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5.3 FDI
Russia received almost zero foreign direct investment (FDI) in the first quarter of this year, down from $10.3bn in the same period a year earlier, the Central Bank of Russia (CBR) reported on April 13.
Central Bank reported on the balance of payments of Russia for the first quarter of 2020. Foreign direct investment (FDI) for this period almost zeroed - from $10.3bn for the same period in 2019 to $200mn.
This number almost certainly understates the real FDI, which is almost certainly negative. As bne IntelliNews h as reported a quirk of Russian national statistics means that foreign companies working and registered in Russia that reinvest their profits – as almost all of them do – is counted as FDI. As the number of foreign companies working in Russia is significant – Germany alone has 4,500 companies that invested a record €3bn in 2019 – the real FDI numbers are likely to be negative.
Thanks to the perennial “Russia risk,” FDI into Russia has always been below par given the size of the population and richness of the resources on offer. However, in the last three decades Russia has accumulated a total FDI stock of just over $407bn as of the end of 2018, according to the CBR.
However, Russia has never been a popular investment destination. Inward FDI to Russia over 2014-2018 averaged 1.3% of GDP, the lowest levels for 20 years when reinvestment is factored in, and even Russians are reluctant to invest in their own country.
FDI numbers are very confusing and made more complicated by the fact that the CBR reports only on “last mile” investment: the country of origin of FDI is counted as the country that investment came from before cross the border to Russia.
The United Nations Conference on Trade and Development (UNCTAD) published first-ever estimates of FDIs into the economies based on Ultimate Investing Country in 2017, Ivan Tkachev, economics editor at RBK, recently wrote in a piece in the Riddle entitled “A Quiet Revolution in the Analysis of Foreign Investments.” This study attempted to identify the country that that money started from, not the last step on its journey. The result was startling as it turns out the biggest investor into Russia is the USA and all the CBR’s statistics are massively distorted.
The CBR also reported that the securities market has seen massive outflows in the last quarter. Portfolio investments showed an outflow of $1.2bn compared with an inflow of $6.8bn a year earlier. However, here too the statistics are distorted by taking aggregates.
Equity and bond markets around the world have been rocked in the last month by the double whammy of oil price collapse and the coronavirus (COVID-19) pandemic. The Institute of International Finance (IIF) reports that there has been an all time record outflow of $83bn since the start of the year, although the outflow has started to slow in the last few weeks. While the aggregate outflow from Russia may be $1.2bn in the last quarter, according to the CBR,
60 RUSSIA Country Report May 2020 www.intellinews.com
