Why 2016 is right time to invest in Russia
Original story: https://www.linkedin.com/pulse/why-2016-right-time-invest-russia-alexander-polynov?published=u
This week Russian ruble has been announced as one of fastest falling currencies in the world (-10% in 2016 already). Same time, Moscow hits top-10 cities in terms of investment appeal and Russia makes significant annual improvements in doing business ratings.
Let me share general thoughts on how foreign investors could reconsider investment relations with Russia. Please, keep in mind, I’m not a WorldBank expert and share my thoughts in an understandable way.
1. Talents are still №1
According to WEF reports, Russia still leads in global engineering rankings with 450k annual graduates. Most of engineering professionals are flexible to relocate or choose distance projects. With an average local rate $8–15/hour, most global companies and startups can easily offer a competitive package to potential employee from Russia.
To mention Russian engineers, let me quote AutoVAZ CEO, Bo Inge Andersson: “If EU manager needs a week to complete the task, a Russian needs one day only. Because if you provide him a week, he will perform everything on last day.” Well, this is true and has great benefits for right management style.
2. Local profitable niches
Besides oil and natural resources, Russia still has great niches to invest in: HoReCa and manufacturing could be a choice.
A friend of mine, for example, has launched a coffee chain for youth in 2014, with 70+ cafes across the country now. Oversaturated global market? Huh, each place is profitable since week 1, with 5–8 months investment return. Due to simplified legislation, the taxes are ~2–3% from turnover; monthly net profit is 30–40%. Can you imagine something similar in EU or APAC?
3. A pilot market
Russia represents a variety of nationalities; unites people with various backgrounds, habits and lifestyle. International-minded entrepreneurs could consider using domestic market as a pilot for their product/service. Russians are a bit stubborn and buy only things useful for them, same time they have budget to experiment and try new offers.
My experience from joint projects in various markets is that if product gets attention in Russia, it could be scalable to nearby locations. But the expenses for launching a product in Russia are getting much lower now.
4. Outsourcing is supplemented with manufacturing
Russia has been always a hot destination for software outsourcing (and still remains). Now manufacturing outsourcing could be added. The cost of renting a factory unit in Russia became significantly lower than in China and is approaching India pricing. There might be troubles with technology-related products, but keep an eye on such niches as cloth, souvenirs, toys, construction, furniture, decor etc.
Another friend of mine from UK has successfully outsourced his suit company production to Kostroma (famous for its seamstresses), that saved him a couple of Mil. pounds since 2014.
5. Trading loans instead of direct investments
Direct investments are still a subject of regulation by local institutions. However, foreign investors could approach direct loans for prospective partners. These loans are provided to increase manufacturing capacity and act as payment for goods supplied.
A good example could be recent scheme from Japanese partners for a local aluminum manufacturer. Provided by Softbank at 0,5% annual rate, the Russian company gets loans at 4–5% to expand production line and supply arranged product amount. Everyone benefits in this scheme.
P.S. I was thinking to mention agriculture as main growth area for foreign partners, but probably need to write a separate note on it.
