Europe is again interested in investing in Russia

About Russian projects of European investors, cooperation with the United States, the Middle East and China, the results of the outgoing and the forecast for 2020 in an interview with RIA Novosti told the Director General of the Russian Direct Investment Fund Kirill Dmitriev.

- What are the main results of the RDIF in 2019? How much money did you invest with your partners? Which investors were most active?

- 2019 was a very active year for the Russian Direct Investment Fund. Together with our partners, we have invested more than 305 billion rubles in various projects in Russia. The fund has invested 25 billion rubles, and 280 billion rubles are our partners.

We invested in industries such as infrastructure, technology, including artificial intelligence, finance, biotechnology, healthcare, logistics, petrochemicals, utilities. Some transactions are still in the process of completion, I think, according to the results of the year, the total amount will be even higher.

When at the beginning of this year I predicted that this year the volume of foreign direct investment in Russia would increase by more than 50 percent, many had doubts about this figure. Now we see that by the end of this year, foreign direct investment will grow by about 70 percent. This is indeed a very significant increase.

We see that the co-investment model used by the RDIF demonstrates sustainability and effectiveness. RDIF is the key institution in Russia responsible for attracting foreign investment. Many other countries, such as France, Italy, Turkey, India, Armenia, Mongolia and Kyrgyzstan, create similar funds under the RDIF model to attract foreign investment.

This year, we saw a resumption of interest from our European partners - France, Italy, Germany and other European countries.

At the very end of the year, we announced the first transaction in the history of the fund with a company from Spain. Together with Urbaser, the leading European solid waste management company, and the Russian company Sibinveststroy, we are investing nearly 3 billion rubles in the construction of a garbage processing plant in the Kaliningrad Region.

This project is part of the garbage reform, according to the results of which a whole processing industry can be created in Russia from scratch. Thanks to this project, the Kaliningrad region with a population of more than 660,000 people will become a pioneer of this reform.

The enterprise will recycle up to 70 percent of all regional waste, which, without a doubt, will improve the environmental situation. Processing products, such as glass, metal and plastic, will be reused at the enterprises of the region. Recycling in accordance with international best practices is one of the priorities of the government; it will also remain a priority for the RDIF in the future.

- What else, in addition to the recently announced deal with the Spanish company Urbaser, demonstrates the resumption of interest from European investors?

- Investors from France, Germany and Italy were especially active. Together with the French company Orpea, we will build a network of centers for elderly care and rehabilitation in Russia.

By 2030, when the average life expectancy in Russia will be 80 years, the proportion of people over 80 years old will reach 30 percent. Providing care for older people when they need it will require smart investment.

Our partnership with Orpea is an important step in the process of fundamental changes in this industry. An effective business model will allow the company to offer high-quality services for older people at affordable prices, reducing the burden on the state budget. Orpea is a world leader in this field, their experience and expertise will make it possible to achieve positive developments in this direction.

Our projects, with the participation of French partners, include investments in Tomskvodokanal with Veolia, in a smart grid equipment manufacturing company in Samara, as well as a project to increase energy efficiency of Russian enterprises with Dalkia.

Our joint venture with the leading wholesale and retail company Metro Cash & Carry will help Russian independent entrepreneurs open more than 300 retail stores on very attractive financial terms under the Metro franchise. This project represents an important step in terms of supporting small business in Russia.

Together with the German investment group KGAL, we announced new investments in the creation of an aircraft leasing company, as well as investments in Cotton Way, a leading operator of rental and professional textile processing for hospitals and hotels. Together with a well-known German brand like Porsche, we invested in the development of Way Ray, a leading developer of augmented reality displays for cars.

- What was the effect of the sanctions?

- Economic sanctions are an outdated tool that contradicts the logic of the global economy. Despite everything, global capital needs investment opportunities and global financial flows cannot be stopped.

Sanctions can also be detrimental to those who initiated them. Over the past year and a half, the amount of dollar transactions in the international payment system SWIFT has decreased by five percent. Anti-Russian sanctions do not work, as the authors suggested, but the normal dialogue between the countries was nevertheless broken.

EU countries have lost about 240 billion US dollars due to sanctions and are actually losing the Russian market.

At the same time, despite geopolitical factors, there is no isolation. In 2018, the United States was the first in the list of investors by the number of investment projects in Russia. Germany took second place. During the presidency of Donald trump, trade between Russia and the United States grew by a third. We continue to believe that dialogue between Russia and the United States is very important and business circles could play an important role in normalizing relations.

At the same time, Russian industry has gained a significant competitive advantage both in the domestic and export markets. During the sanctions, the share of imported equipment decreased from 36 to 24 percent, while the share of non-oil exports increased from 33 to 43 percent.

This year, Russia successfully increased the share of the ruble in foreign trade, which also contributed to the strengthening of the national currency. Thus, the share of the ruble in foreign trade transactions increased five times (up to 14 percent) compared to 2014. The ruble against the US dollar rose by more than 12 percent, which is the largest value among the currencies of developing countries.

In the same period, the share of the dollar in foreign trade calculations almost halved - from 92 percent in 2014 to 50 percent in mid-2019. We expect the dedollarization trend to continue globally.

- According to the financial director of the Italian company Anas Edoardo Eminyan, Russia is a key market for the company. How active are Italian investors in general?

- Our cooperation with Italian companies is going well. Products made in Italy are very popular in Russia, especially food and designer clothes. RDIF is now collaborating with the Italian Development Institute Cassa Depositi e Prestiti (CDP) to support the development of Italian enterprises in Russia.

Italian pasta maker Barilla is interested in expanding its business in our country, and tire maker Pirelli intends to modernize and expand its existing plant in Voronezh. Now RDIF is actively discussing these two projects with the mentioned companies.

We also continue to partner with the Italian company ANAS you mentioned, which takes part in the modernization of the M-4 road connecting Central Russia with the southern regions, including the resort city of Sochi, the favorite vacation spot of Russians.

- Could you name recent deals with American partners?

- With the participation of American investors, UFC Russia, the Russian branch of UFC, the largest company in the promotion of mixed martial arts in the world, is actively developing today. This is a successful venture that helps in promoting Russian athletes around the world and developing sports in Russia. Just watch how Russian athletes, including Khabib Nurmagomedov, became popular all over the world, starting from the USA and ending with the Middle East, and how many fans are looking forward to seeing the next fight of Nurmagomedov. Due to his popularity, many of his fans are eager to visit his homeland of Dagestan.

- In the last year, RDIF paid particular attention to investors from the Middle East. What are the main results of such partnerships?

- RDIF is the main partner of Saudi companies in Russia. Thanks to the personal participation of our leaders - Crown Prince Mohammed bin Salman and President Vladimir Putin - cooperation between Russia and Saudi Arabia has reached an unprecedented level.

The OPEC + deal, aimed at stabilizing oil prices and supported by both countries, was extended for the next year.

As for investments, together with our partner, the Saudi Arabia Sovereign Investment Fund (PIF), we have invested more than 2.5 billion US dollars in more than 30 projects in Russia. We are currently working on 25 new projects, with a total investment of US $ 10 billion, in sectors such as the petrochemical industry, infrastructure, agriculture and technology.

The visit of the President of Russia to Riyadh in October this year confirmed the correctness of this course. During the visit, we held the first meeting of the Russian-Saudi Economic Council, a new body composed of major businessmen from both countries, and announced 10 new agreements totaling $ 2 billion.

We are confident that this council will give a new impetus to relations between Russia and Saudi Arabia in 2020 and plan the next meeting of the Council in St. Petersburg during the St. Petersburg International Economic Forum.

Our partnership with the UAE sovereign fund Mubadala totaling $ 7 billion is a major source of investment in the Russian economy. To date, the Mubadala fund has invested with the RDIF more than $ 2 billion in 45 projects in the Russian economy in sectors such as infrastructure, technology, mining, financial services, logistics, retail and more.

During the visit of Vladimir Putin to the UAE, we announced 10 new agreements worth more than 1.3 billion US dollars. The joint flight of the first cosmonaut from the UAE and Russian cosmonauts to the International Space Station aboard the Russian spacecraft this year was a symbolic event that marked the development of cooperation in space and other directions. That night, many residents of the Middle East were literally chained to television screens, watching the Arab cosmonaut fly into space.

We are also actively working with Russian companies with the goal of entering the markets of Saudi Arabia and the UAE. About 10 companies are considering projects in Saudi Arabia, especially in the petrochemical industry and in the field of housing, transport and technology.

- What are your plans for the development of cooperation with China?

- The Russian-Chinese Investment Fund (RCIF), created seven years ago in conjunction with the China Investment Corporation (CIC), together with partners, has invested more than 7 billion US dollars in 35 projects. Currently, RKIF is the main engine of investment partnership between Russia and China. The leaders of Russia and China have agreed to invest an additional $ 3 billion in RCIF. Work is underway to increase the capital of the RCIF to 5 billion US dollars. This year we made several investments, including in the company Intergeo, which will develop large Siberian mineral deposits used in the production of rechargeable batteries, and Alium, the new leader in the Russian pharmaceutical sector.

Another fund that we created together with CIC is the Russian-Chinese Technology Investment Fund with a capital of US $ 1 billion, designed to strengthen cooperation between countries in the field of technology.

We continued to work with Chinese partners to create funds for transactions in RMB, including a fund with the participation of the China Development Bank in the equivalent of 10 billion US dollars. The RDIF also initiated its first partnership with Guangdong Utrust Investment Holdings, a regional fund in Guangdong Province with a population of over 110 million people.

RDIF and the Chinese company Tus-Holdings have created a venture fund with a capital of $ 100 million with a focus on investment opportunities associated with Russian high-tech companies and startups with the potential for their further development in the Chinese market.

- What is the significance of your partnership with Alibaba and other technology companies?

- It was very important for us to complete the joint investment of Alibaba, Megafon and Mail.ru Group in the creation of Aliexpress Russia, because this is an example of our cooperation with a strong international technology player who is on a par with giants like Amazon, Google and Microsoft.

Alibaba was at the very center of the Chinese revolution in technology and business. The creation of Alibaba led to the explosive emergence of small businesses in China, as well as the rapid development of new technologies in the field of logistics and finance. China is the engine of the global technology race, and partnering with a company like Alibaba can provide us with the expertise and capital needed to join this race.

We often hear that we need to do everything ourselves, and, of course, we should strive for this. But we also need partnerships with technology leaders such as Alibaba.

We understand that such platforms will allow Russian small and medium-sized enterprises to enter Asian markets. Alibaba products integrate with Mail.ru Group products. As a result, our consumers will receive high-quality goods at low prices, and Russian small and medium-sized businesses will be able to export their products to Asian markets.

- What other areas of technology development are you interested in?

- We invested in ivi.ru online cinema together with our partners from Baring Vostok. This sector is developing rapidly around the world, and companies such as Netflix, for example, are starting to produce their own content and are starting to compete with traditional movie theater chains and studios. We consider ivi.ru the leader of this segment in Russia.

We also believe in telemedicine, especially in a country like Russia, where many people live in remote areas and do not have constant access to doctors and medical facilities. We have invested in the telemedicine company Doctis. It is growing very fast: its growth exceeded our forecast by 50 percent. We see that the new generation of Russians is more inclined to turn to telemedicine first and only then go to the doctor. We believe this is a very promising area for investment.

- What is the attractiveness of investments in Russia?

- The profitability that we provide to our investors is attractive, it is higher than the growth of stock indices in most countries. In the first half of this year, the revenue of our portfolio companies grew by 13%. It is growing faster than the economies of Russia, China and many other countries. We continue to invest in fast-growing companies and help them grow, develop faster.

This year, we also made a partial exit from a number of portfolio companies. We successfully exited the Moscow Exchange, the Gold mining company Polyus, and the Detsky Mir retail chain with very good returns for our partners.

We also plan to exit two projects in early 2020: Eliminating Digital Inequality and Developing Smart Grids. We implemented the first project together with Rostelecom. As a result, more than 10,000 Russian cities were connected to high-speed Internet.

The second project with the Rosseti company marked the beginning of the creation of smart networks in Russia. More than 100,000 smart meters were installed, which reduced energy losses by up to 40 percent. Both projects received funding from the National Wealth Fund (NWF) and demonstrated a yield of 30% more for the NWF compared with foreign securities.

Many of our partners have participated in dozens of deals with us. We created some companies from scratch. For example, this year we continued to invest in one of the leading logistics operators PLT. This company was created from scratch by the RDIF and the Mubadala Middle East Foundation; three years ago it did not exist. Now it is one of the four largest logistics operators. Next year we plan to increase her portfolio by one and a half times. This is a good example of cooperation: high-quality logistics appears in the region, and investors make a profit.

- What is your forecast and plans for 2020?

- We believe that the growth of the Russian economy this year will exceed the official forecast, and will amount to 1.5-1.7 percent. This is not bad compared to some other countries.

However, macroeconomic stability alone is not enough; growth is needed. We believe that it can only be achieved through larger investments. It is also important to create conditions for the return on investment in various industries. There is profitability in industry projects - there is an increase in investment flows. An example of such a sector is agriculture.

The conditions for obtaining attractive returns should be created in various sectors of the economy. We believe that the state can play a critical role here by investing in the National Wealth Fund in addition to private investment.

We believe that the state should also invest in infrastructure through a special fund. The state can invest 10-20 percent, and the rest will come from private investors. The state will return its money in the form of taxes. We are confident that such mechanisms are needed to achieve higher growth.

We have already invested in a number of projects where the state partially funded the creation of infrastructure around the project. We see that if the state did not invest in infrastructure, these projects would not be implemented. Accordingly, jobs would not have been created and taxes would not have arrived.

We understand this and have already invested in a number of projects that required significant infrastructure support from the state, for example, the Central Ring Road, a major project that will significantly improve the transport situation in central Russia.

- Are foreign partners of RDIF interested in national projects?

- Russian national projects are one of the most ambitious transformation programs in the world. It offers amazing opportunities for investors. Many of our partners have participated in similar transformation programs in their countries and are well aware of the scope of the opportunities offered.

Some of our partners, such as the sovereign funds of the United Arab Emirates (UAE), a country that has shown impressive results during the transformation, can share the knowledge that we can use in implementing national projects.

RDIF partners from China, Japan, Saudi Arabia, the UAE, Italy, France, Turkey and other countries demonstrate a genuine interest in national projects. The leadership of Saudi Arabia is now implementing its own transformation program, Vision-2030. We see the potential for synergies and the exchange of experience between Saudi and Russian government bodies, as well as between private business.

We have analyzed more than 600 projects in the framework of work with the government and see the possibility of replacing about 30 percent of state financing with private capital. The participation of private investors will make projects more efficient and transparent.

We see particularly great potential in the healthcare sector. We have invested in the construction of two world-class cancer centers in the Moscow region and in the future we plan to expand them to a network of national level. The first two centers can perform up to 50 thousand diagnostic procedures per year and provide the most effective and modern treatment to 5 thousand patients. This shows that projects of this type can be implemented using private investment.

- A significant event took place this fall: the first agreement between the RDIF and a foreign partner (from Saudi Arabia) on the joint development of artificial intelligence technologies was signed. What strategic significance does this partnership have for the joint development of artificial intelligence? Does it mark the beginning of the development of artificial intelligence technologies in conjunction with other countries? What is your forecast and what are your plans for such new high-tech developments?

- We believe that artificial intelligence can increase the efficiency of some sectors by 20-40 percent. Companies that are starting to use artificial intelligence technologies experience this effect right away. Artificial intelligence is not something purely theoretical, on the contrary, it has immediate practical application.

Leading Russian companies, including RDIF, Sberbank, Gazpromneft, Yandex, Mail.ru and MTS, have created an alliance to develop artificial intelligence technologies. This year, the RDIF signed an agreement with the Russian government, which makes the RDIF a key institution responsible for the development of artificial intelligence technologies in Russia and attracting foreign investment and expertise in this sector. In addition, we help our portfolio companies working in the field of artificial intelligence to expand their international presence and enter global markets.

For example, we invested in Motorika, a company that creates limb prostheses using artificial intelligence. These prostheses can “feel” thanks to sensors implanted under the skin. Now, thanks to our partnership, Motorika is beginning to enter international markets, including the Middle East and Asia.

Face recognition technology developed in Russia has great potential in foreign markets. Together with our Middle Eastern partners, we look at the company NtechLab, which developed the security systems used at the World Cup. Now we are bringing this company to the markets of the Middle East, where we see great opportunities for these technologies.

There is a similar story with ScanEx, which developed a technology to improve the quality of satellite images using artificial intelligence to obtain more detailed data for analysis. The company has unique products, such as agricultural land monitoring systems, which can be very successful in the global market. RDIF is studying this company together with partners from the Middle East. This partnership opens up Middle East markets for Scanex.

We are also actively promoting the introduction of artificial intelligence in the operational activities of our portfolio companies. For example, in the oncology centers that I have already mentioned, the RDIF helped launch a pilot AI project that can detect tumors with an accuracy of 5-6 times higher than the doctor can do by traditional methods.

We are confident that the use of artificial intelligence technology in health care significantly improves the efficiency of the industry. We invested in the creation of the first surgical robot in Russia, which, in our opinion, has great potential. We believe that artificial intelligence has great potential in healthcare and other industries.

Source: https://arb.ru/