RDIF Sees Germany as Major Partner

MTRDIFs Dmitriev says that Russias booming automobile sector is particularly rewarding for German car makers.

BERLIN — German firms will account for a fifth of all investment brought intoRussiaby its new state equity fund over the next decade, despite persistent Western concerns over rampant graft and the rule of law.

TheRussian Direct Investment Fund, or RDIF, set up two years ago with capital of $10 billion, has a brief to win strategic investors for co-funded projects, and its U.S.-educated chief, Kirill Dmitriev, was upbeat on the prospects for German business.

Germany,Europe's largest economy, is pivoting away from the recession-bound euro zone toward emerging markets, and is an especially inviting target for the RDIF because of its cutting-edge technology and manufacturing expertise.

"German investment will be … about a fifth of the investment we expect to bring intoRussiaover the next five to 10 years [via the RDIF]," Dmitriev said last week in an interview on the sidelines of an infrastructure conference inBerlin.

"Given the need forGermanyto stimulate growth and its obligations as part of the EU to support other European economies, it needs to have some engines of growth, and partnership withRussiacould be one," Dmitriev added.

He identified automobiles, green energy and agriculture as particularly rewarding sectors for German business, adding thatRussiamay soon overtakeGermany asEurope's largest car market.

Bilateral trade between the two countries jumped 29 percent in 2012 from the previous year to about $100 billion, though German imports of Russian raw materials still account for much of that.

PresidentVladimir Putin, a fluent German speaker, will visit the annual Hanover trade fair, a major showcase of industrial technology, next month aiming to boost trade ties.

Dmitriev urged German and other Western investors to set aside politics and focus on the high returns on investment thatRussiacan offer.

The fund secured investments totaling $2.1 billion in 2012, $500 million from the fund itself and $1.6 billion from co-investors, Dmitriev said. He expected "much higher investment volumes this year," though he gave no estimates.

Under its business model, the RDIF can only invest if foreign investors put up at least a matching sum.

Dmitriev said the RDIF had also attracted a further $1.5 billion through long-term strategic partnerships, including with official investment agencies inChinaand Kuwait.

"We see sometimes people have significant misperceptions about making investments inRussia. Sometimes politics clouds pragmatic economic and business thinking," Dmitriev said.

But he acknowledgedthat Russiastill has much to do to reassure investors that their money will be safe, singling out reform of the poor justice system as a particularly pressing issue.

High-profile cases like the jailing of former oil-tycoon Mikhail Khodorkovsy, widely seen as politically motivated, have long clouded foreign investors' perceptions ofRussia.

German ChancellorAngela Merkel's trip toMoscowlast year was marked by a full-blown clash over civil rights under Putin after she accusedMoscowof stifling dissent.

"Courts need to be much more independent," Dmitriev said.

Russiaranks 133rd, alongsideGuyanaandHonduras, out of 174 states in Transparency International's 2012 Corruption Perception Index.

Central Bank chiefSergei Ignatyevsaid last month that almost $50 billion was sent abroad illegally last year, about 2.5 percent of gross domestic product, and that much of it was controlled by a single group of people he did not identify.

Russiais under particular international scrutiny as it chairs the Group of 20 leading nations this year and has pledged to push forward the economic forum's anti-corruption agenda.

Many economists and political analysts are skeptical aboutRussia's ability to clean up its own act, but Dmitriev said surveys showed more than 70 percent of those investing inRussiawere happy about their decision.

The former Goldman Sachs banker, a graduate ofStanfordandHarvarduniversities, cited as progress on the anti-corruption front a new law that will prevent senior officials holding bank accounts or stocks abroad.