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04/04/2019

HIT THE JACKPOT. WHY IS IT PROFITABLE TO INVEST IN RUSSIAN CHEMICALS INDUSTRY?

04/04/2019
HIT THE JACKPOT. WHY IS IT PROFITABLE TO INVEST IN RUSSIAN CHEMICALS INDUSTRY?
Today is a good time to invest in Russian Chemicals industry. If the process is organized properly, you can annually receive 20-30 cents per every euro spent. Existing risks generally associated with the geopolitical situation are substantially offset by the advantages.
The startup of chemical production in Russia as well as introduction of chemical technologies could be profitable for several reasons.

1. Growing market

In 2018 the Russian economy has been on the upswing in the last 7 years. GDP grew by 2,3 percent that was higher than in a projection. The Chemicals industry is one of the few growth drivers of Economy. According to the statistics, chemicals production index increased 2,8 percent in the first half of 2018. There were obtained over USA$ 30 billion between 2012 and 2018.
The transition from the supplies of hydrocarbons to the sale of petrochemical products of organic synthesis takes place.

The growing market is in need of new chemical technologies. Chemical factories are focused on economic growth-rate and increase in profits within short timeframes. Oftentimes such long lasting processes as R&D and production setup from scratch aren't suitable for managers and shareholders.

Russian Chemical factories are extremely interested in production of all kind of chemical products, catalysts, intermediates for organic synthesis, special chemistry.

2. Low CAPEX

Nowadays it is possible to launch chemical manufacturing in Russia in a quite short time. In our experience, it takes 2-4 years to enter the production with the available technology in Russia. The size of capital expenditure, needed to begin the production is well below than in the advanced world.

One of the advantages is availability of vacant lands and theirs low cost. As compared with EU, they do not pay such attention to environmental issues in Russia. Although the government is trying to strengthen the environmental legislation.

Former industrial sites remained since the days of Soviet Union could be reused. They were designed under the principle of hubs taking supply and logistics into account as well as stock of materials and distribution channels.

Chemical clusters and industrial parks provided with all necessary utility infrastructure flourish throughout the country. All that is left to do is to give things meaning.

Another important component of projects is the logistics infrastructure such as Silk Road that connects Europe, Russia and China. There are appropriately designed ways of getting raw materials and production distribution.

Traffic network grows rapidly. As the preparations for the Football World Cup in 2018 there have been opened around 180 km of new roads and the pace of construction remains high. Traffic volume of transit goods by sea and rail is increasing.

3. Low OPEX

Energy resources for the domestic consumers in Russia are crazy cheap. Oil and gas prices are 23 percent low than worldwide. The electricity prices for domestic consumers are the lowest in Europe (excluding Kazakhstan).
European country ranking by the cost of electricity for the population
In the beginning of 2019 the cost of electricity for the production plant with a 670 kW capacity (the first price range) doesn't exceed 6 rubles per kWh ($0,09).

In Russia there is no labor shortage including skilled personnel. According to ILO, in 2018 Russia ranked the 67th place in the world for level of wages with the rate of $637,7. As a comparison, China is on the 48th position in this list.

Trade unions weakness and immaturity of labor legislation also could be included to business benefit in spite of the fact that there is nothing to be proud of.

Relatively low tariffs for the transportation is another plus point.

4. Scientific basis

Russian scientific school remains one of the best in the world. Basic and academic researches keep developing despite inadequate public funding.

Basic research easily finds a use in real-life problems solving. Laboratories are well equipped and supplied with modern instrumentation for doing research studies. In order to get extra money Russian scientists tackle willing tasks directly related to real industrial engineering.

5. Currency rate

The important factor for the domestic production and exports at the European prices is the ruble exchange rate against the dollar and the euro.
Some of the disadvantages of dealing foreign invested business in Russia include:
Political reputation and political risks.
Monetary policy weakness
Difficulties with project documentation approval with local authorities.
As experience of conducting important International competitions such as the Olympic Games in Sochi 2014 and 2018 FIFA World Cup has shown that all foreigners' fears regarding the situation in Russia related to a lack of awareness of practical realities. Major cities try to match European standards with respect to improvement the life of the citizens. As guests could see there is adequate infrastructure and there are no bears in the streets.

Political stability in Russia will be maintained for the next five to ten years. As the case of Rusal Corporation, recently US government has lifted sanctions imposed on it, shows that Russian business and authorities with the support of foreign intermediaries are able to negotiate.

In the hinterlands, there is positive attitude towards the development of international projects. This is one of the indicators measuring the image of local authorities. The bureaucracy is the persistent problem but it is easy to overcome with proper mediation.

In Russia it is really difficult to get a loan at reasonable interest rates. However there is support from the Government and Business Development Funds. Everyone is positively predisposed concerning the attracting inward investment.

Many international chemical factories have already invested in Russia

Some big chemical projects involving foreign funds have been started up within the last few years.
In the Novosibirsk region German concern BASF SE has launched a project of locating production of dry building mixes and concrete additives. The investment volume will be about 5 million euros; start of production is expected in 2020.
The Italian company Tecnimont Codest International S.R.L. is going to invest 1.2 billion euros in the modernization of the production of mineral fertilizers in Kemerovo. The agreement was signed at the International Economic Forum in St. Petersburg in 2016.
Investors from Turkey have invested in the construction of chipboard (chipboard, MDF, OSB) factory in Kazan. Technology implies the absence of solid waste.
The French company SNF SAS plans to launch an enterprise for the production of polyacrylamide in Saratov for the oil extraction and agriculture industries using an adaptive technology.
We provide our foreign partners with the service that real helps to enter the Russian market.

We offer a wide range of services such as consultations, technical translation, assistance in submission of documents accordance to the required form, market analysis, preparation of a feasibility study, plant siting, sourcing, development of pre-project and project documentation, staff recruitment.
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