MLC Corporation, a US company, was considering expanding its business in Russia in 2008 given growth in Russia's energy sector. Its options were to expand exports, build a manufacturing plant in Russia, or wait out economic uncertainties. In 2008, MLC derived most of its revenues from Russia. While Russia saw strong GDP growth, the global financial crisis emerged that year, with concerns about its potential impact on Russia including a leadership change, energy prices, US-Russia relations, and effects on the Russian economy. MLC eventually decided to invest in Russia by building a manufacturing plant and distribution center, taking advantage of Russia's economic growth despite risks from the global crisis.

1. Foreign Investment
in Russia
Challenging the Bear
Marina Khauskaya
Francesca Rimondi
Stefano Junior Genna

2. The case - 2008
• MLC Corporation (US) wants to expand its business
in the Russian Federation given the growth of the
energy sector and the expansion of the Russian
economy.
• MLC Corporation had 3 alternatives:
1. Expand its plant capacity and continue to export;
2. Building a manufacturing plant and distribution center
in Russia;
3. Wait for the economic and financial crisis to stop.
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3. The Concerns
1. Leadership change in Russia. Would the new
president change its attitude toward foreign
companies?
2. Would energy prices rise or fall?
3. Would diplomatic relationships between the US
and Russia deteriorate?
4. Would the subprime mortgage crisis of 2007 have
an impact on the Russian economy?
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4. The situation in 2008
• MLC has is main market in the Russian Federation with more
than 493 Billions of revenues, representing the 72% of its entire
income;
• Standard & Poor rating lowered the Russian long-term
sovereign credit to negative on October 23, 2008;
• Russian GDP growth was 7% over the last 5 years;
• There were rumors of a possible interest payment default on
$250 million of bonds by Finance Leasing Co. (a state-owned
company);
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5. • The current account surplus of $100B began to weaken in the last
quarter of 2008 due to the decline of the energy prices.
• The financial account of the balance of payments had been reversed
since the deterioration of the economy (fall of the energy prices,
interest rates and ruble) with an outflow of 125B;
• Energy prices rose since 2005 but started to slow down by the end of
2008 and again on the rose in early 2009;
• The ruble depreciated, interest rates fell and investors started to flee
Russia;
• Government bureaucracy, underdeveloped rule of law, and corruption
affected such areas as establishing a business, tax collection, dispute
settlement, property rights etc.
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However the government was taking steps to
improve business conditions in the country.

6. Russian economic policies
• The Kremlin had pressured the Oligarchs to inject
their personal wealth into the declining stock market
and failing banks;
• As consequence the Oligarchs’ companies became
short of cash and stopped their investments;
The Kremlin was the country’s only source
of funds.
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7. To spend or not to spend?
Kremlin had to choose between:
•Spending the surplus accumulated when commodity
prices were high,
OR
•Not spending it and risking economic default.
(This would go against MLC’s interests since it would mean a
stop to new infrastructure projects)
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8. Russian TAX policies
• In early 2009 the government reduces the corporate tax to
20%;
• Also it cut the taxes in small businesses to 5% from 15%;
8
Russian MONETARY policies
• Increase of liquidity into the banking system in order to fight the growing
inflation and correspondent decline of the consumers’ purchasing power;
• Russian Central Bank to avoid ruble’s collapse started to buy huge
amounts of cash and depreciation started to slow as a result the interest
rate rose and ruble became stable.
• Russian Central Bank established a fixed exchange rate from 26 RUB to
41 RUB per 1USD.

9. EXHIBIT 2: NATURAL GAS PRICES 2009 - 2015
9

10. EXHIBIT 2.1: WTI OIL PRICES 2008 - 2016
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11. EXHIBIT 2.2: BRENT OIL PRICES 2008 - 2015
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12. EXHIBIT 4: EXCHANGE RATE USD / RUB
12

13. EXHIBIT 7: IMPORT & EXPORT
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14. SANCTIONS AGAINST RUSSIA *
The Russian role in the Ukraine conflict has seriously affected both EU-Russia and
USA-Russia relations. Most EU-Russia cooperation programs have been suspended:
Exports of certain energy-related equipment and technology to Russia are subject to
prior authorisation by competent authorities of Member States. Export licenses will be
denied if products are destined for deep water oil exploration and production, arctic
oil exploration or production, and shale oil projects in Russia.
Services necessary for deep water oil exploration and production, arctic oil exploration
or production, and shale oil projects in Russia may not be supplied, for instance
drilling, well testing or logging services.
Embargo on the import and export of arms and related material from/to Russia,
covering all items on the EU military list;
Prohibition on exports of dual use goods and technology for military use in Russia
or to Russian military end-users, including all items on the EU list of dual use goods.
Export of dual use goods to nine mixed defence companies is also banned.
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* COUNCIL REGULATION (EU) No 833/2014 of 31 July 2014

15. WHAT DID MLC CORPORATION DO?
MLC eventually decided to invest and build a new
manufacturing plant and distribution center in Russia.
NOW, WHAT WOULD YOU DO IF YOU WERE TO TAKE
THE SAME DECISIONS IN THE CURRENT YEAR 2016??
Your Date Here
Your Footer Here 15

16. BALANCE OF PAYMENTS 2015
DIRECT INVESTMENTS 2008:
16.733 USD MLN
2015:
-19.120 USD MLN
Source: www.cbr.ru/eng/statistics/?PrtId=svs
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Comparing both time frames in 2015 Russia had
borrowing need of foreign investments of -19.120
USD MLN, while in 2008 there was the opposite situation
with a financing capacity of 16.733 USD MLN.
The latter meant that Russia had an investment capacity
toward the rest of the world.

17. CURRENT OPPORTUNITY OF INVESTMENTS IN
RUSSIA ( 2015 – 2016)
DESPITE THE ECONOMIC SITUATION, RUSSIA IS OPEN
TO FOREIGN INVESTMENTS
WHERE?
INVESTMENTS IN THE REGIONS (ZES)
WHY?
ADVANTAGES FOR FOREIGN INVESTORS
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18. “Foreign companies operating in Russia have
noted significant improvements to the
investment climate in the regions over the past
few years […] More than half of those
surveyed (enterprises) believed that regional
executive authorities are efficiently working
towards improving the investment climate*”
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* EY Investment climate in Russia – Foreign investor
perception: www.ey.com

19. Your Date Here
Your Footer Here 19

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“Investors view Tatarstan as a clear leader among Russian regions in terms of investment attractiveness. The
Kaluga and Tula regions are also regarded as attractive regions for investment. As indicated by respondents
the authorities of these regions have put much effort in improving investment climate, reducing bureaucracy,
increasing openness, and creating convenient and attractive openness infrastructure.
They indicated that no difficulties were encountered during their work at a regional level.”*
* EY Investment climate in Russia – Foreign investor
perception: www.ey.com
POSITIVE IMPACT OF SANCTIONS
It is a good time to do business in Russia due to the cheaper Ruble and locals being more interested in
attracting investors.

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