Russia Will React If U.S.-EU Trade Deal Harms, Fund Says

Russia may pivot to Asia should the proposed U.S.-European Union free-trade agreement hurt its businesses, said Kirill Dmitriev, the Chief Executive Officer of the $10 billion Russian Direct Investment Fund.

“Any attempt to use the liberal language of free trade to create something that excludes other countries and puts them in a disadvantageous position will be met with the reaction of those countries to work together and set up something else,” Dmitriev said in an interview in Berlin.

Leaders in the U.S. and Europe have pledged to move ahead with a free-trade deal as a remedy to fight unemployment and boost growth. The EU says an accord may add 0.5 percentage point to the bloc’s gross domestic product, and 0.4 percentage point to U.S. GDP, by 2027.

“Politicians really exaggerate sometimes the effects of free trade,” and an agreement would “not be a panacea to the world crisis,” Dmitriev said. At the same time, he said he “would not be surprised if there are some bilateral discussions on a Russian free-trade agreement with China and some other Asian countries.”

RDIF, a Kremlin-backed investment fund, is trying to lure foreign investment in Russian equity through a co-investment model as the government tries to wean the world’s largest energy exporter off its dependence on commodity sales.

The fund, founded in 2011, invested $2.1 billion in 2012, with RDIF contributing $500 million and foreign co-investors $1.6 billion. Deals include the acquisition of shares in the February 2013 initial public offering of the Moscow Exchange.

The fund will announce three to four deals with German business investing in Russia this year, Dmitriev said. The fund, which can invest as much as 20 percent of its capital outside Russia, is also looking at German companies, he said.

“We are looking at a bunch of middle-sized companies that have some interesting technology or products that would do so much better if they are part of a supply-chain to Russia,” Dmitriev said. Interesting targets may be companies in the automotive or mechanical-equipment industry, he said.

Before it's here, it's on the Bloomberg Terminal.