EBRD President's speech in Singapore today Tuesday Sept 24 on challenges and opportunities of investing in Russia

CIS: OPPORTUNITIES AND CHALLENGES TUESDAY 

24 SEPTEMBER 

Ladies and Gentlemen, 

Thank you for this opportunity to take part in the Russia-Singapore Business Forum. I am looking forward to a stimulating discussion on an issue that is very close to the heart of the EBRD. 

EBRD fully committed to Russia 

Russia has been and remains the largest country of operations for the EBRD and we are fully committed to continuing our very deep involvement in the country. In 22 years, the Bank has invested over 23 billion euros in more than 700 individual projects in the Russian market. We are the single largest foreign investor in Russia outside of the oil and gas sector. We are proud of the role we play here and will continue to play in the further long-term development of the Russian economy. This does not mean there are no challenges to investment in Russia or in the wider region we are discussing. It is important to choose projects carefully. It is important to choose partners carefully. There is no substitute for doing your homework. But we are convinced that the opportunities outweigh the risks. 

Opportunities and Challenges in Russia and CIS 

Russia, and the CIS as a whole, is a deeply rich area, full of national variations – each country with its own history, traditions and cultures. And yet there are many shared experiences across the region. Despite remarkable progress, the economic gaps with developed market economies remain significant. It is precisely in this need to catch up that we discover a vast investment potential. In Russia, for example, a country of over 140 million people, there is huge pent-up demand for consumer goods. There is an expanding middle-class with growing spending power. Real disposable incomes are rising. Consumers are becoming more sophisticated. They want higher quality products that cannot always be sourced locally. This provides an opportunity, both for exporters to Russia as well as to investors who want to move into Russia and start production or to increase the presence they already have. At the same time there is an acute awareness, at the highest political levels in Russia, of the need to reduce dependence on the abundant supplies of commodities and energy. In Russia, and in many other resource-rich countries in the CIS, supplies of raw materials have proven to be both a blessing and a curse. In the good times they provide funding for development, but there is very little evidence to suggest that they can deliver sustainable growth in the long term. They also provide excuses not to push forward major economic restructuring that would leave countries better equipped to deal with the bad times when prices are low. This process of economic diversification still has a long way to go. But it is developing momentum, and the development – however hesitant – of a much broader, deeper and more sophisticated industrial sector adds to the allure of these markets. 

The EBRD is already part of this process and we are actively encouraging other investors and industrialists to come with us. In Russia, where we have been investing since before the break-up of the Soviet Union, we have helped drive forward the hi-tech agenda. We have worked on the development of industry, often teaming up with foreign companies that see the potential that is in these markets, but who rely on the expertise of the EBRD to help them navigate what for many is uncharted territory. With foreign partners we have invested in the Russian automotive industry, one of the fastest growing markets in the world. The EBRD also financed the landmark private-public partnership development of the airport in St Petersburg, and worked on dozens of projects that led to the wholesale restructuring and modernisation of the country’s electricity generation and transmission system. Moreover, in addition to our 23 billion euros of investment, the EBRD has been a catalyst for third party investments far in excess of its own direct financing. But the transition region’s transformation into a free market economy remains a work in progress, and the EBRD’s job is far from being done. And particularly right now, Russia and other emerging markets are facing choppy waters and a challenging business environment. 

In two decades of investment, primarily in former communist eastern Europe, we have witnessed extraordinary progress across the whole region, but also many setbacks. The road to economic transformation has proven to be difficult, and far more complex than the Bank’s founders envisaged, with incremental progress often followed by halting retreat. Russia is now in the midst of such a setback. The economy is experiencing sluggish growth. FDI has slowed down over the last several years, and the flow of capital has swung into reverse. In Russia, in other parts of the CIS and in much of the emerging world, slow growth is linked to investors’ perception of investment conditions. Across the board, there is a strong need to improve the business climate to dismantle the barriers to investment. High among those barriers is corruption, which remains a major problem and seriously impacts the business climate in many EBRD countries. The regulatory environment suffers from bureaucracy and red tape. The legal systems are seen as unfair and arbitrary and as often pursuing political rather than independent judicial objectives. At the EBRD we are aware of how difficult it is to wheel around entrenched cultures. But we are optimistic about the longer term outlook. Improvements are clearly on the way In Russia, steps are already being to improve the investment climate. We see a number of Russian regions successfully lowering administrative barriers and creating a climate that attracts both foreign and Russian investors. We welcome the steps the government has taken to improve Russia’s standing in the World Bank Group’s Doing Business survey. We are very supportive of the steps that the Ministry of Economic Development and the Agency for Strategic Initiatives are developing and – most importantly – implementing. They are developing a clear way forward in dealing with and dismantling barriers to investment. Elsewhere in the CIS, in Ukraine we are working together with the authorities at the highest political levels on an Anti-Corruption Initiative that will improve the climate for investment. In Kazakhstan, the largest economy in Central Asia, the authorities are clearly committed to attracting investors to help transfer skills to the country. The president’s determination to increase the budget for spending on green projects will also provide important economic opportunities. So things are moving, across all of the areas where we work. 

Great opportunities for Singaporean firms in Russia 

And we are convinced that there is great scope for Singaporean enterprises to reach out to the EBRD region. The time is ripe to move now. Companies in Singapore can tap into important new sources of revenue in emerging markets. And, crucially for the EBRD, the expertise in the Singaporean economy can make an important contribution to the process of economic transformation in the countries where the EBRD is active. One only has to look at the areas where Russia is still developing, and at the sectors where Singaporean companies have unique skills, to see the obvious opportunities for common enterprise. Russia is a vast country with enormous gaps in infrastructure – a perfect match for Singapore's key strengths in urban planning and municipal services. Singapore's information technology firms can help Russia, as it drives forward the development of its knowledge economy. And as Russia moves to boost its agricultural productivity – another key priority for the EBRD – there are investment needs that can be filled by agribusiness firms here, as there are across the economic spectrum. Economic forces are shifting rapidly. The Asian economy has become a hugely important global force and it is still expanding in this role. As companies like yours continue to extend their reach even further we invite you come with us and we can share the journey. I look forward to welcoming you on board.