Russia could become a G20 investment "pilot"
Rossiyskaya gazeta (The Russian Newspaper), 03.09.2013
On September 5th and 6th St. Petersburg will host the G20 Leaders’ Summit. Leaders of countries which account for up to 90% of the world’s GDP and about 80% of world trade will gather in Konstantin Palace. The Summit has long been established as a great forum to discuss global economic challenges. However, solutions to these challenges are not normally found at the event itself. The resolutions and agreements are reviewed and reworked in great detail by an entire team of experts. This year’s B20 was no exception. During the B20, leading business representatives prepared recommendations for the G20 to help stimulate economic growth, including through investment in infrastructure.
The G20 is probably the most important platform for the discussion of anti-crisis measures at an international level. The challenges faced by the G20, under Russian presidency for the first time this year, will be even more difficult than in previous meetings. The discussion will, of course, be more than how to avoid a recession. Economic growth in many major economies is close to zero and a very powerful push is needed in order to counteract negative economic trends.
To turn the corner and return to economic growth, the world needs investments in the trillions, a significant part of which may fund infrastructure development. As we have seen in the run up to the G20 leaders’ meeting, this is now clearly understood by both the private sector and by governments.
The format of the Summit allows the global business community to develop solutions together with the leaders of the G20 countries. Representatives from major companies and investment funds, as well as managers of sovereign wealth funds, have been working together since the end of last year as part of the Investment and Infrastructure taskforce, headed by the RDIF. They currently manage assets worth nearly 5 trillion dollars.
Those wishing to invest need tools
In the current climate, not only market players, but also financial regulators are acting cautiously. In 2007 there were 11.8 trillion dollars’ worth of cross-border investments but last year we saw just a third of that - 4.6 trillion dollars. On one hand, there are objective reasons for due to slower economic following the crisis of 2008. On the other, the policies of a number of regulators are also having an effect. The tightening of requirements for cross-border investments, including those by the Basel Committee, has increased financial discipline but there are side effects to this. New rules on banking supervision are limiting investments in infrastructure and failing to provide a powerful influx of funds into these projects. In order to remove these limitations, certain international rules would need to be changed.
It is difficult to predict when the leading economies will take this step. However, it is clear that private investment in infrastructure needs to be encouraged right now. According to expert assessments, approximately 60 trillion dollars of these investments will be needed before 2030.
In Russia, this issue is more serious than in many partner countries. Infrastructure does not simply need to be developed - the further development of the country depends on it, and not just in the economic sense of the word. Many investors are already focused on Russia as a platform for major investment and it is now important to make the process as clear and transparent as possible. The Russian capital market needs new, standardized investment instruments. Given the infrastructural deficit, not only sovereign wealth funds, international banks and development institutions should be regarded as sources of investment; retirement savings should also be considered.
Best practice to be combined in Moscow
Despite economic difficulties around the world, investors are ready and willing to work with Russia. Questions are sometimes raised in regard to Russian projects, but not about their quality and viability, rather how they are developed and structured. Therefore we, together with our B20 partners, are actively promoting the idea of creating a special fund for pilot projects. This fund, with capital estimated at 200 million dollars, would help to build and properly structure deals for investors, providing an additional influx of funds into the country.
Since its formation in 2011, the RDIF has gained a wealth of experience in attracting global investors to the Russian domestic market. Now is the right time to move towards financing major infrastructure projects. An initial and highly notable example of this will be our investment in the construction of the Central Ring Road (CRR). With co-investors, RDIF is prepared to invest up to 60 billion roubles. Two of the largest sovereign wealth funds have already confirmed their interest in the project. According to our estimates, simply improving the efficiency of investments could save up to one trillion dollars each year and Russia could play a key role in this process. The creation of a Competence Center in Moscow should facilitate this. The Center could become a real bank of best practice and bring together the experience of the world's investors, infrastructure specialists, government agencies and development institutions.