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[ESIPOVO, Russia] Germany's Daimler began construction of a new Mercedes-Benz plant near Moscow on Tuesday, following through on the first new investment by a major foreign automaker in Russia since Western sanctions were imposed three years ago.
Daimler said in February that it will invest more than 250 million euros (S$387.056 million) in the factory, contrasting with widespread wariness among international investors after a prolonged downturn brought on by sanctions and a collapse in global oil prices.
But Russia's economy has recently shown signs of recovery, while its car market is returning to growth after four years of decline.
Speaking at a ceremony to lay the factory's first stone, Markus Schaefer, a member of the divisional board of Mercedes-Benz Cars, said Daimler had made the decision after a "very, very successful conversation" with the Russian government.
Moscow Regional Governor Andrey Vorobyov said President Vladimir Putin had personally signed off on the deal, allowing the regional government to offer unspecified conditions previously not available to foreign investors. "Ultimately, we want to build cars where customers are," Mr Schaefer said at the construction site in the town of Esipovo, 60 km (37 miles) from Moscow.
"We are confident in the long-term potential of Russia."
Global automakers had viewed Russia as a promising growth market until the 2014 sanctions over Moscow's actions in Ukraine and the economic downturn prompted companies to put projects on hold. Car sales have more than halved from a 2012 peak of almost three million a year and US auto giant General Motors quit the market in 2015.
Though Mercedes' Russian car sales dropped 11 per cent last year to 36,888, according to the Association of European Business (AEB) lobby group, Mr Schaefer said he expects numbers to show an increase in 2017 and continue growing after the new plant opens in 2019. The company's Russian car sales in May jumped 8 per cent year on year.
The factory will employ more than 1,000 people working across a 85-hectare site to produce more than 20,000 Mercedes-Benz cars and SUVs a year.
Hoping to benefit from a future rebound in Russian car sales, some international manufacturers have recently started to strengthen their presence in Russia. Germany's Volkswagen announced projects last week to boost its VW and Skoda brands as well as commercial vehicles.