Abu Dhabi invests in Russia

Abu Dhabi plans to invest $5 billion in Russian infrastructure in a venture to be set up with the country's state-backed private equity fund. This investment will be used to modernise Russia and make its economy more competitive.

Before we talk about the benefits Russia will get from the Abu Dhabi investment, let us look at some facts about the Russian infrastructure

• The transport system is heavily Moscow-centered, with virtually all transportation channels of economic significance emanating from Moscow.
• Commercial transportation relies heavily on rail.
•  The Russian trucking industry is only minimally developed, and roads are not designed to carry heavy and long-distance truck traffic.
• The Russian railway system includes a total of 150,000 kilometres (93,210 miles) of broad gauge rail, making it one of the most extensive railway systems in the world. 
• Of this total only 87,000 kilometres (54,061 miles) is in "common carrier" service.
•  The remaining 63,000 kilometres (39,148 miles) serve specific industries or are dedicated railways lines and are not available for common carrier use.
• The Russian highway system includes a total of 948,000 kilometres (589,087 miles) of road including 416,000 kilometres (258,502 miles) that serve specific industries or farms.

Abu Dhabi is investing in Russia in the following areas:

1.   .  An overhaul of the Trans-Siberian railway.
2.     .   A fast-speed train line connecting Moscow and Kazan.
3.       Construction on the ring road on Moscow’s city limits.

It is obvious that when Russia invests money into developing a modern infrastructure system not only will it fuel economic growth in the form of thousands of jobs created but also would help the country's overall development and economic standing.

Having said that I believe the following points also have to be considered to know if the investment will actually be fruitful for Russia

It is well known that the Russian railways are well established and that the major complaints about Russia is the under development of roads. In that context is it necessary to spend so much more again on the railways in Russia?

 We can see that the growth in Russia is not equally spread. As mentioned earlier all the transportation is Moscow centric and virtually all transportation channels of economic significance emanating from Moscow. When this is the case would it have made more sense to use the money into states which are not so industrialised and have more efficient transportation into those cities rather than concentrating on major cities like Moscow or Kazan?

Another thing we can look into is the corruption index of Russia. Russia ranks 133^rd out of 175 economies in the corruption index and there is a scepticism about whether this investment will also be used by the government exclusively for improving the infrastructure given the corruption levels in Russia.

The project is to be spanned over seven years and Abu Dhabi will put money into Russian infrastructure on a deal-by-deal basis. The deal is expected to be official by the end of 2013. "We believe we can deliver attractive returns investing in Russian infrastructure," said Kirill Dmitriev, chief executive of the state-backed Russian Direct Investment Fund (RDIF).

Only time will tell us whether this investment has been fruitful for Russia in terms of whether building their infrastructure through Abu Dhabi’s funds will actually help the Russian economy growth and make it more competitive.

References:

1) http://www.cnbc.com/id/101026481

2) http://www.nationsencyclopedia.com/economies/Europe/Russia-INFRASTRUCTURE-POWER-AND-COMMUNICATIONS.html

3) http://rt.com/business/emirates-russia-fund-investment-757/

4) http://www.cnbc.com/id/101026481