RDIF: mission impossible?

For the Russian Direct Investment Fund (RDIF), a $10 billion vehicle launched in 2011 by then-president Medvedev to attract foreign investors to Russia, the worsening tensions do not bode well: Vnesheconombank, a state development bank of which RDIF is a 100 percent subsidiary, features on both the EU and US sanctions lists.

On other fronts, however, things look more promising. Kirill Dmitriev, RDIF’s chief executive, in July announced the launch of a multi-billion-dollar infrastructure vehicle jointly with other sovereign funds from the BRICS countries (Brazil, Russia, India, China and South Africa). The move came alongside the founding of a $100 billion development bank and $100 billion reserve fund, in an explicit bid to rival the Western-dominated World Bank and International Monetary Fund.

The project could still founder if the BRICS, which share little in terms of political and economic philosophy, fail to see eye to eye on the details. But RDIF’s achievements to date indicate that a growing portion of global capital flow now bypasses Western powers. Launched barely three years ago, the fund has already enlisted support from sovereign giants all around Asia and the Middle East, forming multi-billion-dollar partnerships with the likes of China Investment Corporation, Korea Investment Corporation, Abu Dhabi’s Department of Finance, and the Kuwait Investment Authority.

Some of this money has already been put to good use, with sizeable projects going ahead despite the Ukraine crisis. In May, RDIF, a group of unnamed foreign investors, and Gazprombank, injected over $700 million in the CIS’s largest liquefied petroleum gas terminal, located in the port of Ust-Luga.

The fund also partnered with Macquarie’s Russia & CIS Infrastructure Fund to develop a smart grid programme aimed at reducing electricity leakage. Other recent transactions include a $1.9 billion tie-up with Rostelecom to bring internet connection to Russia’s remote regions and the construction of the first Russia-China bridge across the Amur river, undertaken in partnership with CIC.

The rapid build-up of RDIF’s profile suggests it could achieve much in Russia, being one of the few channels trusted by international investors to access the country. Yet, in the short to medium term, the broader geopolitical climate is putting a serious obstacle in the way of its efforts to improve Russia’s image – perhaps even threatening, some say, to curtail its mission entirely.