Russia’s efforts to modernize its energy and health care infrastructure got a major boost when General Electric (GE) announced it is forming joint-ventures with two Russian companies to produce and market high-tech medical and power-generation equipment in Russia. In the latest example of foreign investment in Russia in the high-tech sector, the deal targets Russia’s growing demand for new, modern equipment, and also draws upon the country’s own skilled labor pool.
GE will partner with Russian Technologies (Rostekhnologii) and the utility company Inter RAO UES to bring locally-manufactured energy-efficient power generation turbines as well as high-tech medical diagnostic equipment to the Russian market. While the financial terms of the deal were not disclosed, it was revealed that GE will take a 50 percent stake in each venture.
According to a GE statement, the agreement, signed December 27 in Moscow, “supports the Russian government’s priorities of attracting foreign investment, enhancing the country’s aging energy infrastructure and modernizing its healthcare system.”
Foreign investment in Russia for energy efficiency
After signing the agreements, GE International President and CEO Ferdinando Beccalli-Falco commented on how GE and its partners are contributing to Russia’s effort to improve energy efficiency, as the new gas-fired 6FA turbines are energy-efficient and will help replace Russia’s aging power-generation assets. The venture is therefore an important step forward, as Russia's Energy Ministry estimates the country needs to invest $80 billion in the next 10 years to update these assets.
GE stated that the venture is also the “latest and most significant” step in GE’s multi-phase localization plan for its energy business in Russia. It follows the opening in November of GE’s Kaluga Energy Technology Center, which will manufacture and service advanced power generation equipment for Russia’s Kaluga Region.
Foreign investment in Russia for health care
GE’s plans to tap into the Russian health care market also fall under the government’s modernization agenda, namely the Pharma 2020 strategy to modernize the country’s health care sector. According to GE estimates, Russia's government will spend more than $15 billion on healthcare reforms from 2011 to 2013.
The health care joint venture is expected to start with the production of CT scanners, and then expand to other diagnostic equipment such as angiographs, MRI, ultrasound, digital X-ray, PET, gamma cameras and medical devices. As in the energy sector, GE has already laid foundations for its activities in Russia’s health care sector: in May 2010, GE Healthcare installed the first Russian-assembled 16-slice CT scanner in a Moscow hospital, and through the end of November, it had been used to perform more than 2,000 exams.
GE is not the only foreign company to recognize the growth potential in this market segment: this past May, Dutch company Royal Philips Electronics and Russia’s Electron announced a partnership aimed at supporting the modernization of the Russian health care system.
Positive trends in FDI
In addition to providing employment opportunities and improving the lives of Russians, such deals are helping restore pre-crisis levels of foreign investment in Russia. Prime Minister Putin recently announced that foreign direct investment into the Russian economy was approximately $40 billion for 2010, compared with the post-crisis low of $15.9 billion in 2009. Although FDI has yet to return to levels last seen in 2008 before the global economic crisis, the country’s economy is certainly heading in the right direction, helped along by increased partnerships between Russian and foreign companies.
"Regardless of existing problems, our partners continue to support their interests in large-scale projects in Russia,” Putin stated. "Our partners are prepared to move forward and create cooperative chains, technology alliances, and invest in the Russian economy."
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