Russia will create a $10 billion sovereign fund to support foreign investment contributing to the modernization of the economy, confirmed Russian president Dmitry Medvedev during a government meeting in Magnitogorsk, Siberia.
The fund will be set-up “by mid-summer,” the president announced.
“Achieving modernization requires a major increase in investment,” said Medvedev. “We need technology and we need money in amounts corresponding to Russia’s huge potential. We need the confidence and interest of Russian and foreign investors. But what do we see today? Unfortunately, this confidence is lacking. I already gave in the past my assessment of the investment climate in our country: it is very bad, very bad.”
The president described the fund’s main purpose as “to attract direct foreign investment.”
The fund will co-invest with foreign investment funds and companies launching investment projects of importance for Russia’s economy, with a share participation “between 10 and 25 percent.” The state, however, “should not take part in managing this fund and will guarantee selling its stake in [the investee] companies in 7 to 8 years’ time, perhaps a little more.”
The fund is to be set up by Vnesheconombank with initial capital of at least $2 billion, which will be raised to a guaranteed $10 billion as the fund puts its project portfolio together.
Mr Medvedev had previously mentioned the fund at the St. Petersburg forum in June, 2010, and then again at the Davos forum earlier this year.
After being hit hard by the crisis, Russia has returned to a growth trend, with GDP expected to grow by at least 4% this year. The Russian economy, however, is still too heavily dependent on oil, which fuels the growth and provides approximately 40% of budget revenues. Russia also suffers from a lack of investment, especially from foreign companies.
Modernizing the economy is the cornerstone of Medvedev’s policy. This includes a range of programs aimed at developing advanced technologies in the country, as witnessed – among many other initiatives – by the multi-billion dollar investment in Skolkovo, a innovation hub currently under construction near Moscow.
The new sovereign fund will attract investors, “no doubt about it,” said Julia Tseplyaeva, chief economist for Russia at BNP Paribas, to the Wall Street Journal. “Investors don’t like the Russian investment climate, but the government should calm some of their fears by putting up its own money.”
Sergei Guriev, rector of the New Economic School and member of the president’s commission on modernization, said the fund concept sounded “realistic.” “Russia has a large number of investment opportunities,” Mr Gurev said. “The major problem is the investment climate, but having the government as co-investor will help protect foreign investors from expropriation, corruption and red tape,” the WSJ reported.
Sources: Kremlin Press service, The Wall Street Journal
