The president of the Republic of Tatarstan, Rustam Minnikhanov, was among the high-level participants at the Annual Investment Meeting in Dubai in April. Addressing the hundreds of attendees in a keynote speech (in Russian), he made his pitch for investment in a territory whose economy is under pressure to diversify due to low oil prices and whose FDI prospects are taking a hit from international sanctions against Russia.

With these challenges bearing down, the government of Tatarstan is looking to shore up its FDI offering by moving into more advanced sectors and better exploiting opportunities in Islamic finance. 

SEZ potential

Tatarstan produces on average more than 30 million tonnes of crude oil per year. Calling the decline in oil prices “the most pivotal question” for the country’s economy, Mr Minnikhanov stressed the need for diversification.

“There is a lot of potential in our special economic zones, especially in hi-tech sectors,” he told fDi, in a roundtable discussion with a small group of journalists at the gleaming Tatarstan pavilion, in the event’s exhibition hall. “We have a chance to launch new projects in high-end industries in order to help diversify the economy.”

Six new plants are being opened in Tatarstan’s zones, according to Mr Minnikhanov. The country has a strong industrial base already – industrial production contributes nearly half of the republic’s gross regional domestic product – but advanced sectors are being promoted for development, such as IT, biotechnology, engineering and advanced materials. “A top priority is developing R&D centres and investing in the educational sphere,” he says.

But with sanctions against Russia hindering FDI efforts, for the moment a greater focus is shifting to Islamic finance, an area that the Muslim-majority republic has long expressed interest in but that was perhaps less of a priority during times of high oil prices. “The details are still being discussed but some things are already being structured by Islamic banking principles. We have established some initial initiatives in co-operation with the [Russian] central bank and we are developing a legislative base for Islamic finance,” says Mr Minnikhanov.

Tatarstan is looking for models on which to base the fledgling sector and is establishing links with other financial centres with the aim of knowledge sharing. “We can draw on the experience of Kazakhstan, as it started developing Islamic finance sooner. Many European countries are using Islamic instruments already and we can look [at these examples]. The president of the Islamic Development Bank is helping us develop a roadmap. And we are creating links with Dubai – the minister of economy of the United Arab Emirates has visited Tatarstan,” says Mr Minnikhanov.

Filling the funding gap

Tatarstan’s tilt towards Islamic finance is in line with a broader Russian government ambition to promote Islamic banks as means of plugging finance gaps left by Western lenders due to sanctions against the country. According to local media reports, Sergei Gorkov, head of Russian bank Vnesheconombank, said at the Kazan Summit 2016 in the Tatarstan capital in May that funding from Islamic banks would be used to support infrastructure projects in Russia and the country expects to close its first deals to attract Islamic capital in late 2016. 

“The issue of investment in infrastructure in Russia is very important, and the Russian economy could really use Islamic finance,” Mr Gorkov was quoted as saying on news site Russia Beyond the Headlines.

Russian legislation – and opposition by many lawmakers – has proved a large stumbling block for the establishment of Islamic finance in the country in the past, but with other means of finance being kept at bay by sanctions, the impetus to remove these barriers is growing.