The 6th conference headlined "The economy and investment climate in Russia".
Photo: Ilya Pitalev
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Foreign Investment in Russia Drops
// Cyprus and Luxembourg has let the country down
Statistics
The Federal Government Statistics Agency released yesterday the information on the amount of overseas investment that Russia received in the first half of 2005. The inflow of funds fell 13.1 annual percent (whereas the first six months of 2004 saw a 49 percent growth). The Russian authorities are unlikely to get upset by the investment recession given the specific character of investment statistics (Russia’s man investors are Cyprus and Luxembourg). It is clear, though, that the investment appeal of Russian is low.
$16,503 million of foreign investment came to Russian in the first half of 2005, 27.2 percent ($4,489 million) of which are direct, according to the federal statistics agency. $3,206 million of direct investment is the contribution to the capital, $131 million accounts for the leasing of equipment, $1,035 million of credits was received from foreign co-owners of Russian companies, and $117 million is other direct investments. Yet some people may doubt that credits received from Russian companies’ co-owners can be viewed as direct investments (i.e., ones that give full control over a company). The world statistics, however, came to the conclusion after long disputes that one can control company’s activities by credits as effectively as by the purchase of its controlling stake. Portfolio investment accounted for only 1.1 percent of the total investment received in the six months. Overseas investors spent $167 million on stocks of Russian enterprises, $8 million – on debt securities. “Other investments” amount to 71.7 percent, the biggest share. $2,684 million came as trade credits, and $9,022 million – as other credits. Credits were mainly long-term, for over than 180 days and totaled $7,901 million. $1,121 million was received on short-term credits.
Not only did foreign investors bring money in Russia but they also drew it out. $10,744 million in investment was paid. $90.8 billion of non-withdrawn investment was left in Russia by late June. Cyprus is the leader in terms of the accumulated investment ($17,305 million). The country is followed by Luxembourg ($15,361), Netherlands ($14,236 million), and Germany ($8,977). Virgin Islands entered the top-ten of investors ($1,636 million) as well.
The Russian statistics agency also disclosed the information on the Russian investment abroad which reduced sharply too. $13.8 billion was sent abroad from Russia in the year’s first half, which is 10 percent less than in the first half of 2004. The return of the funds earlier withdrawn from Russia exceeded new exports to amount to $14.4 billion (19.9 percent less than last year). As a result, $6,601 million of the Russian investment is still abroad, most of it is in Netherlands ($618 million) with Cyprus ranking the second ($575 million). The top-ten of the places most attractive for the Russian capital include the Bahamas ($504 million) and Virgin Islands ($437 million). However, practically all money on the islands is in credit, not in direct or portfolio investments, while in Iran, all $395 million is direct investment.
One should be careful about statistics (both Russian and foreign) of overseas investment. The fact that Luxembourg is ranked second in the list of investors in Russia does not mean that Luxembourg’s capital is interested in the country, or that there is much of Luxembourg’s money in Russia. For example, Luxembourg’s internal investment totaled $4 billion in 2003. But the country invested $154 billion abroad (24 percent of all world overseas investment and the first place in the world) and attracted $120 billion (20 percent of all inward investment, the first place too), according to the UN Conference on Trade and Development. The phenomenon is explained by the fact that holding companies base in Luxembourg, through which affiliates of transnational groups are financed, and purchases of big shareholding are paid for mergers and acquisitions. Suffice it to say that only one deal, the merger of Vodafone and Mannesman, involved such immense payments through Luxembourg that the country ranked the world’s second-largest both as the object of overseas investment and the investor abroad. So it is no Cyprus’ or Luxembourg’s capital that is behind the investment to Russia from the two European countries but the capital from more developed states or Russia itself.
That is why Russian authorities are not worried about the drop in overseas investment in Russia. Andrey Klepach, head of the microeconomic forecast department of the Trade and Economic Development Ministry, made it clear that it is quite natural and when there are deals whre one Russian company buys another, there is a growth in foreign investment because payments are made through offshores. When there are no deals, there comes a recession. Still it does not prove the fact that foreign capital is not interested in Russia.
Sergey Minaev
All the Article in Russian as of Aug. 18, 2005
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