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President of Russia Vladimir Putin: Mr Dmitriev, the Direct Investment Fund was established not so long ago as an important instrument for developing our economy and encouraging investment, but you have already got your work well underway and have summed up the results of your activities over the last year. My questions are all the usual ones: the amounts invested, and the main partners and areas for investment, the particular industrial and economic sectors concerned.
Russian Direct Investment Fund CEO Kirill Dmitriev: Mr President, the fund was only established in January last year, but over this year, thanks to your support, we have indeed achieved results, and I want to report on them in brief. We prepared a short presentation, just 10 slides that sum up our main results.
First of all, our investments in Russian companies come to more than $2.1 billion, of which $500 million is investment from the Russian Direct Investment Fund, and $1.6 billion is investment made by our partners.
With our support, our partners invested a further $3.2 billion in the Russian economy. We thus have total investment of $5.3 billion. In other words, every ruble we invested was matched by up to $10 from co-investors, and this is a very solid result.
Vladimir Putin: Mr Dmitriev, how does this compare to the ratios your colleagues in other countries achieve?
Kirill Dmitriev: It really is a good, solid result. First of all, because we got this institution up and working very quickly in just a year thanks to your support. Second, because few people are finding it easy to attract investment from co-investors at the moment, and many countries are following our example.
The Caisse des Depots in France, for example, is following our model and setting up a similar fund. In this sense our good results are all the more important. We can achieve these results because Russia’s economy is growing and it is in our interest to invest in rapidly developing business. Russia’s middle class has tripled in size over the last five years, and this opens up interesting new areas for work in healthcare and other sectors that I will say a few words about now.
Another important result is that we have attracted to our joint funds an additional $2.5 billion in investment from our co-investors. The funds in question are country-based funds that I will also say a few words about now. We are setting up many partnerships with big economies in the area of joint funds.
To give two examples of the deals that illustrate how we go about this, last time we met, you asked us to look at how we can support the Moscow Stock Exchange’s development. As a result, we invested more than $830 million in the exchange together with our partners, of which $650 million was invested before the IPO.
We attracted major long-term co-investors and also took part in the exchange’s IPO. The IPO was quite a good success as a result and the exchange’s capitalisation is now 8 times higher than that of the Warsaw Exchange and is approaching that of the London Stock Exchange.
Another example of our investment work is the Mat i Ditya [Mother and Child] chain of healthcare clinics that you recently visited. This healthcare provider is growing fast in the regions and its shares have increased rapidly over the last five months, with their value going up 33 percent.
This is an example of how we are investing in a very important sector for the country that is helping to bring quality healthcare services to people in the regions, while at the same time increasing state funds and bringing in good revenue. We see many such investment opportunities in Russia.
Vladimir Putin: Demography is becoming a profitable business.
Kirill Dmitriev: Yes, the rising birth rate and the growing middle class make sectors such as healthcare attractive for investors, and this really is quite a unique situation given that many other countries are not seeing this kind of growth right now.
Vladimir Putin: Did you help the Mat i Ditya chain to carry out their IPO, or did they do it themselves?
Kirill Dmitriev: We certainly took part in the IPO. We found two key investors, who essentially became the anchor investors in the IPO, and we also helped the company to expand actively to the Russian regions. They are opening clinics now in Ufa and a number of other key cities.
Vladimir Putin: How much did you invest yourselves, and how much capital did you help to raise for this chain?
Kirill Dmitriev: We invested $50 million ourselves and our co-investors invested $240 million. This is a very good ratio.
Vladimir Putin: Yes, I agree.
Kirill Dmitriev: We also invested in the Karo Film cinema chain and are confident that they will open new cinemas in the regions.
The Russian-Chinese fund did its first deal by investing in a timber industry company in the Far East. We are firmly convinced of the need to invest in the Far East. The deal in question concerns additional timber processing here in Russia, so that instead of exporting raw logs we export processed timber.
Vladimir Putin: What is this project worth?
Kirill Dmitriev: We invested $110 million, half from our side and half from the China Investment Corporation.
We are currently examining more than 50 investment projects worth a total of more than $10 billion in sectors such as medicine, agricultural equipment manufacturing, logistics, IT services, and retail trade. We are also looking more closely now at infrastructure, which is developing fast in Russia. We are looking at railways and toll roads and we want to bring more investors into the infrastructure sector.
With your support we set up a number of partnerships with other countries’ investment funds. They include the Russia-China Investment Fund, the Kuwait Investment Fund, which has invested $500 million, and partnerships with India, Germany and France. In other words, we are organising partnerships and platforms with the various big economies.
Following your meetings with a number of Arab leaders, we will be launching the first Russian-Arab investment fund in two months’ time, in which our Arab partners will invest up to $1 billion. We plan to set up a Russian-Japanese fund with the Development Bank of Japan, which will be an active investor in the Far East. Together with Mr Vladimir Dmitriev [Chairman of Vnesheconombank] and VEB Group we are looking at how to attract more investors to the Far East.
Let me say a few words about our other projects too. Acting on your instruction, we are looking closely at how to increase private investment in infrastructure projects. At the moment it is the case that infrastructure projects are often entirely budget financed.
We think the budget could finance only what is needed to guarantee a sufficient minimum level of return for private investors – perhaps with investment from the National Wealth Fund. This would dramatically increase investment in infrastructure because for every ruble of budget money we would bring in several rubles in private money, and because having private investors involved would make the investment more effective and make it possible to turn the National Wealth Fund’s money to greater profit.
As part of this work we are working together with the Presidential Executive Office and the Economic Development Ministry to develop investment project support measures. Projects that are profitable from the outset do not require state support, but state support can be used to make other projects, even those with low returns, more attractive for private investors.
Vladimir Putin: Have you already organised your work with the National Wealth Fund, or are you still in talks with the Finance Ministry?
Kirill Dmitriev: We will have our proposals ready to submit by April 1. Acting on your instruction, we are in close contact with Ms Nabiullina. We have a number of proposals on ways in which the National Wealth Fund could automatically be a co-investor if we get large numbers of private investors and qualified investors taking part in projects.
Vladimir Putin: Initially, we were talking about using the National Wealth Fund’s money specifically for infrastructure projects.
Kirill Dmitriev: Yes, the idea is that if the big infrastructure investors invest in a project, the National Wealth Fund would invest part of its money together with us, and this would lower the risks for the National Wealth Fund’s investment, because if we had a lot of private investors taking part, if something did happen to go wrong, it would be they who would lose their money first. We will have our specific recommendations ready within the next two weeks.
Vladimir Putin: Are you looking at the high-speed rail development project?
Kirill Dmitriev: Yes, railways is one of the areas we are looking at, and we are working closely with Russian Railways and looking at how to make projects such as high speed rail transport profitable and attractive for investors.
Vladimir Putin: Good.
Kirill Dmitriev: We are working with [State Duma Speaker] Mr Naryshkin on putting in place the legislative base so as to be able to carry out all of the initiatives on investment bonds and project financing. This work is being carried out through the State Duma Investment Committee, which Mr Naryshkin set up. We have a list of specific amendments that we think will make it possible to make the required changes quickly so as to get the market for project financing and infrastructure bonds operating in Russia.
This is all part of our work with the Business 20 [B20], in which the Russian Direct Investment Fund heads the group on investment and infrastructure. We see that many countries are finding it hard right now to attract private investors because budgets are shrinking everywhere, and so everyone is trying to find private investors. We are preparing a number of recommendations in accordance with this situation.
Mr President, we have a favour to ask you. During the St Petersburg [International Economic] Forum, our expert council will also be meeting and we will be inviting major infrastructure investors to take part in our discussions. You could take part too, so that the investors would have the chance here in Russia to share their thoughts on infrastructure investment. We would be very grateful if you agreed to take part.
Vladimir Putin: Yes, this is an interesting idea.
Kirill Dmitriev: Thank you.
In conclusion, I want to say too, that we are paying a lot of attention to boosting Russia’s investment image. We are going to create an investment map of Russia. We are working closely with the regional investment agencies and will promote the positive factors that we have here in Russia but that are seldom mentioned. For example, we talk about the fact that per capita GDP in Russia increased 2.6-fold over the last 12 years. This is something that gets little attention. We talk too, about the fact that our stock market has grown 20-fold, the Central Bank’s reserves increased more than 45-fold, and the banking system’s assets increased 27-fold over the last 12 years.
Practically no other country in the world can claim this kind of growth over the last 12 years. We therefore tell investors about this and let them see that Russia means growth. We give them concrete facts about Russia’s economy.
Vladimir Putin: The experts all know these facts, but of course for the general public and for ordinary investors these are useful figures to know in making investment decisions.
Kirill Dmitriev: There are a lot of inaccurate figures, figures on capital outflow, for example. A study that we carried out together with Ernst & Young and the Moscow State University National Intellectual Reserve Centre shows that the real capital outflow figure is twice lower than the figures getting published.
Vladimir Putin: That is because our investments abroad usually get included in the outflow figures. In reality, this is not capital outflow in the direct sense, but is our companies’ economic activity abroad.
Kirill Dmitriev: Yes, it is part of our expanding activities abroad.
Vladimir Putin: That said, we are aware of the problems that capital outflow causes, and we have to keep this in mind and address these problems.
Kirill Dmitriev: This is certainly the case, and we want to be of use in this area too.
In conclusion, I want to say that the support you give the fund offers us many possibilities and has enabled us in just a year to turn it into an institution that has won recognition from investors around the world.
We have received a number of awards, including for being the most innovative sovereign fund, and for our deal on the Moscow Stock Exchange, and we were recognised as one of the best managing companies in Russia last year. In just this short time we have succeeded in creating an institution that works actively and is focused on growth in Russia, and on bringing more investment and more investors into Russia’s economy.
Vladimir Putin: First of all, let me thank you for your work. I also want to give you a few pointers. There are some absolutely portfolio investment projects that are very essential for supporting particular sectors and even particular important companies. I hope that you and your partners from the big global investment funds will focus on investing in specific companies and sectors and in the real economy.
Kirill Dmitriev: Without question. We see many opportunities of this kind because Russia has unique growth potential of a sort that is hard to find in many other countries. This concerns precisely the real sector of the economy, not natural resources, but the real sector, which is developing actively now.