Foreign direct investment in the Russian economy in the first quarter of 2006 amounted to $3.8 billion, more than double the figure of $1.9 billion for the same period last year. Russia is clearly becoming more attractive to foreign investors, and this is not its only achievement.
In the first six months of this year, Russia hit another all-time high: its share on the European market of mergers and acquisitions reached 6.25%, compared to 4.5% last year. Overall, the Russian M&A market has soared by 57% over the past twelve months, which means that Russian assets have gained importance for international financiers.
Remarkably, Russia's economic success of recent years has usually been chalked up to positive trends in the global economy in general. This year, however, Russia is breaking records, while Europe is experiencing a less favorable investment climate. The United States has been more active on the FDI market. As a result, Russia's share of the global M&A market, which amounts to $1,274 billion, dropped to a little below 2%, compared with 2.5% last year.
Still, Russia is achieving new milestones with the assistance of foreign investors. This year has seen several large transactions involving foreign capital. Turkey's Efes Breweries acquired the Krasny Vostok brewery for $390 million, Italy's Enel paid $105 million for a stake in Rusenergosbyt, while Germany's Siemens bought a stake in Silovye Mashiny for $93 million.
This, however, was not all. Soon even larger mergers came along. China's Sinopec paid $3.5 billion for a 96.7% stake in Udmurtneft. Raiffeisen International acquired Impexbank for $500 million, while Deutsche Bank AG bought 60% of United Financial Group for $400 million. Analysts at KPMG International see another positive trend on the Russian investment market - a visible shift in the structure of investment. This year transactions have been more evenly distributed among industries. There has been a movement towards "diversifying foreign direct investment and shifting the focus from the oil and gas sector to other industries," the company said in a statement. Apparently, Russia is set to break another record by year-end: the value of its M&A market may reach $50 billion.
Today, foreign investors are active in almost all sectors of the Russian economy. Moreover, they have gone beyond the major Russian cities and moved to the provinces. For example, Cargill Inc., one of the world's largest private firms investing in agriculture, is in talks on constructing an oil extraction plant in the Volgograd Region and plans to invest $55 million. France's Accor Group intends to build several hotels in the Volga region, Siberia and the Krasnodar Territory, while Merloni Progetti is investing in the construction and overhaul of a refrigerator plant.
Foreign investors' activity is demonstrated by the increase in the international share of transactions. In contrast to previous years, this year foreign acquisitions of Russian assets have accounted for 81% of transactions, while the remaining 19% are mergers and acquisitions by Russians inside the country.
Apparently, this has encouraged the world's largest investment companies to follow their clients and come to Russia. Firms that have opened offices in Russia in the last three years include Credit Suisse First Boston, Merrill Lynch, Deutsche Bank, Dresdner Kleinwort Wasserstein, and Morgan Stanley. Goldman Sachs may also open an office in Russia soon.
