How are Russians investing in Germany?
October 1, 2017
After working for Russia's Gazprom for many years, ex-chancellor Gerhard Schröder now holds a top position in another Russian energy giant, Rosneft. Shareholders of the biggest oil company in Russia made Schröder chairman of the board at the Friday assembly in Saint Petersburg. The firm is controlled by the Russian state, and is also targeted by EU sanctions, but the ex-politician is not overly concerned by it.
Commenting on the appointment, Rosneft CEO Igor Sechin said that Schröder had helped projects involving Russia and Germany, and is now meant to promote Rosneft in Europe.
Read more: German businessmen in Russia – more than Gerhard Schröder
In January 2017, Rosneft took control of an oil refinery in the German city of Schwedt and obtained minor stakes in two other refineries in southern Germany. The company also opened a branch office in Berlin this May, announcing €600 million ($709 million) in new investments.
Gazprom on the prowl
Energy giants Rosneft and Gazprom account for over one half of all Russian investment to Germany, says Ullrich Umann, an expert on Russian business, who works for Germany Trade and Invest (GTAI). In addition to the two biggest companies, some 1770 Russian-financed firms are also present in Germany.
Gazprom is picking up the pace, despite the EU sanctions targeting Russia's energy sector.
"There are Nord Streams I and II, the takeover of gas storage facilities, and the attempts to invest into gas-based power plants, which have so far been unsuccessful due to political pushback," Umann says.
Another notable sale took place recently, when Germany-based DEA Group was sold to the Russian oligarch Mikhail Fridman. The German government approved the sale in 2014.
Read more: The Rosneft seat and Gerhard Schröder's Kremlin credentials
The DEA gas concern, which had been established as a daughter company of Germany's electrical utilities company RWE, owns gas storage facilities in southern Germany. The transaction was worth billions, but it does not show up in the statistics on Russian investments, as the official buyer was Fridman's Luxemburg-based company, LetterOne.
Direct investment on the rise
When it comes to statistics, there is differing data on the scope of Russian investments in Germany. Earlier this year, Germany's central bank published information on direct foreign investments, or so-called FDI stocks.
"As soon as a Russian company owns ten percent of the stocks or has a right of vote in a German company, this company needs to report it to the central bank," explains Andreas Bilfinger, also with the GTAI.
According to the data, Russian investments in Germany have grown from less than €2.6 billion in 2011 to €3.46 billion in 2015. The jump is especially noticeable in records for 2014, which is the year when the conflict between Russia and Ukraine started.
Andreas Steininger, an expert on Russia from Germany's Ostinstitut, sees two possible reasons for this rise.
"There were companies that were investing before the crisis," he says. "These investments were not immediately cut off." Additionally, the conflict prompted many Russians to invest in real estate outside Russian borders, including in Germany.
Russia leading the BRICS pack
Overall, the Netherlands is the investment leader when it comes to Germany, investing almost €100 billion. Russia comes in at number 16 on the list, which is compiled by Germany's central bank. At the same time, it still invests more than other BRICS countries, such as China, India, Brazil and South Africa.
Read more: Angela Merkel slams Gerhard Schröder for taking job with Russia's Rosneft
The data provided by the Russian Ministry for Economic Development, however, paints a completely different picture. Russia's direct investments have dropped from over one billion US dollars in 2014 to 393 million in 2016, they told DW. This can be explained by a number of reasons, including the ruble dropping in value, says Ullrich Umann from GTAI. Another explanation is the "political pressure" from the Kremlin.
"Investing abroad is no longer favorably looked upon" in Russia, he said.
The age of IT
Sergey Nikitin, the head representative of the Russian Chamber of Commerce in Germany, believes there has been a structural shift in the way Russian firms invest into Europe's strongest economy.
"Earlier, investments were made in order to secure the delivery of equipment," he said. "Now, it is more about start-up projects, IT-ventures whose software is not being used in Russia. They believe that Germany is a comfortable starting point for them to do business in Europe."
GTAI statistics support this perspective. When it comes to the so-called greenfield projects, or creating new companies, IT-companies top the charts of Russian initiatives in Germany. They accounted for 17 percent of such projects between 2011 and 2016.
From Bavaria, with love
This trend applies not only to big brands such as the famous anti-virus developer Kaspersky Lab, but also to lesser known names such as, for example, Data Matrix. The Saint Petersburg-based company, which develops software solutions for medical research, registered a subsidiary company in Munich in 2017. The Moscow-based RTSoft, one of the IT pioneers in Russia, did the same in 2015.
RTSoft is developing software for the German car industry and mechanical engineering.
"We want to have better access to companies that are interested in developing unique software solutions," says the head of RTSoft in Germany, Olga Sinenko. Among other projects, her company is promoting self-developed software on "managing energy systems based on renewable energy sources" in Germany.
Bavaria, it seems, holds a special appeal for Russian companies looking to set up camp in Germany. Some 350 Russian companies are active in the state, according to the data presented by the Invest-in-Bavaria agency.
"In the last several years, we have noticed that it is not just big Russian companies that are interested in starting a business in Bavaria," says Svetlana Huber from the agency. "We are also receiving many inquires from Russian start-up companies that are expanding their business around the world."
Sanctions' influence 'indirect'
How strong is the negative influence of sanctions imposed by the EU on Russian investments? "There is hardly any [influence]," Huber says. In turn, Olga Sinenko from RTSoft says that her company has sensed the effects, albeit not directly. "Not all customers and companies are willing to continue working with us, even if we are being not formally sanctioned," she says. Some clients simply prefer to work with Germans, despite the lower production costs and high-quality work afforded by Russian programmers, she added.
Generally speaking, however, her company is "very much satisfied" with its business in Germany, and the relations with the local market.