The shooting down of Malaysia Airlines flight MH17 over Ukraine focused the world's attention on Russia, the eighth largest country by GDP and supplier of 12% of global energy. On July 23, prime minister Dmitry Medvedev said at a meeting with trade representatives that Russia saw co-operation with the Asia-Pacific rim as its key priority.
Russian news outlet RT reported that the East, not the West, accounted for Russia’s top five trading partners, and Russia’s Foreign Trade Statistical Bulletin named these partners as China, Japan, Turkey, Kazakhstan and South Korea. Thus the Russian government made clear that Western sanctions will only push Russia towards Asian countries, which remain politically neutral and which are growing faster economically than those in Europe and North America.
While the Russian government expects its special economic zone (SEZ) in Vladivostok to further boost inward FDI from Asia, particularly in the automotive, consumer electronics, railway engineering, construction materials, logistics and packaging materials sectors, the government has also worked hard to offer prospective investors additional incentives to do business in Russia. A new SEZ currently under construction in Moglino, in the north-west region of Pskov, will offer Asian investors cheap labour, developed infrastructure and easy access to natural resources.
In addition, Russian oil and gas companies have begun shifting their attention away from the US and Europe and towards Asia. Other Russian companies involved in railway, mining and retail are in the process of seeking greenfield sites across Asia, and this could lead to a significant shift in Russian FDI away from its partners in the West.
While the media portrays Russians as surly and unsmiling, it is worth looking beyond cultural factors and transitory political issues. Investing overseas, whether in Russia or elsewhere, is not for the faint-hearted. Having performed all due diligence and analysis of risks and attractions and return on investment, Asian investors who dare to make the first move and work with reliable Russian partners can significantly expand their businesses. The long term Asia-Russia business outlook is promising, yet also carries significant risks. While there is much at stake in such an investment, there is much to gain over the long term.
Lawrence Yeo is CEO and principal consultant of AsiaBIZ Strategy, a Singapore-based management consulting firm providing Asia market research, business strategy development and export/FDI promotion services.