October 29, 2006	Sunday	Shawwal 5, 1427

LONDON, Oct 28: Russian companies' global expansion is being driven by commercial rather than geopolitical goals and is part of a broad shift of economic power to emerging nations, the Economist Intelligence Unit said in a report on Friday.

However, the study said Russian firms' overseas plans would continue to face opposition unless they substantially improved their image on transparency and corporate governance.

For the study, commissioned by Russian aluminium producer RUSAL, the EIU surveyed 332 senior executives from Europe, North America and Asia.

"The emergence of new multinationals in Russia is part of a broader global phenomenon as economic power has shifted towards emerging markets, with Asian and Latin American companies being the first to break on to the global business scene," it said.

"By comparison, Russian companies are relative newcomers but their recent expansion facilitated by oil liquidity has been rapid."

Russian acquisitions range from aluminium smelters in Nigeria and Guyana to telecom companies in Turkey and petrol stations in the United States. They account for over a third of foreign investments in the ex-Soviet Union, excluding the Baltics.

Deals include the purchase of Dutch tyre firm Vredestein by Russian Amtel in 2005 for $289 million, while Russian steelmaker Severstal bought the Rouge plant in Dearborn Michigan in 2003 for a similar amount.

"We argue that Russian corporate expansion is largely driven by purely commercial goals -- not geo-political ones as many mistakenly fear," the report said.

The EIU estimated Russian outward investments in 2005 at $52 billion, fifth among emerging investors, just before China and Brazil. It forecast this to grow to $69 billion by 2010.

UNCTAD, the UN agency for trade is less conservative, putting Russia in third place among emerging-market outward investors with $120 billion in 2005.

The survey found 66 per cent of foreign executives expect the bulk of Russian investment to go to eastern Europe, while 50 per cent expected the money to go to western Europe. Middle East and Africa (27 per cent) and Asia Pacific (26 per cent) were next.

More Russian money was seen headed for the energy sector (64 per cent) metals and mining (44 per cent) with chemicals and biotechnology trailing at 21 per cent.

The EIU saw globalisation pressures, particularly strong in the natural resource and telecoms sectors, as the main catalyst for Russian companies' overseas expansion. It also cited Russia's relative economic isolation as a reason -- the country remains outside the WTO global trade bloc.

"Companies are hampered by quotas and anti-dumping restrictions from expanding rapidly in the lucrative EU and US markets," it said. "The best way to bypass this is to acquire strategic assets in the countries they export to."

The study found that Russians were still considered niche investors, focusing on specific assets and sectors and not considered world-class players yet.

The perception of Russia as a source as well as destination for investment was mostly negative though much of this is due to ignorance, the EIU said.

"For Russian companies the survey's message is clear...it is not enough to talk the rhetoric of change - companies will now have to show that they run their businesses in line with international norms," the study concluded.—Reuters