Tatarstan overview: A unique republic, A unique investment opportunity
The Russian investment story is moving outside Moscow and St Petersburg. A wave of foreign investors, led by the EBRD, is heading out into the Russian regions, looking for the next frontier of investment bargains.
Tatarstan is the most progressive Russian region after Moscow and St Petersburg in attracting foreign portfolio investors, with a successful record in attracting loan financing, Eurobond financing, and equity investment. And the republic is only going to become a bigger presence on the international capital markets as a new raft of IPOs is prepared, with a potential deal volume of over $4 billion.
Tatarstan has an unusually strong banking sector among Russian regions. This makes it an attractive market for banks from Moscow and abroad, who have been opening branches throughout the region. But local banks are actually growing faster than the new arrivals, and are now expanding into other regions of Russia.
In the centre of Kazan, Mintimer Shaimiev, president of Tatarstan, officially opens the $70 million new Park House shopping mall, set up by Austrian investors Meinl European Land. He tours the mall with a large retinue of advisers and journalists. Some of the shoppers watch and wave. Others simply concentrate on the main business at hand: shopping.
At the centre of the economic policy of the government of Tatarstan is the intention to get the maximum possible value from the Republic’s remaining oil reserves, which means developing and building the most advanced petrochemical refining facilities within Tatarstan itself. The Republic is now supporting several such projects worth over $7 billion in investment.
Special economic centre
As part of its policy initiative to encourage economic innovation and diversification away from oil and gas, the federal government is setting up several Special Economic Zones (SEZ) around Russia, companies in which will enjoy special tax privileges. One such zone is being set up in Tatarstan, near the historic city of Elabuga.
Tatarstan has a rich history of civilization going back over a millennium. The earliest known state in the region was set up by the Volga Bulgars, who established a successful trade network stretching from the Baltics to the Middle East.
You might not immediately associate Kazan with skiing. Even for many residents of the city, skiing was an exotic pursuit that happened far away, in the Caucasus, or the Alps.
Tatarstan is the most prosperous Russian region after Moscow and St Petersburg, and the most progressive in seeking out western investment and making it welcome.
The region is a unique centre of culture. Kazan celebrated its 1,000th birthday two years ago, and is an inspiring historical example of Muslim and Christian populations living in harmony and prosperity. The Republic’s fusion of eastern and western cultures has inspired some of Russia’s finest artists and thinkers, many of whom came from Tatarstan or lived here: Lev Tolstoy and Vladimir Lenin both studied at the Kazan State University; the poets Boris Pasternak and Marina Tsvetayeva lived here; the painter Ivan Shishkin grew up here; the opera singer Feodor Shaliapin was born here and the two great ballet dancers – Rudolph Nuriyev and Irek Mukhamedov – are native Tatars.
And it is also an industrial centre. Some of the biggest and most successful companies in Russia are based here, such as Tatneft, the sixth-largest Russian oil company; Nizhnekamskneftekhim, the largest Russian petrochemical company; Kamaz, one of the biggest Russian automobile manufacturers and the biggest manufacturer of trucks; another large car manufacturer Severstal-Avto; Krasni Vostok, which has the second-biggest brewery in Europe; and Ak Bars Bank, which is the tenth biggest bank in Russia.
These companies are already active users of the international debt market, and are now looking for equity partners, either by IPOs, or by taking on strategic investors. Around $4 billion in IPO deals could come from the Republic in the next two years, as well as another $4 billion in debt financing.
The region is uniquely active in the extent to which it seeks out foreign investment and makes it welcome. Umberto della Sala, chief executive officer of Foster Wheeler company, which is overseeing a $5 billion petrochemical project in the region, says: "The government of the region travels a lot to promote the region and attract investment. They understand the rules of the game."
You can see that from the busy schedule of the president and prime minister. In March, for example, the president led a top delegation to Germany for a trade conference there. The region recently signed trade deals with such leading German firms as Siemens.
In the same month, the delegation of the Republic attended the MIPIM international real estate fair in Cannes. In January, the prime minister met with everyone from Rupert Murdoch to President Calderón of Mexico at the World Economic Forum in Davos. In October, a delegation led by the president travelled to London to present the region’s investment case.
And of course, Kazan is home to the EBRD’s annual meeting in May, the first time the meeting has been held outside Moscow or St Petersburg. President Shaimiev says: "Holding the assembly of the EBRD Governors’ Meeting in Kazan is advantageous for the image of the Republic. We expect approximately 2,500 people from more than 60 countries, representatives of banks, business structures, and companies to come to Kazan. There will be an opportunity to present Tatarstan to all participants of the forum. For sure, we will take advantage of this chance".
What are the strongest reasons to invest in Tatarstan? It has natural resources of course – 1 billion tons of proven oil reserves. It also has one of the best petrochemical sectors in the world. But it has a booming consumer sector too, with a population of almost 4 million, and incomes up 20% last year.
That has led to shopping malls springing up around the Republic. Six new malls have opened in the last 18 months, to the point where Kazan now has more square metres of shopping centre per capita than Moscow, and more even than London. Foreign investors, including IKEA and Austrian investor Meinl European Land, have been among those opening new malls.
But perhaps most importantly, the region has a stable and progressive government willing to support investors and protect their rights. Per Kaufmann, CEO of IKEA Russia and Ukraine, says: "The local administration was very positive and supportive in having us here; that was a main reason for making this our first regional Russian investment outside of Moscow and St Petersburg."
The Republic has a unique status in Russia, enjoying a degree of autonomy over its economic policies. The federal government is happy to grant Tatarstan that because it sees the progressive economic policies which the Republic is following for the benefit of the population. Indeed, prime minister Rustam Minnikhanov says: "We’ve often taken the lead in pursuing progressive economic policies that have then been picked up and emulated by other regions and even at the federal level."
For example, Tatarstan was the first region in the CIS to follow the Singapore model of economic development, using policies such as techno-parks, special economic zones, and Temasek-style holding groups to promote investment in the region. These policies have now become accepted all across the CIS – Kazakhstan recently set up its own state-owned investment vehicle, as did Krasnoyarsk Krai, while the Russian government is setting up a Russian Bank of Development, as well as special economic zones and techno-parks across Russia – including a special economic zone outside the 1,000-year-old Tatar city of Elabuga.
Tatarstan was also a leader in financing new housing for the local population, and supporting mortgage programmes to help locals buy their apartments. This policy is also now being carried out at the federal level in Russia.
We now see the sort of one-off window of investing opportunity that Moscow offered perhaps four years ago. Marc Holtzman, vice-chairman of ABN Amro, says: "The most exciting thing about Tatarstan is that, as far as its come, I think it will go much further in the next stage of its development. What lies ahead is exponentially more exciting."