials publicly threaten companies or dig out old charges against them, as Mr Sechin has recently done with one of Russia's largest fertiliser producers."
  • The new entities that could emerge from the crisis may be neither state nor private, says Mr Rogov, but the worst of both worlds: opaque, quasi-state firms run by people affiliated with the Kremlin. One model for this form of ownership is a privately controlled subsidiary of a state-controlled company. Another is something called a "state corporation".
  • The projection of KGB power in Russia's politics and economy has been a guiding principle of Mr Putin's period in office.
  • Now the crisis is creating new opportunities for what Mr Illarionov calls the "KGB-isation of the economy". The result, he explains, could be a new, highly monopolistic system, based on a peculiar state-private partnership in which the profits are privatised by Kremlin friends and debts are nationalised.

 

 

Investing in Russia

 

 

Bonds

Russia Bond index :  Micex index of corporate bonds

Question:  how to measure chance of default?  are there credit default swaps on Russian debt?

Answer:  CDS spreads on Russia as a more definitive signal of inherent Russian sovereign and corporate risks than any other comparative benchmark. Five-year CDS spreads for Russian sovereigns were being quoted between 1,100 and 1,250 basis points recently.

 

 

 

FDI in Russia:

Investment Promotion Agency: 

Mr Sergey Tsakunov

General Director

Russian Federation -- Ministry of Economic Development and Trade, State Investment Promotion Agency

Ovchinnikovskaya nab., 18/1

Moscow

113324

Russia

tel: +7 (095) 950-95-88

fax: +7 (095) 230-20-18

 

 

Stock market in Russia:

 

 

ETF's

 

 

 

 

GEO- Politics

 

Germany, Russia & Nato:

 

Over the past year or so, Germany has become somewhat estranged from the United States. Dependent on Russian energy, Germany has been unwilling to confront Russia on issues of concern to Washington. Merkel has made it particularly clear that while she does not oppose NATO expansion in principle, she certainly opposes expansion to states that Russian considers deeply within its sphere of influence (primarily Georgia and Ukraine). The Germans have made it abundantly clear that they do not want to see European-Russian relations deteriorate under U.S. prodding. Moreover, Germany has no appetite for continuing its presence in Afghanistan, let alone increasing it.

 

 

NATO faces a substantial split, conditioned partly by Germany’s dependence on Russian energy, but also by deep German unease about any possible resumption of a Cold War with Russia, however mild. The foundation of NATO during the Cold War was the U.S.-German-British relationship. With the Germans unwilling to align with the United States and other NATO members over Russia or Afghanistan, it is unclear whether NATO can continue to function. (Certainly, Merkel cannot be pleased that the United States has not laid the BMD issue in Poland and the Czech Republic to rest.)

 

As for Germany, NATO was an instrument of rehabilitation and stability after World War II. But Germany now has a complex relationship with Russia, as well as internal issues. It does not want NATO drawing it into adventures that are not in Germany’s primary interest, much less into a confrontation with Russia. No amount of charm, openness or dialogue is going to change this fundamental reality.

 

source:  www.stratfor.com

 

 

 

 

Russia and Private Equity:

 

Advice:  stay away from certain sectors that are particularly vulnerable to political or oligarchic influence, and just stay beneath the radar screen. The Russian economy as a whole will do fine so long as we keep using oil and gas, and some investors will continue to make money there, but it’s a very difficult situation. Russia has a clear goal of expanding its regional sphere of influence, and is winning that fight while the U.S. and the West is losing it. That means that there could be major pressures on Western investors.

 

IT outsourcing

 

In 2007, Russia is now the world's third biggest destination for outsourcing software behind India and China.

 

 

Internet in Russia:  growing Fast

 

For Web companies looking to expand abroad, Russia needs to be at the top of their list of markets to enter. Russia has the fastest growing Internet population in Europe, followed by France and Spain. In a comparison of 16 European Internet populations by country, comScore reports that Russia's Internet audience for the month of June grew 27 percent year over year, compared to 21 percent growth in France and 15 percent growth in Spain. 

 

If you look at the total size of the Internet populations in each country, however, Russia ranks fifth with 17.5 million monthly Internet visitors. But by Internet penetration, Russia ranks last, with only 14 percent of the total population online. So there is still lots of room for growth there.

 

According to Comscore:  "The total number of European Internet users grew 8 percent during the past year to 241.8 million visitors in June 2008. Russia ranked as the fastest-growing Internet audience in Europe, up 27 percent to 17.5 million visitors, followed by France (up 21 percent to 31.5 million visitors), Spain (up 15 percent to 16.2 million visitors), and Ireland (up 15 percent to 1.6 million visitors).

 

Russia has Europe’s fastest-growing population of internet users The number of users in the country grew 23 percent, from nearly 12 million last September to more than 14.5 million this past September, according to Comscore. More stats on the Russian internet ad business here. Russia has been seeing rapid economic growth largely through developing and selling its generous oil and natural gas resources to other countries. The average Russian is seeing some of this money in their pockets, which no doubt ends up in more people demanding internet access.

 

 

Growth of European internet Audiences

Ranked by Year on Year Growth Rate*

Total Unique Visitors (000)** Age 15+

 Home & Work locations

June 2008 vs. June 2007

Source: comScore World Metrix

Country

Jun-2007

Jun-2008

% Change

Europe

223,922

241,847

8%

Russian Federation

13,791

17,490

27%

France

26,106

31,463

21%

Spain

14,074

16,245

15%

Ireland

1,400

1,606

15%

Switzerland

3,743

4,183

12%

Denmark

3,109

3,437

11%

United Kingdom

31,669

34,860

10%

Belgium

4,807

5,237

9%

Italy

17,905

19,455

9%

Sweden

5,351

5,766

8%

Austria

3,767

4,056

8%

Norway

2,654

2,835

7%

Germany

32,857

34,986

6%

Finland

2,848

3,015

6%

Netherlands

11,287

11,227

-1%

Portugal

N/A

3,618

N/A

*Rankings based on the 16 individually reportable European countries in comScore World Metrix. European Internet audience figures are comprehensive and include visitation from countries that are not individually reportable.

**Excludes traffic from public computers such as Internet cafes or access from mobile phones or PDAs. 

 

 

 

 

But a word of caution about investing in Russia...

  1. How free of censorship the internet will remain in Russia is a big issue; the Russian government has chosen to crack down on media outlets that criticize it.
  2. Potential political conflict with West over crisis in Georgia highlighed the influence that politics can and sometimes does have on business.  When dealing with Russia, you should first be aware of the political risk (is it currently high? low?  find out!)

 

 

 

See more in our discussion of internet trends in Europe

 

 

 

Macroeconomics:

 

Central Bank of Russia:  http://en.wikipedia.org/wiki/Central_Bank_of_Russia

Official website

 

 

GDP

This is a chart of trend of gross domestic product of Russia at market prices estimated by the International Monetary Fund with figures in millions of Russian Rubles. [20]

 

YearGross Domestic ProductUS Dollar exchange
1995 1,428,500 4.55 Rubles
2000 7,305,600 28.13 Rubles
2005 21,665,000 28.27 Rubles
2008 39,952,177 23.52 Rubles

 

 

Currency:

 

Russia, which is aiming to free float the ruble by 2011, has managed the currency against the dollar-euro basket since 2005

 

following the price of oil....After surging to a record 29.2843 against the mechanism on Aug. 4, the currency has been allowed to weaken 22 percent as the crisis in global credit markets and Russia’s war with neighboring Georgia deterred investors.

 

in currency trading....Non-deliverable forwards put the ruble 8.6 percent lower against the dollar at 35.21 in three months time. The decline expected over 12 months is 20 percent. NDFs are contracts used to fix a currency at a particular level at a future date and companies use them to protect against foreign-exchange fluctuations.

 

Chart

 

Politically a strong rouble has become a proxy for a resurging Russia and devaluing it or letting it float would hurt Mr Putin's reputation.

 

The Russian currency is managed.  On purpose, the Russians attempt to keep the value of the Ruble strong.  This is seen as a symbol of national pride.  A symbol of Russian strength, power. 

 

The benefit of a strong currency is that foreign imports are cheaper, which benefits consumption.   The negative is that it can lead to crushing deficits.  But as long as oil prices were high, then the Russians were exporting way more than importing, and the situation was sustainable.   But, when the oil price fell, there went the support of exports, and Russia is left only with excess imports. 

 

Prime Minister Vladimir Putin said last week that Russia will avoid "sharp" swings in the ruble by using reserves to support the currency. The central bank has expanded the trading band against its euro-dollar basket four times since Nov. 11, allowing a 4 percent depreciation against the mechanism in that period.

 

 

Moscow Inter-Bank Offer rate

(MIBOR) is an indicative rate of Rouble money market calculated by Central Bank of Russia on a daily basis. MIBID and MIACR (Moscow Interbank Bid / Actual Credit Rate, respectively) are also calculated alongside MIBOR. Official statistics on rates bid, offered and traded are collected from about 30 participating (appointed by CB) banks.

 

 

Currency history:

The exchange rate stabilized in 1999; after falling from 6.5 rubles/dollar in August 1998 to about 25 rubles/dollar by April 1999, one year later it had further depreciated only to about 28.5 rubles/dollar. As of June 2002, the exchange rate was 31.4 rubles/dollar, down from 29.2 rubles/dollar the year before.

 

 

 

 

Russian ruble per U.S. dollars 1998-2008
Year Lowest ↓ Highest ↑
DateRateDateRate
1998 01 Jan 5.9600 29 Dec 20.9900
1999 01 Jan 20.6500 29 Dec 27.0000
2000 06 Jan 26.9000 23 Feb 28.8700
2001 04 Jan 28.1600 18 Dec 30.3000
2002 01 Jan 30.1372 07 Dec 31.8600
2003 20 Dec 29.2450 09 Jan 31.8846
2004 30 Dec 27.7487 01 Jan 29.4545
2005 18 Mar 27.4611 06 Dec 28.9978
2006 06 Dec 26.1840 12 Jan 28.4834
2007 24 Nov 24.2649 13 Jan 26.5770
2008 16 Jul 23.1255 24 Oct 27.240
Source: USD exchange rates in RUB, Bank of Russia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Account

 

Russia may have run surplus in the past, but 2009 is expected to have large deficits (unless the currency devalues)

 

Russian current account due to trade surplus

 

 

But, what happens when Exports fall fast (as the price of oil + natural resources falls)?  Will imports also fall?

 

 

Russian Economy:

 

 

 

Image:Russian economy since fall of Soveit Union.PNG

 

read more: http://en.wikipedia.org/wiki/Economy_of_Russia

 

 

 

Commodities:

The Russian economy is still commodity-driven despite its growth. Payments from the fuel and energy sector in the form of customs duties and taxes accounted for nearly half of the federal budget's revenues. The large majority of Russia's exports are made up by raw materials and fertilizers,[11] although exports as a whole accounted for only 8.7% of the GDP in 2007, compared to 20% in 2000.[19]

 

Inequality:

There is also a growing gap between rich and poor in Russia. Between 2000–2007 the incomes of the rich grew from approximately 14 times to 17 times larger than the incomes of the poor. The income differentiation ratio shows that the 10% of Russia's rich live increasingly better than the 10% of the poor, amongst whom are mostly pensioners and unskilled workers in depressive regions. (See: Gini Coefficient)

 

 

 

Population

 

Russian population is shrinking :  The incredible shrinking people, The Economist 12/2008

 

 

 

 

 

Places in Russia:

 

St Petersburg

St. Petersburg is referred to as the "Northern capital" of Russia. It was the country’s official capital until the early 1900’s, but still retains its place as a center of culture, science and industry. Geographically located on the Baltic, the city serves as "a window to the West" for Russia. There is an international airport (Pulkovo International) and a passenger terminal for sea-faring travellers.

 

St. Petersburg is one of Russia's major hubs of business and industry and the city is home to a large number of business centers which provide various services to visiting businessmen.

 

The best business centers offer all types of communications (often by satellite), fax, computers, photocopying, secretarial support, translators and interpreters, temporary office space, conference rooms, audio visual equipment, reference materials, and, sometimes, guides and transportation. An ideal way to launch into the Western or East European markets.

 

 

Moscow

Russia is an emerging market and within Russia its capital city Moscow leads the way with its vibrant general trading and service sectors. Leading sectors are in trade, food and drink, clothing and footwear, office equipment and construction supplies

 

 

Novgorod Oblast

Velikiy Novgorod is located in the North west of Russia on the Moscow – St Petersburg traffic route. Situated 500 kilometres from Moscow and 180 from St Petersburg, with a rail network provoding links to the Baltic, European and Scandinavian countries, it is well known for its favorable investment climate. This has attracted such companies as AMCOR, Cadbury Schweppes and Mercedes Benz.

 

Major sectors in the region are chemicals, food, electronics and machinery construction. The region is one of the most wired in Russia and is third after Moscow and St Petersburg in its level and volume of telecom services. The region is able to offer tax incentives for foreign investment projects, a positive attitude from the sub-federal and local governments towards foreign investors and overall support of projects.

 

 

Nizhny Novgorod

Nizhni Novgorod is Russia's third largest city and lies south east of Moscow.

 

In previous centuries, Nizhni Novgorod was a commercial hub of Russia, located at the strategic confluence of the Oka and Volga rivers. Today it is the "test site" for democratic reform and free market initiatives.

 

With the Nizhni Novgorod State University, the SANDY scientific agency and the State Technical University, the area has an abundance of skilled workers, especially in the fields of microelectronics, software and radio physics.

 

The city was chosen recently by Intel as the location for its new software development center.

 

 

Yekaterinburg - center for Mining

 

center of mining and heavy industry

before 2008, was flush with money & credit....led to construction boom

 

 

Russia - Macroeconomic situation 2008

 

Russia's inflation is too high at 15 percent, and its macroeconomic policy is unbalanced. It relies too much on fiscal policy and too little on monetary and exchange rate policy. The country's inflation is driven by the large current account surplus, and the Finance Ministry has wisely balanced this surplus with a sound fiscal surplus to hold back inflation, but currently public expenditures are rising sharply.

 

For years, the Russian central bank has stated its intention to move to inflation targeting within three years, but it never does. It still pegs its currency to a basket of euros and dollars, although it should be floating the ruble, and the central bank maintains a negative real interest rate of 4 percent a year, which guarantees an excessive monetary expansion. The bank should follow the good Central European example and move to inflation targeting immediately to escape the dangers of rising inflation.

 

As in 1998, fixed exchange rates today are wrong, but then the problem was overvaluation. Now it is undervaluation leading to excessive inflation.

 

Floating exchange rates, balanced budgets, and inflation targeting are the current victors, while any fixed exchange rate is detrimental—worst of all any fixation to the sinking dollar. The lesson for Russia is to let the ruble float freely and to tighten its monetary expansion to control inflation.

 

 

 

 

News about VC's in Russia

 

Venture firm Draper Fisher Jurvetson goes to Russia

 

Draper Fisher Jurvetson has become the first major Silicon Valley venture capital firm to invest in Russia, a high-risk venture given the chaotic political and economic state of that country. The firm will help manage a $150 million fund to invest in technology companies from Russia and parts of Eastern Europe, it said yesterday.

 

The move is notable because Russia has been harshly criticized for suppressing opposition political parties, independent media outlets and private companies, such as former oil giant Yukos, that have openly threatened the Kremlin’s power. Under the terms, DFJ will actually co-manage the fund with the Kremlin-controlled bank, the VTB.

 

The Economist’s August 25th issue (subscription required) describes how the Russian government’s secret service officers have gained behind-the-scenes control of the country’s most powerful institutions, such Gazprom, the country’s dominant energy firm.

 

However, DFJ says it doesn’t see its investments as helping support the Kremlin’s control of the Russian economy. Rather, beyond the chance to make money, DFJ says its expertise and finance can help support development of a free market economy there. DFJ’s leader, Tim Draper, has long said contributing to such change motivates his international investments.  Dilemmas about dealing with repressive governments are hardly new in Silicon Valley. For example, Google, Yahoo and other web companies have decided to self-censor their search results in China; Google justified its decision by saying limited information through Google is better than no information.  Besides Russia, the fund, called DFJ-VTB Aurora, will invest in the neighboring Commonwealth of Independent States, including Belarus, Georgia, Ukraine (where DFJ also has business connections), and others. The fund plans to invest between $2 million and $16 million per company.

Initially, DFJ is not contributing directly to the fund. But, by helping pick companies, it will have the opportunity to co-invest in them down the line. Half of the money will come from the Russian government and twenty percent from the European Bank of Reconstruction and Development.

 

Thousands of highly-educated engineers and scientists in the region have the skill, talent and motivation to build big companies, said a DFJ managing director who focuses on emerging markets, Don Wood, in an interview with VentureBeat — they just haven’t had the resources or role models to do so, he says.

 

DFJ’s move also continues its strategy of partnering with other investors to make early-stage investments in developing countries. The Draper network, comprised of DFJ and 22 other funds around the world, typically entails DFJ forming partnerships with other investors to set up a fund in a region. Typically, at least one of DFJ’s own partners will site on a fund’s executive board. It’s a system of ordered chaos, with the occasional break between DFJ, partners and local managers, as typified by its break with ePlanet Ventures in 2005 (our coverage), a firm which helped DFJ land early investments in European calling service Skype and Chinese search engine Baidu.

 

Most recently, DFJ has partnered with Esprit Capital Partners, creating DFJ Esprit, based in London, with $560 million in backing. It is DFJ’s exclusive European investment partner.

DFJ and VTB are planning a second fund for investing in companies that rely on regional resources, but may be headquartered in other parts of the world.

 

More generally, the Russian government is looking to the Israeli model of developing a venture industry, which in essence entails the government helping to fund VC’s, then letting them keep a large portion of any returns. See this contributor piece by Yuri Ammosov, a senior policy officer of the Russian government in charge of high and tech venture capital development programs.

Other venture firms have also begun investing in Russia. One example is Luxembourg-based Mangrove Capital Partners, which in May announced a partnership with Russia-based ABRT Venture Fund (link is to cached page as ABRT site is currently down).

 

Ammosov has also provided us with a number of downloadable materials about investing in Russia:

- A Powerpoint presentation about the Russian Venture Company, a government fund, and its efforts to develop the economy’s technology sector (here)

- The tech sectors the Russian government wants to support the most (here)

- A sample terms sheet for a fund that RVC would invest in (here)

 

 

 

 

U.S. venture capital goes to eastern Europe, Russia

 

Cisco, the giant networking company, has expanded its venture capital investments to central and eastern Europe, taking a majority stake in a 30 million Euro ($40 million) fund there.   It comes at a time of a flurry of investment activity in the eastern European and Russia region, an area that has so far been starved of venture capital. The region has a plentiful supply of well educated engineers, and so could be promising. Cisco started a venture investing in Russia earlier this year. The Russian government has just doubled its own commitment to support venture activities there, ... » Continue reading

 

 

 

 

Foreign investors leave Russia after bizarre interview — may return

 

A group of international investors has pulled out of a planned joint venture fund to invest in Russian companies. The move is significant, because the fund would have been one of the earliest efforts by private foreign investors to put money into young Russian start-ups.

 

However, one the fund’s members, Eldad Tamir of Israeli financial group Tamir Fishman, tells us in a Q&A (text and picture, below) that he and others in the group may return.

 

The cause for abandonment? A Russian partner in the fund named Oleg Shvartsman (pictured, left) was featured in a sensational interview published in Russian business newspaper Kommersant.

 

Shvartsman describes how he and others in Russia use ties to government security officers to force private business owners in Russia to sell at a low price to companies connected to the Kremlin and its allies.

 

read more...

 

 

External Links

 

 

 

 

Library of Congress: Country Studies

 

Excellent source of historical information about a country; "The Country Studies Series presents a description and analysis of the historical setting and the social, economic, political, and national security systems and institutions of countries throughout the world.

 

 

 

 

 

External Links for more info...

 

Stocks

 

Reports:

 

 

Comments (0)

You don't have permission to comment on this page.