In previous articles, we described
the Russian investment climate and made
recommendations on the implementation of investment projects in Russia. Today we will study which industries will become the most profitable in the next 10 years.
1. Medical industry
The Russian authorities are actively pursuing a policy of import substitution. The Ministry of Industry and Trade of the Russian Federation is implementing the state program “Development of the medical and pharmaceutical industry of the Russian Federation for the period until 2020.” According to the program, until 2020, 40% of medical devices should be manufactured in Russia, although at present the share of production is about 30%.
State authorities actively supports the industry and the state program provides incentives in the amount of 43 billion rubles until 2020. The government also pursues a protectionist policy. Another important advantage is the stable demand for products, which is 90% provided by the state.
2. Residential construction
At first glance, this is not an obvious idea, since income of the population do not show enough positive dynamics, but this industry has a number of opportunities and advantages. Firstly, the monetary policy of the Central Bank of the Russian Federation is aimed at reducing inflation and lowering the interest rate. By 2021 we expect the CBR rate at 4-5%, and this means a mortgage rate of 6-7% against the current 9-10%. Such a reduction in the rate means a 1.5 fold reduction in overpayments on loans and will increase the demand for loans, and, therefore, for residental property.
On the other hand, the government banned equity financing in housing construction (when homebuyers make a prepayment at the construction stage of apartments). This means that access to financing for Russian construction companies will become more difficult, a number of M&A transactions will be outlined, small and medium-sized companies will lose their place in the market, and large companies will become even larger. Access to finance from Chinese corporations is simpler and cheaper than in Russia, and therefore Chinese companies can occupy a large share of the housing construction market.
3. Pharmaceuticals
Pharmaceuticals is another attractive industry for Chinese investment in Russia, which enjoys great government support. The state subsidizes research in this area and also pursues a policy of supporting local industries, which gain an advantage in public procurement. The support policy is in many ways similar to medical equipment, but the drug market is much larger and in monetary terms amounts to about 1.4 trillion rubles.
A great investment opportunity here is the production of pharmaceutical substances. Basically, they are now imported from China, but the Russian market is large enough to create conditions for production. High business margins, inexpensive and high-quality labor resources, cheap raw materials, a tendency to an aging population and a large potential of the domestic market are the main factors for the growth of Chinese investment in Russian pharmaceuticals.
4. Agriculture
The growing demand for foodstuff in China, the growing trend in demand for environmentally friendly products around the world, the large territory of Russia are just a few factors that make agriculture attractive for Chinese investment in Russia.
It is important that at the moment the Russian agricultural market is only being formed and is still very fragmented. Not in all industries there're companies that dominate the market and this is also an opportunity for Chinese investment in Russia. The volume of agricultural production in Russia is 3.3 trillion rubles and this is only 3% of GDP, although the potential for the development of the industry is great. There is also active state support in agriculture, including subsidies for leasing agricultural equipment at preferential credit rates.
6. Pulp and paper industry
The timber processing industry is already one of the main areas for Chinese investment in Russia. There are many examples: AVIC Forestry in the Tomsk Region, Tszyulongfu in the Vologda Region. At the same time, a large volume of high-quality final paper products, including cardboard, is imported by Russia from other countries, including Europe. Moreover, in Russia there is every opportunity for the development of the paper industry.
Another growth factor is a ban on deforestation in China and cardboard shortages in the domestic market. Investing in Russian pulp and paper mills is a great idea for Chinese investment in Russia with further export to China.
6. Chemical industry
Russia is one of the world's largest producers of oil and gas, and the sector's contribution to GDP exceeds 25%. A number of major investment projects are already being implemented: Sibur, with the participation of Sinopec, is developing the Zapsibneftekhim project, and also plans to implement the project of the Amur Gas Chemical Plant.
Deepening oil and gas processing is also part of government policy, which receives active government support in the form of tax incentives. However, not only large corporations such as Sinopec and CNPC have a chance for investment, but also medium-sized businesses. The production of petrochemical fertilizers, methanol, ethanol and derivatives is a chance for new Chinese investment in Russia, which is also available to medium-sized companies.
7. Innovations
Russia historically has a developed scientific base. In our country, were invented a radio, a light bulb, a helicopter, a TV, a gas mask, a parachute and many other important things. There are a lot of developments in Russia that do not always get their application in practice.
At the same time, the development of technological solutions in Russia is cheaper due to lower salaries in comparison with Europe, the USA and China. That opens up great prospects for attracting Russian innovative companies as outsourcing companies and for the purchase of technologies in Russia.
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You can contact:
Maxim Kuznetsov - vice-president of RAUIE
investment@raspp.ru
WeChat: maximkuznetsov
Gao Muyang - deputy Head of trade and economic development Department
businesscn@raspp.ru
WeChat ID: Sauron_1863
