Davos delegates reveal the secret of making money in Russia
The World Economic Forum in the Swiss resort of Davos is where the financial secrets of our age are supposedly both safeguarded and revealed. And the results of this annual event significantly impact global investor decisions. This year, to my delight, an important tactic was disclosed: how it is possible to double or triple your money by investing in Russia at a reasonably low risk. This isn’t a “get rich quick” scheme – the usual rules of due diligence for any investment certainly apply. It is though an unexplored investment in educated people, who have a wealth of natural resources, and who will work hard to support businesses that improve their place in the world.
The ‘secret’ is simple. Russia’s regions are taking charge of their own economic destiny. As we say in Russia, “Spasenije utopayuschikh – delo ruk samikh utopayuschikh”, literally “the rescuing of a drowning man is in the hands of that drowning man”. This proverb translates loosely as “you are your own best friend”, and is something those in Russia’s regions have finally realised. They are no longer under the illusion that a central government will protect them, and as such they have committed to take their destiny into their own hands. This ‘secret’ was pronounced at Davos by the aluminium businessman Oleg Deripaska, who stood up and called for Russia’s capital to be moved to Siberia. As he put it “Moscow has no significant value for the [surrounding] region, and we realise that keeping the capital in Moscow means corruption and excessive centralisation”
Independently produced figures by the World Bank clearly endorse this case. Each year, the World Bank’s “Ease of Doing Business” index ranks countries around the world for setting up a small or medium sized company. Russia is making huge progress, having jumped from 120th in 2012, to 111th in 2013, and 92nd in the 2014 edition of the report. But these figures are based on the performance of “the largest commercial city in the country” – which in Russia’s case, is of course Moscow. This criteria, however, hides the real story, as illustrated by the World Bank’s 2014 index “Doing Business in Russia”. This index ranks Moscow alongside other cities in the Russian Federation. In this index, Moscow comes bottom. Out of the 30 cities in the Russian Federation, assessed by the World Bank, Moscow is ranked at number 30.
Number 1 on the list is the city of Ulyanovsk 500 miles south of Moscow on the Volga River. Ulyanovsk Governor, Sergey Morozov, used Davos to share the ten “I’s” on which his economic policy is built – Investment, Infrastructure, Innovation, Intellect, Internationalisation, Integration, Interactive, Intensification, Identity and Inspiration. In doing so, Mosozov signalled his administration’s open engagement with the international community.
Also attending Davos this year was Rustam Minnikhanov, the President of the Russian Republic of Taterstan. Its capital, Kazan, ranks 4th in the World Bank’s Russia Index. Minnikhanov proudly told investors how his team has reduced the processing time for the examination and approval of capital construction projects to just 10 working days. This puts Taterstan up there with some of the most business friendly destinations in the world. It is in fact a place I know well. One of the companies we’ve invested in, Viatech, is developing technology in Taterstan that can double or even triple the flow from oil wells, thereby restoring old wells to economic viability. What’s more many of Taterstan’s most important business deals take place in the Kazan Park Inn hotel which opened in October 2010 as the first property of the Regional Hotel Chain, in which we are the lead investor.
One of Moscow’s most senior bankers, Alexander Bazerov, used his Davos blog to advise international investors in Russia that they have two choices: to buy the high dividend yielding oil stocks and enjoy deep value protection against the current emerging market turmoil, or to buy into high growth sectors such as technology. Expand that with an understanding of the investment climate in Russia’s regions, and you too will benefit from Davos’ secret.