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German Firms Respond to Sanctions by Localizing Production in Russia

© Sputnik / Vitaliy Timkiv / Go to the photo bankHarvesting wheat at the fields of the Lebyage-Chepiginskoe JSC in Timashevsky District, Krasnodar Territory
Harvesting wheat at the fields of the Lebyage-Chepiginskoe JSC in Timashevsky District, Krasnodar Territory - Sputnik International
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German firms are responding to anti-Russian sanctions and Russian counter-sanctions by localizing production in Russia, Die Welt reported on Sunday.

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Trade with Russia has been hampered by sanctions, but German firms are responding by building factories in Russia, Die Welt economy correspondent Carsten Dierig reported on Sunday.

Dierig cited statistics from the German Bundesbank which show that there has been a turnaround, including a record rise, in German investment in Russia since the EU first imposed sanctions against Russia in 2014.

"While German investors turned away from Russia in 2014 and there was a net outflow of capital, the pendulum is now swinging the other way."

"In 2015 the direct investment of German companies rose to 1.78 billion euros ($1.96 billion), an amount that was only exceeded in the boom years from 2006 to 2008, and in 2010."

"A new record is set to be reached in 2016. According to the Bundesbank, total direct investment from Germany in the first quarter alone reached almost 1.1 billion euros ($1.2 billion)."

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The investment is varied across many different sectors. One example is the 120 million euros invested by agricultural machinery manufacturer Claas in its combine harvester manufacturing plant in Krasnodar, the region in southern Russia where Sochi is located.

Germany's largest dairy company, DMK, is about to acquire a Russian competitor, and Bionoria, a manufacturer of natural medicine, is planning to invest around 30 million euros to produce its products in the city of Voronezh.

Among the advantages of investing in Russia for German companies are the low cost of the ruble, and benefits that the Russian government offers long-term foreign investors.

According to an industrial law passed in December 2014, if a company plans to invest at least 750 million rubles ($11.5 million) in Russia in a new enterprise, and commits itself to staying in the country for ten years, their investment gets a special contract with tax benefits.

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