Creating a sound investment climate in Russia

Mr Medlock, CIS Regional Director, presented to delegates during a panel on spearheading financial services and funds jurisdictions, along with Jochum Haakma, Business Development Director, who spoke on the "Internationalizing of Russian Firms” panel. TMF Group participated for the first time at the event, which was attended by 300 senior business and political leaders. The meeting was held to talk about Russian firms' sustained economic success in a globalised world, as well as to look at Cyprus' current financial crisis and propose the potential actions that might restore stability on the island and within Europe as a whole.

Focusing on Russia, Mr Medlock was keen to address some of the long-standing issues in the country and the progress that has been made in rectifying these problems. Action by the Central Bank and the Government has gone some way towards stabilising the economy and increasing the appeal of Russia as an investment destination, with inflation under control and the financial services sector looking healthy.

“The politicians have set a goal to establish Moscow as a leading international financial centre,” Mr Medlock said. “Clearly, this is not going to happen overnight, but quietly progress is being made.” The merger of the Moscow Interbank Currency Exchange (MICEX) and the Russian Trading System (RTS) to form the Moscow Exchange is a big step in the right direction for Russia, with the creation of a Central Depository and the Euroclear settlement for OFZs or treasuries also important developments.

Inflation is now being held at a healthy rate compared to the hyper-rates of 10 years ago, and Mr Medlock believes the Russian Central Bank has had no small part to play in the rebalancing of the economy. There are now fewer smaller banks (as minimum capital requirements have been progressively raised) and banks have reasonable levels of capital adequacy (13.6% at the end of 2012 according to a recent World Bank study). The exchange rate is also more or less on free float, and banks are reporting under International Financial Reporting Standards (IFRS). Moves to resolved the capital flight have also been well received by business.

Small business growth in Russia

Small and medium-sized enterprises (SMEs) have a relatively small market share compared to larger corporates in Russia, although Mr Medlock believes this is something the country is looking to resolve. The Association of European Businesses (AEB) is doing an effective job in providing lobbying, networking and support services, and government steps such as a dedicated SME bank at VEB, the State Development Bank, have been well received.  Infrastructure investment in the run up to the Sochi Winter Olympics and the World Cup in 2018 has also improved connectivity across Russia’s huge landscape.

Cross border investment

Since the 2008 global credit crisis there has been a reduction in cross border financing and an increased reliance on domestic resources. Globally, many major banks are in some form of state ownership and the stakeholders have a natural focus on prioritising domestic financing needs. “It is essential, therefore, for Russia to recycle a much greater proportion of the surplus capital that is generated in the economy,” Mr Medlock explained.

A recent survey conducted by the AEB SME committee found that the two most common difficulties encountered by owners of SMEs were bureaucracy and corruption. However, Mr Medlock says he is confident that “step by step, Russia will make progress”, and as the global economic environment improves, cross-border financing is also likely to strengthen with it.

TMF Group

TMF Group has a very strong history in financial services with a global offering in structured finance services and funds administration. The company, through Custom House, administers a wide range of investment funds and other pools for collective investment and is recognised as a world leader in providing a complete and independent service to fund managers, money managers, family offices, and funds of funds.

Since we first set up in Russia - initially to provide services on the new domestic securitisation law for residential mortgages -  we have become a full service offering with more than 100 employees covering accounting, payroll, and HR services. From a group perspective, we now administer more than 2,000 investment vehicles, have 16 offices with dedicated structured finance teams, and more than 150 specialists.