Which sectors of Russia’s economy, despite anti-Russian sanctions, are still attractive? Is it hard for Russian entrepreneurs to operate in a restrictive environment? Invest Foresight addressed these questions to some Russian business leaders who gathered in Moscow at the Atlantians 2018 business forum to share their success stories. That business gathering focused on designing future successes and brought together over 3,000 businessmen from all over the country.
Ruben Vardanyan, social entrepreneur, venture investor and Atlantians’ partner:
“If a long-term investment perspective of 25 years is considered, the attractive sectors are no doubt education, healthcare and everything about people and ensuring favorable conditions for them and for maintaining their identity. As for the current options, there are plenty of attractive and available assets in the market, which need investments. Nowadays, the market in Russia is the buyer’s market, so buyers can invest in very attractive assets. True, there are certain risks, and it should be remembered that there may occur some disasters, including sanctions caused. So the areas of investment depend on the planning horizon and risks acceptability.
“I have two investment portfolios. One is about generating revenues, and it includes investments in real estate, technologies, transportations and developing new and promising products. The other is about shaping significant social processes. Investment in Tax Free system, for instance, was fairly small, but Mikhail Kusnirovich and I put in substantial efforts for TaxFree to come to Russia to stimulate tourism. That was not a mere business investment, but a desire to bring some change. So there are two portfolios, and the second one is rather about impact investments when investments produce some social effect”.
Mark Kurtser, CEO and Member of the Board of Directors at Mother & Child Group of companies:
“It is profitable to invest in medicine. It may be less rewarding that investing in natural resources and energy commodities, since our business is affected by inflation as we have to acquire imported equipment for foreign currency while selling our services for rubles. But it is still profitable and makes sense. Investments in low margin medical services, for example, can be profitable if the services are made available to the people within immediate proximity, which is the case of the program Doctor Next Door. That can be in great demand. It’s very profitable to invest in unique technologies if you are an opinion shaper and an outstanding expert. Yet if you are not but just buy equipment and hire specialists to cure patients, it will take years for people to get to know you and to start appreciating what you are.
“Artificial Intelligence in search engines and medical online services will be of a substantial importance. It’s hard to forecast what place AI will eventually occupy in medicine. Still, it will certainly play its part everywhere where subjective opinions and personalized attitudes can be replaced, where faster servicing is required, and where patients appreciate AI’s strong and weak points. Ultimately, telemedicine will be the winner. We invest in that sector. We have Doсtis, a company where I make my investments”.
Vladimir Chirakhov, CEO at Detsky Mir (Kids’ World) company:
“The sector of goods for kids will certainly expand. There is no crisis in the market of the goods for children. True, the market is not growing, yet it is not declining either. It’s stable. As one of the largest investors in the industry, we spend two to three billion rubles a year by investing in new stores, distribution and information systems. Such investments promote our company’s development and that of the market of the goods for children. We also invest in our online business which doubles every year. In the last quarter, our online sales generated 9% of all revenues. The market of goods for pets is also promising. We intend to open our first pet shops by the year end”.
Andrey Movchan, Director of the Economic Policy Program at the Carnegie Moscow Center, CEO at Movchan Consulting:
“As far as investment areas are concerned, the main problem now is a global abundance of financial resources. Money surplus makes all industries less efficient, as when there is too much money, profit margins decline. The situation will persist for a long time. Besides, risks in Russia are too high for investors these days. In times of high risks, there are two areas which are of a particular interest: criminal businesses and government contracts.
“Being on a serious note, all industries are interesting for investing, if their assets are not generated in Russia. Those are mobile and flexible businesses such as software development, hi-tech, exports of designs and technologies. Such sectors are efficient and operational. At the same time, the rigid industries which require long-term and substantial investments and thus incur costs today without a guaranty of secure revenues in the future, will not see a smooth functioning. Besides, Russia has no chance to attract foreign investments, even investments from China. China’s annual trade is a trillion dollars, while its trade with Russia is $60 billion a year”.
Boris Bobrovnikov, Founder and Director General of CROC incorporated:
“Whatever happens in the country, and despite any crisis, there will always be an IT market. An IT market can not disappear, it may go up and down, still, there will always be some billions of rubles in that market which can be turned into profits. Crisis times are the right times to do business, as a crisis brings about new technologies which ensure competitive advantages. So crisis is a perfect opportunity which may and must be turned into an advantage. Is there a point to invest in Russian hardware or Russian operating systems? May Russia get its own independent IT sector? There’s no need to reinvent the wheel. The focus should be the travel direction and purpose, since that is more essential. It’s time to stop looking for our own unique ways and start looking at what is being done elsewhere in order to use and apply the things which were already invented.
“One of the most promising areas of investments now is industry digitalization, Industry 4.0. That will be trendy for a next decade. Industries which want to stay competitive, must go digital. It does not mean metal should no longer be produced, but its digitalized production will cut costs.
“The only obstacle for the industry digitalization in Russia is the business owners’ mentality. If they decide the digitalization time has come, they will sort everything out right away. So it’s not about money, but about thinking. If one has ideas, one will get funding. A large company, for instance, can start spending less, as a 10% saving on costs is a huge amount of money. Big businesses have tremendous potential for cutting costs by improving business processes. Anti-Russian sanctions are certainly some obstacles for the industry digitalization, but those obstacles are not immense since they mainly target national defense industry. And there’s always an option of buying a product in South Korea, Japan or Indonesia, who have a different view of the policies of sanctions”.