FT.com / World - German investors see growth in Russia

FT.com / World - German investors see growth in Russia

German investors see growth in Russia
By Bertrand Benoit in Berlin

Published: December 26 2007 17:24 | Last updated: December 26 2007 17:24

In spite of political tensions between the two countries, German companies continue to see Russia as a business opportunity and expect the investment climate to improve next year, according to a survey.

In its fourth annual poll of German investors in Russia, conducted in November, the BDI, the federation of German industry, found 79 per cent of respondents expected business conditions for German investors to improve next year, with a quarter of companies forecasting a strong improvement. Sixty four per cent said conditions had improved in the past year.

The poll shows German business is unfazed by the growing tension between Berlin and Moscow. Angela Merkel, German chancellor, has criticised the recent parliamentary election in Russia, saying that “measured by our standards, it was neither a free, fair nor democratic election”.

Klaus Mangold, chairman of the east-west committee of German industry, said: “The sentiment among German entrepreneurs in Russia is very optimistic. The business climate in Russia has improved durably and companies expect a continuation of this trend in the coming year.”

Germany, the world’s largest exporter of goods, is Russia’s biggest trade partner in Europe. It is also one of the few markets with which Germany has a trade deficit. Russian exports to Germany totalled €30bn ($43bn, £22bn) last year – mainly raw materials and fossil fuel – according to the German statistical office, while German companies exported €23bn worth of goods and services to Russia.

The BDI and some of its most outspoken members, including Jürgen Ham- brecht, chief executive of BASF, the chemicals group, have said Ms Merkel’s foreign policy focus on human rights will hurt German business prospects in Russia and China.

German exporters of capital goods, helped by the pro-Russia policies of Gerhard Schröder, the previous chancellor, have a firm hold in Russia and have been eyeing the country’s derelict public infrastructure as a huge opportunity.

Upon leaving the chancellery, Mr Schröder himself took up a job as chairman of a Russian-German energy joint venture controlled by Gazprom, the Russian gas giant, and has been campaigning for a political rapprochement between the two countries.

About 60 per cent of the 128 big German investors polled said they planned investments in Russia next year totalling more than €1bn. German companies have invested €11bn so far. Some 85 per cent said they would increase their staff in Russia.

Only 19 per cent of companies said they expected Russia’s planned legislation to limit foreign investments in strategic areas to have negative effects on their businesses. A quarter even said that business opportunities would improve as a result.

Among the incentives to do business in Russia, res-pondents noted growing purchasing power and the “remarkable” level of private consumption, the creation of special economic zones, the low level of competition in certain sectors, and the qualification of the labour force.

● Germany will cut its forecast for economic growth next year after a cut two months ago, Michael Glos, economics minister, was re-ported as saying.

He told Die Zeit weekly in an interview to be published on Thursday that growth would be less than 2 per cent next year. In October, the government cut its forecast for gross domestic product growth from 2.4 per cent to 2 per cent.
Copyright The Financial Times Limited 2007