In October 2010, Russian President Dmitry Medvedev attended a meeting of business delegations from Russia and Cyprus at the Hilton Hotel in Nicosia, accompanied by his Cypriot counterpart Dimitris Christofias, at which he urged closer ties between the two countries.
In the first half of 2010, Cyprus was the leading investor in Russia, outstripping the Netherlands, Luxembourg and Germany -- and the audience Medvedev was addressing comprised the pillars of Russian economic growth.
After the business forum, the Russian president removed his jacket and tie -- the temperature that day had shot above 20 Celsius -- and took a walk around Nicosia in order to see firsthand why thousands of his compatriots had chosen Cyprus as their new home and, especially, as the location for their business headquarters.
The money that has gone into the Russian economy over the past 20 years via Cyprus-based companies is anything but inconsequential as, according to the Russian Embassy in Cyprus, it exceeds a total of $100 billion. In the last five years alone, the Russian economy has seen Cypriot investments of over $52 billion, of which $41.7 billion was invested in the 2007-10 period, or 2.7 times more than German investments in Russia in the same period. To break the numbers down further, in 2011 foreign direct investments in the Russian economy reached $48.5 billion.
And of course, all those billions were moved through banks.
During his visit to Nicosia, Medvedev also inaugurated the Cypriot capital’s first branch of Russian Commercial Bank. RBC is a subsidiary of Russian state colossus VTB, which according to sources has expressed an interest in investing in Cyprus-based and Athens-listed Marfin Popular Bank for the acquisition of a controlling stake in a forthcoming share capital increase.
Marfin Popular Bank (the group will be renamed Cyprus Popular Bank after the departure of MIG and Andreas Vgenopoulos) needs a significant capital boost -- it is looking for up to 1.8 billion euros -- that cannot be covered by Cypriot investors, while state support would mean the country’s induction into the European support mechanism.
In the present conditions, Marfin seems a good investment opportunity and an increase in its share capital would allow stake transactions. Marfin, moreover, boasts the biggest share of Russian deposits in the Cypriot banking system.
Russian mogul Dmitry Rybolovlev, meanwhile, has acquired a 10 percent stake in the other big player, Bank of Cyprus.
During his visit in the fall of 2010, the Russian president had described Cyprus as the most important channel for attracting foreign investment to his country. Such statements suggest that Cyprus has been assigned the duty of attracting capital from all over the world in order to channel it into the Russian economy. But, other than the inflows, another crucial factor regarding the Russian economy is its capital outflows, and, according to data from the Greek Embassy in Moscow, these reached $84.2 billion in 2011, the second biggest in volume since 1994. In the last three months of 2011 alone, $37.4 billion left Russia, which analysts put down to Russian banks that have increased their lending to the subsidiaries of Russian companies based in tax havens.