Foreign direct investment in Russia

Main article: Russian economy

Foreign direct investment in the world

• Foreign direct investment in the world

2024: Reduction in accumulated foreign direct investment to $300 billion

2023: The government has formed 10 conditions for foreigners to go out of business in Russia

In mid-July 2023, the Ministry of Finance of the Russian Federation published 10 main conditions for the exit of foreigners from Russian business. According to Vedomosti, judging by the new requirements, the authorities decided to complicate the process of leaving the Russian market for foreign companies. The conditions are as follows:

• prohibition to enter into a buyback option for a period of more than two years and control over the "marketability" of the transaction;
• the obligation to place up to 20% of the shares of the acquired company on the stock exchange regardless of the format in which the transaction is carried out;
• the requirement to list even if the company liquidates or loses its public status as a result of the transaction;
• the need to obtain a conclusion on the compliance of the market value purchase price from an independent private appraiser from a special list that will form a subcommittee;
• the need for an expert opinion prepared by the participants of the self-regulatory organization (SRO) of appraisers, also from the list of SRO recommended by the subcommittee;
• a discount of at least 50% of the market value, according to an independent estimate;
• payment to the budget in the amount of 10% if the transaction is carried out at a discount of less than 90% of the market value;
• implementation by the buyer of KPIs to further develop the company and maintain the staff;
• a ban on the withdrawal of funds from sale abroad for owners from unfriendly countries;
• availability of all other permits required for the transaction from the Russian authorities.

The partner of the company B1 Marina Belyakova in a conversation with the newspaper noted that the authorities have strengthened the requirements for the quality of the assessment, since this is the basis for calculating the discount and voluntary payment to the budget. Expectations from reverse options are also clear - they should be market and beneficial for the new Russian owner, the expert summed up.^[1]

2022

Central Asian investment growth by 4 times to more than $4 billion

Asia At the end of 2022, the Central States invested a total of over $4 billion in the Russian economy, which is four times higher than the volume of investments in 2021. Such figures in mid-May 2023 were announced by the deputy head of the Russian MFA Mikhail Galuzin.

According to him, the volume of direct Russian investments in the economy of Central Asian countries amounted to more than $3.6 billion, and the volume of accumulated investments since 2015 exceeded $25 billion.. Trade Russia with Central Asian countries increased in 2022 by 20%, to $41 billion.

The deputy minister noted that by the end of 2022, more than 10 thousand Russian and joint enterprises with local partners worked in Central Asia, they created more than 900 thousand jobs.

Galuzin noted that transport and logistics corridors tied to Russia, including North-South, are crucial for the economic development of the countries of the Central Asian region.

Today, the fastest option for this project is to use the Trans-Caspian and Eastern routes. Since these branches are formed on the basis of the existing infrastructure and do not require the construction of new tracks, he added in mid-May 2023 (quoted by Interfax).

One of the main reasons for the increase in the growth rates of the economies of Central Asia was the influx of Russian citizens after the introduction of international sanctions and the start of mobilization at the end of September 2022. For example, more than 15 thousand Russian companies have been relocated to Kazakhstan since that time, explained Beata Yavorchik, chief economist at the EBRD.

According to her, mostly wealthy and educated Russians are moving to the countries of Central Asia. In turn, the states of the region are interested in the influx of high-quality human capital.^[2]

Growth in the volume of accumulated direct investment from China by 75% in the first half of the year

The volume of accumulated foreign direct investment from China to Russia in the first half of 2022 increased by 75%.

2021: Foreign direct investment in Russian companies grew 3.8 times to $30.7 billion

Foreign direct investment in companies Russia grew to $30.7 billion - 3.8 times more than in 2020. At the same time, in the fourth quarter, this figure decreased by 19.5% and amounted to $3.3 billion.

2020

The decline in CDP 20 times to the level of 1998 - $1.4 billion

The total volume of new foreign direct investment in Russian non-financial companies at the end of 2020 amounted to $1.4 billion, which is more than 20 times less than in 2019 ($28.9 billion), follows from the Bank of Russia data on the balance of payments.

The materials of the Central Bank note that in the first and fourth quarters of 2020 there was an outflow of investor funds, which amounted to $4.1 billion and $0.9 billion, respectively. Losses were compensated in the second or third quarters ($5.9 billion and $0.5 billion), but the final result was the smallest in the 21st century.

The last time, according to the Central Bank, less than in 2020, the amount of foreign direct investment in Russian companies in the non-bank sector was in 1998. Then it amounted to $1.303 billion.

The maximum amount of such investments reached in 2013 ($85.21 billion), the very next year it fell almost five times (to $17.637 billion), and a year later it almost tripled (to $6.264 billion), after which it began to grow again.

Portfolio investments of foreigners in Russian companies in 2020 decreased by $14.1 billion: in the second quarter alone, the outflow of funds ($7.3 billion) turned out to be more than in the entire 2019 ($4.2 billion). The last time foreign portfolio investments in the non-bank sector of the Russian economy declined at a comparable pace in 2013 (minus $12.3 billion).

Investments from Russia to Cyprus for the first time in history became negative

Direct investments from Russia to Cyprus in 2020 for the first time in history turned out to be negative - minus $1.5 billion. This means that Russian residents got rid of Cypriot property. Read more here.

Reduction in foreign direct investment to $1.1 billion

In Russia in 2020, the volume of foreign investments decreased by 96% - from $32 billion to $1.1 billion. Among the leaders in a similar indicator are China and the United States. Read more here.

Sharp decline in investment from China

In the first or third quarter of 2020, China's direct investment in Russia collapsed by 52% - from $3.74 billion to $1.83 billion. The volume of investments of Chinese residents directly into the capital of Russian business fell almost 5 times - from $2.28 billion to $480 million.

The current indicator is the minimum for the entire time of the available statistics of the Central Bank. The PRC accounts for only 0.4% of foreign direct investment - 9 times less than came from Germany ($16.6 billion).

Net capital outflow $47.8 billion

Net capital outflow from Russia in 2020 amounted to $47.8 billion. For comparison, in 2019, the indicator was at the level of $22.1 billion.

2019

Net inflow of foreign direct investment to Russia increased by 3.5 times

The net inflow of foreign direct investment (FDI) to Russia at the end of 2019 increased 3.5 times - to $30 billion from $8.8 billion a year earlier. Such figures are indicated in the report "The main trends in the integration development of Russia in 2019," prepared by the Center for Integration Studies of the Eurasian Development Bank.

According to analysts, the Russian Federation in 2019 faced several problems that affected all aspects of the economy, including integration development. Among the main difficulties are turbulence in world markets and a decrease in commodity prices, which form the basis of the country's export potential.

As "Банки.ру" writes with reference to the report, as a result of a decrease in export supplies in nominal terms, the indicator of the openness of the Russian economy, which is calculated as the ratio of foreign trade turnover to GDP and is the lowest among the countries of the Eurasian Economic Union, decreased, amounting to 39.5% in 2019 against 41.9% in 2018.

The country's trade balance remained positive both with the EAEU states and with other countries. Nevertheless, as a result of a decrease in exports and an increase in imports, it decreased by more than 15% to $178.4 billion at the end of the year.

According to the estimates of the Central Bank of the Russian Federation, the net inflow of foreign direct investment (FDI) into the Russian Federation through the purchase and sale of new shares in 2019 amounted to $9.2 billion, which is 1.8 times more than in 2018 ($5.1 billion).

Net FDI inflows through income reinvestment in 2019 also increased compared to 2018 - by 18%, to $19.6 billion from $16.6 billion. In 2018, the decrease in this indicator in relation to 2017 did not exceed 1%.

Thus, capital-changing investments increased by $28.8 billion in 2019, which is a third more than in 2018 ($21.7 billion).^[3]

EY: Russia entered the top 10 attractive countries for investors in Europe

In 2019, Russia entered the top 10 most attractive countries in Europe for foreign investors, again being on the ninth line, Germany took the first place in terms of the number of foreign direct investment (FDI) in Russia, according to the annual study "Investment attractiveness of European countries. Russia, 2019 "of the international consulting company EY, which is at the disposal of RIA Novosti^[4].

The study showed that last year was one of the most successful in terms of FDI attracted for Europe: foreign investors invested in 6412 new projects in 47 countries, which is 0.9% more than a year earlier. "On the territory of Russia in 2019, foreign investors invested in 191 projects. This indicator allowed Russia to maintain ninth place in the list of 20 most attractive countries for investment. Compared to 2018, the number of FDI in our country decreased by 9%, "the EY notes.

The overall number of foreign direct investment projects in Russia is still high relative to previous years. The downward trend in FDI in 2019 has also been attributed to the high activity of previous years amid the global economic slowdown and ongoing sanctions. At the same time, 55% of European countries that participated in the study also showed negative dynamics, and the total number of FDI projects in Europe grew by less than one percent.

The increase in FDI in Europe is mainly due to a significant increase in foreign direct investment projects in France, which in 2019 became the leader in the number of FDI in Europe - it accounted for 1,197 new projects, which is 17% more than a year earlier. Despite Brexit uncertainty, FDI in the UK rose by 5%, which ranked second with 1,109 new projects. Germany was on the third line (971 projects).

Behind them, from fourth to eighth place is occupied by Spain (486 projects), Belgium (267 projects), the Netherlands (255 projects), Poland (200) and Ireland, where the number of projects amounted to 191, a decrease of 7%. Closes the top 10 Turkey with 176 projects.

The pan-European dynamics were quite modest. This is due to increased tensions in international trade relations, uncertainty around Brexit, as well as insignificant economic growth, the authors of the study note.

Who invests in Russia

Germany took the first place in terms of the number of FDI in Russia, this figure increased by 50% compared to 2018 and amounted to 36 projects. "This is one of the highest results of the entire study. It is worth noting that throughout the entire period of the study, Germany has always been one of the most active foreign investors in Russia, "EY said.

The second place was shared by China and France, each country invested in 22 projects. The number of projects from China compared to 2018 increased by 16%, and from France - by 69%. France is restoring its position as one of the main investors in the Russian economy. China also continues to gradually increase the number of investment projects in Russia after a sharp decline of 59% in 2018.

In 2019, the United States fell to fourth place, while in 2018 it became the leader in the number of FDI in Russia. The number of American FDI decreased by 61% and amounted to 20 projects against 33 in 2018. "The increase in the number of projects in 2018 is due to adaptation to the conditions of sanctions and the understanding that this is a new reality. Therefore, investors began to adapt to it and in 2018 implemented projects that had previously been temporarily postponed due to the introduction of restrictions, "experts explain.

In 2018, the share of foreign investors from Europe in the ranking was 48%, and in 2019 it increased to 60% mainly due to a decrease in the number of FDI from the United States, Japan and South Korea and an increase in activity in Germany and France.

Life after COVID-19

EY notes that around the world, companies have had to revise their investment plans in connection with the COVID-19 pandemic and the fall in oil prices. EY also conducted a study among 131 European companies, from which it became known that 10% of FDI projects in Europe are canceled, another 25% are frozen, 51% of investors are going to slightly cut planned FDI volumes for 2020, and 15% expect significant reductions.

"Despite the fact that Russia felt the impact of the economic crisis associated with the pandemic and the fall in oil prices, previously launched projects are still being implemented, new deals are being concluded. In May 2020, we analyzed all transactions that took place in 2019:34% of FDI projects are already under completion, 65% are confirmed to continue implementation this year, and only 1% has not yet been confirmed. These figures are better on average than the estimate for Europe, which suggests that FDI projects in Russia are verified and long-term, "said Alexander Ivlev, Managing Partner of EY for CIS countries.

Experts are confident that due to the crisis, the very approach to investment will change. According to the results of the study, in the post-coronavirus world, the following three megatrends will have a decisive impact on investment decisions: accelerating technological changes aimed at facilitating customer access to products and services and reducing costs, increasing attention to climate change and sustainable development, and restructuring supply chains and revising procurement priorities in far and near abroad countries and in their home country.

Moscow accounts for half of the foreign investments of the Russian Federation

The volume of accumulated foreign direct investment (FDI) in Moscow, according to the Bank of Russia, as of July 1, 2019 amounted to $247.6 billion.

"Today, Moscow accounts for half of Russia's FDI. The largest investors in the capital are countries such as Germany Finland,,,,. France Italy Austria Most often, foreign business invests in companies that are engaged in financial and insurance activities, in the field of trade, in the industry and high technologies sector, as well as in real estate, "explained Vladimir Efimov, vice mayor for economic policy and property and land relations.

There are quite a few successfully localized foreign enterprises in the city. For example, the plant of the French group Renault operates in Moscow. The number of its employees is about 5 thousand people. In April 2013, an agreement was concluded between the Government of the capital and Renault Russia to develop an automobile production project in the city. From 2013 to 2018 Renault Russia invested about 16 billion rubles, more than 700 thousand cars were produced at the plant's facilities. In December 2018, the Moscow Government assigned the company the official status of a manufacturer of vehicles and supported the company's participation in the federal special investment contract (SPIC) with AvtoVAZ.

"If we talk about foreign investors who localized their production in Moscow this year, then in March the first plant of the German pump production concern KSB opened in the Indigo industrial park in Russia. The company is equipped with machines mainly of Russian production. 110 jobs have been created at the plant. Investments in construction amounted to 750 million rubles, "said Alexander Prokhorov, head of the Moscow Department of Investment and Industrial Policy.

In the summer, the Moscow Government signed a special investment contract with Alpha Automatic Technologies (AAT), the main shareholder of which is the Japanese heavy engineering corporation IHI Corporation. As part of the SPIC, the investor from 2019 to 2022 will invest at least 1.2 billion in the construction of a new production of auto components. The company will be equipped with modern equipment, including a robotic line. The plant will have 385 new high-paying jobs.

"Foreign business can always count on various preferences from the Moscow authorities. For example, to support new investment projects in the field of industrial production, the city provides benefits that reduce the regional tax burden by 17-25%, "added Leonid Kostroma, director of the City Investment Management Agency.

2018: 19-year inflow-outflow-balance chart

2017

US leader in accumulated investment in Russia

The UN Conference on Trade and Development (UNCTAD) for the first time assessed foreign direct investment (FDI) in the world's economy on the principle of an ultimate investing country. We are talking about eliminating from the statistics of intermediate jurisdictions, which, in fact, serve as transshipment points for investments.

Many foreign investments in Russia are made through countries that are not the direct source of these investments. For example, an American corporation can buy a stake in a Russian company through its Dutch or Irish subsidiary.

In this case, in the official statistics of the Bank of Russia (like most other national institutions), such investments will be registered as investments from the Netherlands or Ireland, and not from the United States.

As a result, investment data from countries such as the United States, Germany, France, etc., is systematically underestimated, and flows from countries such as the Netherlands, Luxembourg, or offshore , on the contrary, are inflated.

According to UNCTAD, given together with the annual study on foreign investment in the world, at the end of 2017 (the most current data), the largest investor in the Russian economy was the United States. They accounted for 8.9% of all accumulated investments, or $39.1 billion out of $441.1 billion.

This is an unexpected result: according to the Central Bank, at the end of 2017 in Russia, American investments amounted to $3.05 billion (at the end of 2018 - $3.1 billion). Thus, UNCTAD data on US investments in the Russian economy are almost 13 times higher than the official estimate of the Central Bank.

Are foreign investors returning to Russia?

In 2017, the attitude of foreign investors towards our country became more positive. This fact was stated by the head of the Russian Direct Investment Fund Kirill Dmitriyev, who said back in June 2017 that "everyone sees that the Russian economy has withstood the crisis. Everyone understands that oil prices are stable and positive for us^[5]

According to a number of forecasts, the volume of investments in Russia in 2017 will increase due to the development of the metallurgical, chemical, and automotive industries.

Only the Bank of Russia balance of payments data published on the Bank of Russia website at the end of the first half of this year are available for official statistics. However, even from these numbers, a good positive trend is visible. Thus, direct investments of non-residents in the non-bank sector of the Russian economy in the first half of 2017 amounted to $13.7 billion. That figure is 1.9 times more than in the same period last year, when they settled at $7.2 billion.

But the volume of portfolio investments of non-residents in the assets of the non-bank sector of the Russian Federation in the first half of 2017 decreased. Negative momentum was $5.6 billion, compared with a 2.1 billion increase in the first half of 2016. However, in the second quarter of this year, the decline in non-resident investments was 10 times slower than in the first quarter (0.5 billion against 5.1 billion dollars).

As for the obligations of the federal governing bodies of the Russian Federation to non-residents on portfolio investments in the first half of 2017, they increased by $7.6 billion against an increase of 3.1 billion in the first half of 2016 (an increase of 2.5 times).

It is worth recalling: the previous two years, 2015 and 2014, were, to put it mildly, very negative in terms of the inflow of foreign capital into the domestic economy. So, in 2014, Russia - for the first time in the last decade - was not included in the rating of 25 countries that are the most attractive for direct investors in the world.

In that year, the volume of investments in our country more than 3 times was recorded: they amounted to $22 billion, compared to 2013 - 69 billion dollars.

In 2015, the volume of foreign investment in the Russian economy decreased by almost 3 times and amounted to $6.7 billion. Somewhere two-thirds of the total came from Cyprus, the Virgin, Bahamas and Bermuda; most likely, most of the new investments are a return of funds previously withdrawn from the country.

Alexey Kudrin: sanctions reduced foreign investment 7 times

Over the past few years, direct investment in the Russian economy from abroad has become 7 times less, due to sanctions against Russia. This was stated by Alexei Kudrin, head of the Center for Strategic Research and former Minister of Finance of Russia.

Speaking at the Moscow Exchange Forum 2017 in New York, Alexei Kudrin said that 8 years ago, direct investments from foreign investors reached $70 billion. This year, only about $10 billion is expected. He believes that this is one of the consequences of the introduction of anti-Russian sanctions. The regime of economic restrictions also affected the lack of GDP: from 2013 to 2015. the country lost 1% of GDP due to sanctions, from 2016 to 2017. less - 0.5%. Because of this, the Russian economy cannot go into the stage of growth, although the ex-minister is sure that this would be possible even taking into account the fall in oil prices. At the same time, the implementation of the necessary reforms by 90% depends on the reasons for the internal nature.

2016: $19 billion FDI (+ 62 %)

UNCTAD in its report testifies: in 2016, the Russian economy received $19 billion in direct investment (62% of growth) against the background of the general global complication of the investment climate.

2013: First half + 32 %

The inflow of foreign direct investment into the Russian economy in the first half of 2013 grew by 59.8% (Rosstat). Foreign investment in Russia amounted to $98.795 billion, of which foreign direct investment - $12.139 billion (12.3% of total revenues). Russian investments abroad in the first half of the year grew 1.8 times, reaching $126.4 billion.

"As of the end of June 2013, the accumulated foreign capital in the Russian economy amounted to 370.6 billion US dollars, which is 10.7% more compared to the corresponding period of the previous year," Rosstat said in its materials.

The largest share in the accumulated foreign capital was accounted for by other investments made on a return basis - 66.9% (at the end of June 2012 - 59.0%), the share of direct investments amounted to 31.2% (38.5%), portfolio - 1.9% (2.5%)^[6]%.

Alexander Ivlev, managing partner of the company EY for Russia, says: "According to the data obtained, in 2013 Russia for the first time came in third place in terms of investment attractiveness after the United States and. China The inflow of foreign direct investment reached 71 billion euros, which is 83% higher than in 2012. Russia bypassed the UK, France,, Singapore and Germany. Brazil There was also a 2% increase in the number of jobs created through foreign direct investment. This is a very good result, especially against the backdrop of 2012 indicators, when the volume of FDI decreased by 16.5%. "

2012: Jobs surge thanks to FDI

In 2012, 128 FDI-funded projects were initiated in Russia for the second year in a row (Ernst & Young data). However, in 2012, investment projects created 60% more jobs than a year earlier. This indicates that on average the size of the project has increased significantly.

In 2012, Russia ranked second in Europe in terms of the number of new jobs created by attracting FDI, up from sixth in 2011. It accounted for 8% of the total number of jobs created in Europe.

The results of the study indicate that foreign investors already operating in Russia are still confident in its economic prospects, and 68% of them intend to increase their presence in the Russian market. At the same time, according to 70% of the participants in the Ernst & Young study, the main factor in Russia's investment attractiveness is its large domestic market.

Alexander Ivlev, Ernst & Young Managing Partner for Russia, noted:

"In 2012, investors" opinion about Russia continued to improve. Participants in our study ranked it sixth in the world and first in the CIS in terms of attractiveness for investment. "

Industrial production is the main generator of FDI

The largest amount of FDI enters industrial production in Russia - it accounts for the largest number of investment projects (60) and new jobs (98% of the total number of jobs created). In addition, the number of projects involving FDI in the development of strategic and other functions is growing, although it remains small. At the industry level, the most investment projects were launched in the automotive industry (27 in 2012 compared to 18 in 2011). The automotive industry also accounts for the largest share of FDI-generated jobs. The investment attractiveness of the professional services sector also increased − in 2012 it was the second largest number of projects (17).

German investment inflow doubles

North America and Europe still have the largest share of FDI structure in Russia. In particular, the largest investors in the Russian economy in 2012 were companies from the USA, Germany and France. The number of projects financed by FDI from Germany more than doubled, which is primarily due to an increase in investment activity in Russia by German enterprises in the automotive industry. At the same time, although the bulk of FDI projects are in Moscow and St. Petersburg, the Kaluga and Nizhny Novgorod regions are gradually becoming the most important areas for investment.

FDI from developing countries

Investors from developing countries are still showing low activity in Russia. Between 2007 and 2012, only 30 investment projects were initiated here by Brazilian, Indian and Chinese companies. At the same time, as noted in the report, Russia is working to create conditions for mutually beneficial cooperation with other BRICS countries. To this end, joint investment initiatives are being implemented.

2011: Foreign direct investment $53bn

According to UNCTAD, in 2011, foreign direct investment in the Russian Federation increased by 22% compared to the previous year and reached 53 billion. dollars This is a record indicator of attracting private investment in the post-crisis period^[7]

See also

• Foreign direct investment in Europe

Notes