Actuality December, 17, 2007

In the opinion of the majority of Japanese diplomats and businessmen, who work in Moscow, it is the “Japanese boom” in Russia now.

One can agree or not, but it is obvious that the mutual interest to collaboration has increased.

The conversion of the Russian economy into the innovative model of development requires expansion of business collaboration in the different spheres of

economy, attracting new technologies and long-term investments, making the Russian market competitive for the foreign investors.

According to Morgan Sta nley Capital International data, the Russian stock market entered the leading ten among developing markets by the rates of growth for the last year, and occupied the 10th place in the world by capitalization.

Specialists of Heritage Foundation, the American think tank, have estimated the level of economic freedoms in the Russian Federation at 61,4% from 100 possible, and have marked “the high freedom level of business, tax policy and trade relations”, and pointed out weak sides – high inflation, “official and unofficial barriers on the way of foreign investments”, “weak protection of private property, corruption”.

The leading Japanese insurance and investment companies estimate the Russian market as perspective.

According to Maksim Selcer, the general director of “Nomura (CIS) Ltd.” investment bank, “the most essential factor, determining an investment attraction, is predictability of economic policy. There is a feeling that the government began to pay attention to the basic Russian economy at last”.

JCR gives the nod

In March, 2007 JCR, the Japanese Rating Agency, raised the debt rating of Russia in foreign and local currency to the levels of A – and A accordingly with a “stable” prognosis. As Japanese business is oriented on the estimations of its analysts and

the cost of Japanese borrowings, it is very favorable for the expansion of Japanese investments in Russia.

Probably, Toyota Company contributed to this rating forming, which in 2003 made a decision on construction of own factory of the industrial cars assembly in Russia. This step can be exactly considered as a crucial moment between the countries.

After Toyota with analogical projects rushed Nissan, Suzuki, Mitsubishi, and also Isuzu and Komatsu to the Russian market. Realization of these plans includes creation of logistic and warehouse infrastructures in Russia in the interests of industrial construction, cars assembly, their sale and maintenance, and also attraction of money for business insurance, sale credit (for example, Toyota F inanc ing Service program) etc. It is clear, that this sector of the real production is of interest to long-term investments, because it has the guaranteed sale and contains scaling potential (in accordance with growth of demand).

On fact of location of the main number of factories in the Leningrad Region, where are imposed relatively low municipal taxes and there are the prepared factory personnel and sea ports, Nippon Express Company, that has own representative office in Moscow, reacted by creation of Nippon Express (Russia) Limited Liability Company in St. Petersburg in July, 2006  for maintenance of logistic requirements of new Japanese enterprises.

In 2007 were set up Japanese leasing companies that provide all necessary – from office to the factories equipment – for the Japanese and Russian economy assistance, but they are limited by the collaboration with the Japanese enterprises yet.

Activation of Japanese banks in Moscow

In recent years three mega banks of Japan, included in the ten of leading world credit establishments, marked their presence on the Russian market with the opening of representative offices in Moscow with the aim of economic information collection and analysis of Russia and the CIS countries’ markets, and also intermediary role accomplishment for main branches.

The largest bank of Japan Tokyo-Mitsubishi UBJ Financial Group set up the subsidiary bank – Tokyo-Mitsubishi UBJ (Eurasia) (TM UBJ (E)). The second largest Mizuho Corporate Bank (MCB) decided to accelerate presence activation on the Russian market by acquisition of 100% stocks of Michinoku (Moscow) subsidiary bank, small regional lending institution.

But their primary aim is the Japanese companies’ service, entering the Russian market, that would need financing and insurance covers at the business conduct in Russia.

Michinoku Bank, located in the close vicinity of the Russian Far East in the Aomori prefecture, came to Russia in 1999 and set up three affiliates: in Khabarovsk, Yuzhno-Sakhalinsk and Moscow.

In the aims and spatial location of

th is bank branche

s it is possible to see interest in border trade that to a great extent is an orifice for inflow of the Japanese commodities to the territory of Russia. The bank conducted different operations, including private banking, and was the sole provider of money orders between Japan and Russia.

It closes the Far-Eastern branches, and MCB will conduct bank operations only with legal entities in Moscow.

Third Japanese bank giant, Sumitomo Mitsui Banking Corporation (SMBC), was financing some projects through its European branch in London until now. But in 2005 set up its representative office in Moscow, when the anticipated oil price rise allowed supposing that the Russian economy would demonstrate steady growth, and plans of the new Japanese enterprises location in Russia would show growth of requirements of the Japanese companies in the bank and insurance service.

Basic direction of its activity is collection and analysis of information about the situation in Russia.

All business transactions are implemented through the London bank branch. Business strategy in SMBC differs a bit from TM UBJ (E) and MCB. SMBC is actively engaged in investment of institutions and corporations in Russia in the energy sector mainly. The set of customers is not limited to the Japanese companies only. SMBC would like to expand its business, using difficult financial technologies and its successful world experience. (SMBC occupied the first line in PFI Awards rating of the project finance financial advisers of 2006).

It is possible that, as a result of activity expansion of the Japanese companies on the Russian market, SMBC would also activate its presence and would set up a subsidiary bank in Russia.

The company signed an agreement with Vnesheconombank (Bank for Development and Foreign Economic Affairs) against Japan Bank for International Cooperation (JBIC) guarantee, which is engaged in investment projects in Russia from 1990th, and against insurance cover of Nippon Export and Investment Insurance (NEXI) on the project of construction financing and putting into the operation of Sheremetyevo-3 complex.

Together with this credit, which sum totals $227 mln, JBIC signed another agreement with Vnesheconombank that presupposes opening of credit line to $50 mln with the financing term up to ten years for payment of the Russian companies contracts on deliveries of high-technology equipment from Japan.

The number of the Japanese companies in Moscow has increased from 60 to 168 for 2002–2007.

Finance and insurance in general are the new spheres of investments in Russia, and the most various Japanese banks and companies, including Nomura Securities and Daiwa Securities that sustained huge losses during the 1998 bank crisis in

Russia, open their representative offices in Moscow, to make a statement for oneself in time and have time to gain reputation prior to the anticipated competition aggravation.

The important task of Nomura Securities is the estimation of readiness degree of one or another company to the entry into the international capital markets from the different points of view – scale, transparency, corporate management.

At the moment the Asian investors, along with developer companies, attract enterprises from transport, mining, energy spheres, motor industry and financial sector.

Recently took a place the opening of the Moscow representative office of Daiwa Securities SMBC, the Japanese investment bank, one of the leading in Japan on underwriting, trading, securitization, investment analytics, providing the customers with the wide range of financial services. The main direction of its activity is meeting of requirements of both Japanese and foreign customers in wholesale transactions with securities.

In Max Selcera opinion, “the Russian-Japanese economic collaboration has a very large potential.

The mutual trade turnover can increase five times by 2015 and attain $50 bln. Institutional and retail investors of Japan possess large liquidity supplies; about 41 trln euro of the invested funds is concentrated here. Entry to these markets is not simple and requires long diligent work, but Nomura knows how to do it!”

According to the strategy of Glocal Japanese business – to act globally taking into account local features – its leaders take cardinal steps with the aim of use of favorable opportunities of the growing Russian market.