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bne September 2018 Companies & Markets I 17
Asian investors replace western players in Russia's FDI
Ben Aris in Berlin
Anumber of investments from western countries in Rus- sia are on hold, but the situation is more than made up for by new investors from Asia. Foreign investors put up capital for 238 projects in 2017 – a record number for Rus- sia, according to an annual survey by EY.
Asian countries showed strong interest in the Russian econo- my: China last year became the leading foreign investor into Russia for the first time, with Japan and South Korea also among Russia’s top 10 investors.
However, in monetary terms the growth of FDI was a lot more modest. According to central bank data, FDI in the second quarter (excluding banks) was just $1.7bn, down from $12.6bn over the same period of 2017. The latest figures
“China last year became the leading foreign investor into Russia for the first time”
suggest the moderate recovery in FDI following the 2014-16 recession may be going into reverse. Recent figures have in any case been flattered by Rosneft’s share sale to Glencore and the Qatar Investment Authority.
Manufacturing was the sector boasting the largest number of FDI projects, says EY. By excluding portfolio investments and M&A, EY claims that its survey reflects real investments in manufacturing and services by foreign companies across Europe.
The regions are becoming increasingly attractive to investors, led by rising FDI flows channelled into Tatarstan, Bashkorto- stan, Primorsky Krai, Lipetsk and Belgorod oblasts.
Of the total 238 FDI projects, this represents 16% growth in the number of projects y/y, a striking improvement compared with only 2% growth in 2016, according to EY’s latest Euro- pean Attractiveness Survey – Russia.
As in 2016, foreign investors focused on the construction of new manufacturing facilities in Russia (202 projects), rather than business expansion (36 projects).
Alexander Ivlev, EY country managing partner for Russia, com-
mented: "The manufacturing industry once again proved to be the most attractive industry for FDI in the Russian economy, gaining 127 new projects, or 18 more than the year before. Last year, the number of projects in the power industry grew by more than 50%, from 15 in 2016 to 26 in 2017. The number of projects in the finance and business services sector more than doubled, from four to 10 in 2017. The transport and com- munications sector remained almost the same with 31 projects in 2017. Agriculture slowed somewhat with 38 projects in 2017 against 41 projects in 2016."
The unquestionable leader among FDI into manufacturing industries was pharmaceuticals with 35 projects. The machin- ery and equipment sector was number two with 21 projects. In addition, foreign investors heavily invested in the chemical and plastic products sector (19 projects). Mineral reserves and metals saw positive growth in 2017 with the number of projects having increased by four and three, respectively. The digital technologies sector grew to seven projects against only one in 2016. However, the electrical equipment sector halved compared to 2016 with just seven FDI projects.
"Last year saw a remarkable trend – strengthening interest
of Asian countries in the Russian economy and their growing presence, which more than doubled in 2017 – from just 30 projects in 2016 to 76 last year. China took the lead for the first time, boosting the number of its FDI projects by more than three and a half times, from nine in 2016 to 32 in 2017. This is the largest number of projects financed by Chinese investors since the launch of the survey,” Ivlev said.
South Korea, with 12 projects, became one of Russia’s top 10 investors in 2017. Its top 10 placing was the first achieved since
“The unquestionable leader among FDI into manufacturing industries was pharmaceuticals”
the launch of the survey. The South Koreans were behind just two projects in 2016. Japanese investors kept up with a rising trend, financing 17 projects last year versus 12 in 2016.
While Asian investors are on the move, western investors were in retreat in Russia in 2017. Germany, which had ranked first by the number of new projects in 2015 and 2016, lost the lead,
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