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Caution Urged for Russian Investors in U.S. Assets

Russian firms nearly doubled their investment into the United States in 2008, but while U.S. assets can be a lucrative proposition, they are not for the faint of heart, said the director of a U.S. government agency that promotes foreign investment.

"Russian foreign direct investment in the U.S. economy grew almost twofold from 2007 to 2008, and the flow was extremely large," said Aaron Brickman, head of Invest in America.

"In 2007 we saw an influx of $892 million, while in 2008, the last year for which data was available, the figure almost doubled to $1.7 billion," he told The Moscow Times last week on a visit to solicit more active participation of Russian companies on the U.S. market.

Total foreign direct investment in the United States amounted to $325.3 billion in 2008. That was up 37 percent compared with the $237.5 billion in 2007, according to data provided by the Bureau of Economic Analysis.

Foreign direct investment fell globally in 2009, and Brickman said there would likely be a similar decline in Russian investment, but the official figures for that year have not yet been released.

While Russian investors traditionally viewed natural resources and metals as priorities in terms of investment, they may be starting to focus on other sectors, said Brickman, who met with the Russian Union of Industrialists and Entrepreneurs and other trade groups on his visit to Moscow.

Severstal and Evraz, two of Russia's largest steelmakers, went on a buying spree over the last decade, investing billions of dollars in several U.S. assets. But a large part of that has been idled since the global recession severely curtailed demand for steel.

LUKoil, which operates 1,600 stations throughout the United States, had invested a total of $5.9 billion into the country as of April 2009.

"We want more diversification from Russia, and I think we will be seeing that," Brickman said. "We expect big Russian firms coming and doing particularly what they know and what they do best."

As possible targets for diversification, the consumer goods, services and technology sectors are among the easiest to invest in and tend to yield decent margins, he said.

"In the consumer sector there also seems to be room for one more brand, it seems. You don't tend to notice what's no longer on the shelf, you basically notice what's new," he said. "We also look increasingly at the services sector, we look at technology solutions for everyday life as possible investment trends for Russian companies."

But no firm should think that they are guaranteed success when they invest in the United States, he said.

"The United States is a very sophisticated marketplace, and before you commit to placing an investment in America you should take the due diligence that is appropriate for such a marketplace," he said. "I'd rather have a company not come to America, than come to America and fail. I'm not saying it's a cakewalk in terms of achieving a success, but countless firms from around the world have."

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