Setting up operations in Russia
Russian assets are very undervalued. This is because of a depressed exchange rate and high rouble interest rates.
According to the Economist's Big Mac index, the Russian Rouble (ruble in American English) is now the world's most undervalued currency. It is time to buy.
Bond rates are a good indicator of the fundamental cost of money. Russian bond rates vary from 7% to 8%. Blue chip equities need to deliver at least 5% more and SME bank borrowers neeed to pay at least 10% more. As a non Rusian entity, your cost of capital will be much lower.
While setting up operations in Russia can be done by buying an existing business, direct investment is an alternative. This means chosing the form of legal entity, renting an office (a prerequisite), setting up the entity, engaging advisors, applying for long term visas, hiring managers, finding premises whether office, warehouse or factory.
At Volga Trader, we can help you do these things. However, we can also provide these services through an interim management project as an alternative to adding extra demands onto your permanent staff. Test the market with us.
For certain industries, especially in services but also in oil, gas, mining, forestry, farming, food processing, construction and logistics amongst others, a physical and legal presence in Russia is vital.
The Russia public sector procurement system accounts for 40% of GDP, including utilities and state owned companies. It allows a 15% weighting in favour of local producers. Even to participate you need a locally registered company.
In other businesses, such as the automobile or pharmaceutical industry, the Russian tariffs on imported products and rules on state procurement are such that there is a strong advantage to manufacturing locally.
For many consumer products, the cost of transportation can be an important factor in the overall cost, making local manufacturing the solution.
We investigate regulations, location (with respect to customers), potential support from local government bodies and staff qualifications. To reduce costs, we try and locate local sources of equipment and capital construction. And to get things started, we offer business planning and temporary project management. In some cases, we can also source investors or joint-venture partners.