Russia, Singapore sign $1bn investment agreements

Russia’s sovereign wealth fund has signed agreements with companies from Singapore on investment projects in Russia totalling more than $1 billion.

The contracts were sealed at the Russia-ASEAN Summit in Singapore.

Background

A sovereign wealth fund comprises pools of money derived from a country's reserves, set aside for investment to benefit the country's economy and citizens. The funding for an SWF comes from central bank reserves that accumulate because of budget and trade surpluses, and revenue generated from exporting natural resources.

Some countries have created SWFs to diversify their revenue streams. For example, the United Arab Emirates relies on oil exports for its wealth. Therefore, it devotes a portion of its reserves to an SWF that invests in diversified assets that can act as a shield against oil-related risk. The amount of money in an SWF is substantial. As of 2018, the UAE's fund was worth about $683 billion, and Norway’s sovereign wealth fund, the largest in the world, has exceeded $1 trillion for the first time in 2017.

The ASEAN Summit is a semi-annual meeting held by the members of the Association of Southeast Asian Nations in relation to economic, political, security and socio-cultural development of Southeast Asian countries. In addition, it serves as a prominent regional (Asia) and international (worldwide) conference, with world leaders attending its related summits and meetings to discuss various problems and global issues, strengthening cooperation, and making decisions. The summit has been praised by world leaders for its success and ability to produce results on a global level.

The first Russia-ASEAN summit took place in Kuala Lumpur in 2005. Currently, ASEAN comprises 10 Southeast Asian countries, including Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. Russia became a dialogue partner in July 1996.

Analysis

Russia’s sovereign wealth fund has signed agreements with companies from Singapore on investment projects in Russia totalling more than $1 billion. The contracts were sealed at the Russia-ASEAN Summit in Singapore.

“Russia-Singapore investment cooperation is actively developing, including Russia’s ties with major Asian economies,” said the head of the Russian Direct Investment Fund (RDIF) Kirill Dmitriev. According to Dmitriev, the agreements include investments in chemical projects in Russia’s Tatarstan. At the moment Singapore’s investments in Russian businesses account for more than $17 billion, Dmitriev noted.

Singapore has recently recognized Russia as a key country for investment potential and has been actively encouraging both Singaporean government funds and the private sector to invest in the country. Russian President Vladimir Putin also attended the Russia-ASEAN (Association of Southeast Asian Nations) summit on Wednesday, paying a visit to Singapore for the first time. He said economic relations between Russia and ASEAN were “evolving steadily’ and trade increased by 35 per cent last year, reaching $18.3 billion. Mutual accumulated investment exceeded $25 billion.

In his opening remarks, Russian President Vladimir Putin said Russia attaches importance to its ties with ASEAN, and told leaders he is glad these ties are growing. In recent years, he added, both sides have managed to accomplish a lot, including boosting political dialogue and coordinating approaches to issues faced in the Asia-Pacific region.

Mr Putin also said Russia is going to join ASEAN plans of establishing a network of smart cities, and invited ASEAN representatives to attend the St. Petersburg International Economic Forum and the Eastern Economic Forum in Russia next year. At the summit, Singapore PM Lee suggested that ASEAN and Russia can strengthen ties by deepening trade and investment links - an endeavour that is helped by the new MOU.

Assessment

Our assessment is that Russia is looking to robust fast-growing economies in South and South East Asia to partner with, in order to counterbalance its lacklustre economic growth over the past few quarters. Singapore has some of the most technologically advanced companies in the region that have a global presence. We believe that Russia is looking to leverage its large sovereign wealth fund with the expertise that  Singaporean companies can provide to diversify its largely oil-based economy.