British Investment Into Moscow Increased 40% In 2020
- British companies imported US$10.5 billion from Moscow in first nine months of 2020
- Chemical products, mechanical equipment and machinery, and I.T. are popular exports to Britain.
- Offset Agreements prove attractive for British businesses in Russia
Vladimir Efimov, the Deputy Mayor of Moscow for economic policy and property and land relations, has stated that British investment in Moscow’s economy has grown 2.3 times in the past five years, reaching an accumulated US$18 billion since 2015. According to the Russian Central Bank, that represents year on year from 2019, a 40% increase.
“Five years ago, British investments amounted to only US$7.6 billion,” said Mr. Efimov. “This year, the volume of Moscow’s exports to the UK has continued to grow. In the first 9 months of 2020, Moscow exported US$10.5 billion worth of goods to the UK, accounting to nearly 11% of Moscow’s total exports.”
Popular exported products include inorganic chemical products, mechanical equipment and machinery, and computers. Moscow can be considered a gateway to Russian products for UK sourcing companies and manufacturers.
There are many examples of the localization of British companies in Moscow, with companies such as Unilever, Diageo, British American Tobacco, as well as British consulting companies such as Knight Frank, Ernst & Young, Deloitte and Dezan Shira & Associates operating in the city. Despite the challenging global economic situation, there is an influx of foreign investment in the city. “Even amid a downturn in international trade, foreign businesses continue to invest in financial, insurance, trade, industrial and high-tech companies in Moscow.” says Alf Torrents, the Executive Director of the Russian-British Chamber of Commerce.
In terms of total foreign investment into Moscow, as of July 1 this year it amounted to almost US$260 billion.
According to Emil Petrosyan, the Deputy Head of Moscow Investment and Industrial Policy Department, specific tax incentives and corporate structures have been helping attract such numbers, and especially the use of Offset Contracts. Offset Agreements are defined as provisions to an import agreement, between an exporting foreign company, or a government intermediary, and an importing public entity. The incentive for the exporter results from the conditioning of the core transaction to the acceptance of the offset obligation, while making exporting easier for the foreign entity.
“An offset contract is one of many incentives for foreign investors to localize their production in Moscow. It provides companies with a long-term guarantee of product sales, while the city gets new jobs and an increased tax base. Moscow has already signed four offset contracts with pharmaceutical, medical goods and food production companies. The total amount of private investment in these projects amounts to US$164 million, while the volume of purchases amounts to US$971 million.” Petrosyan stated.
British businesses have been looking at alternative markets and suppliers in the wake of Brexit, which kicks in from 1st January – just three weeks away. That also frees up London from abiding by EU sanctions on Russia, although some form of these are likely to remain given Washington pressure on London. Even so, there are many areas of opportunity for British businesses to both source products from and sell to Moscow that are not impacted by sanctions measures. Maria Kotova of Dezan Shira & Associates is based in Russia and is responsible for UK-Russia markets. She may be contacted at email@example.com
Moscow was recently named the best city for Tech StartUps by fDI magazine, part of the Financial Times group, while Special Economic Zones such as Moscow Technopolis have also proved popular with foreign investors.
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Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at firstname.lastname@example.org for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.