Page 8 - RusRPTSept19

2.0 Politics
2.1 Russia’s true FDI numbers
The total stock of foreign direct investments (FDI) in the Russian economy amounted to just over $407bn in 2018.
The Central Bank of Russia’s data show at least 68% of the FDI stock refer to investments from offshore jurisdictions like the Bahamas, Bermuda, Jersey, British Virgin Islands. Cyprus accounted for more than 30% of the FDI, or $124.6bn).
According to Bank of Russia, reported FDI from countries, such as the United States or China, are very low – $2.6bn from China and $3.1bn from the US, amounting to a mere 1.4% of the total.
The FDI statistics provided by the Central Bank of Russia is based on the balance of payments and doesn't attempt to identify the real origin of the money invested.
However, given that the lion’s share of such investments (30–50% according to UNCTAD estimates) is actually made through intermediate (transit, or conduit) jurisdictions, investments from such countries as the US or Germany are consistently underreported while investment flows from jurisdictions such as Cyprus or Bermuda are overstated.
Foreign companies that have long established themselves in Russia tend to reinvest their domestically earned profits without moving them abroad. Such investments are not registered as foreign investments at all. Yet, quite obviously, it’s reasonable to factor them in too. This is what Russian statistical agency Rosstat did until 2014, when the authority to report FDI was handed over to Central Bank who switched to the internationally accepted method.
Recently, the United Nations Conference on Trade and Development (UNCTAD) published first-ever estimatesof foreign direct investments into the economies based on Ultimate Investing Country. By definition, those estimates eliminated intermediary jurisdictions from the FDI matrix.
The UNCTAD’s distribution of FDI by the ultimate investing country is an analytical estimation calculated under a probabilistic model based on Markov chains. In other words, UNCTAD didn’t make any direct restatement of investments through the elimination of intermediate investing jurisdictions. Instead, it applied a pure mathematical model.
But the resulting distribution is consistent with the basic intuition suggesting that the vast majority of FDI in Russia reported to come from Cyprus, Bermuda, the British Virgin Islands, etc. has originated in ‘real’ investor countries with ‘classic’ exports of capital or has been ultimately made by Russian investors themselves.
What kind of ‘true’ picture of Russian FDI does UNCTAD model imply?
First, it is the US, which turns out to be the largest investor in the Russian economy. As of end-2017 the country accounted for 8.9% of the total accumulated investment, or $39.1bn. This is 12.6 times more than reported by Russia’s Central Bank. The second largest investor is
8 RUSSIA Country Report September 2019 www.intellinews.com