Page 53 - RusRPTJun19

GDP), Venezuela (0.5% GDP), and Ukraine (2.7% GDP) Taking into account reinvestment, Russian FDI averaged 1.5% GDP, higher than Saudi Arabia, Nigeria, South Korea, South Africa and Venezuela. Yet this is the lowest value for Russia in 20 years. Per Bank of Russia calculations, FDI in 2018 amounted to $8.8bn. Excluding reinvestment, it was -$6.5mn, the worst since 1997.
Foreign direct investment in 2018 fell to its lowest level in a decade, but FDI in the non-banking sectors of Russia for the first quarter of 2019 increased by more than eight-fold compared to the fourth quarter of last year - to $11.5bn, according to the bulletin of the Central Bank's research and forecasting department. This improvement is partly due to the recovery of investments in debt instruments, noted in the Central Bank. However, it is premature to talk about a steady revival of foreign investment in the non- banking sectors, because a significant proportion of such investments was associated with individual intra-group transactions of large companies. What transactions are we talking about, analysts do not specify. If one excludes these transactions, the dynamics of foreign investment in the Russian economy in the first quarter of 2019 improved slightly compared with the previous quarters, according to the Central Bank. At the same time, in the third and fourth quarters of last year, the dynamics of almost all foreign investments deteriorated. In general, according to preliminary data, the flow of foreign direct investment in Russia in 2018 declined to $8.8bn from $28.6bn a year earlier – the lowest level in the last 10 years. The main role in the deterioration of the dynamics of foreign investments was played by investments in the non- banking sector.
A sharp decline in foreign investment into Russia last year was partly caused by a change in a trend of capital returning to the country’s economy through offshores, the Bank of Russia said, according to Rosbalt. FDIs hit a ten-year low in 2018, plunging to $8.8bn. The net outflow of investments reached $23.1bn, a record high figure since 2014. The regulator’s analysts say that investors who used to channel the money back into Russia’s economy, most notably from Cyprus, have hit the brakes. In the third quarter of 2018, Russian investments to the tune of $7.9bn were channeled to Cyprus, the Bank of Russia said. Outgoing investment into foreign non-banking companies in 2018 reached more than $30bn, while incoming investment into Russia’s non-banking sector was estimated at less than $6bn. This allows the Central Bank’s analysts to conclude that the funds moving to offshores are not returning to Russia like they were earlier. Before Western sanctions and the state campaign for ‘de-offshorization’, between 60% and 80% of direct foreign investments in Russia accounted for offshores, where they had moved from Russia, says Boris Kheyfets, an economist at the Russian Academy of Sciences.
The deteriorating investment climate which followed Russia’s 2014 annexation of Ukraine’s Crimea is causing losses of at least $30bn every year, economist Sergei Guriev said in an interview with journalist Elizaveta Osetinskaya published Monday. Russia’s 2014 annexation of the Black Sea peninsula from Ukraine has weakened Russia’s relations with the West, launching multiple rounds of sanctions from the US and the EU as well as a drop in foreign investment. Each%age point that doesn’t go into GDP growth equals a loss of $15bn, Guriev, who is chief economist of the London-based European Bank for Reconstruction and Development (EBRD), told business outlet The Bell. The Russian economy grew by 2.3% in 2018, according to official data. “If it’s 2 [percentage points lost], then [Russia’s losses total] $30bn a year,” he said. Up to $300bn has been lost since Russia annexed Crimea,
53 RUSSIA Country Report June 2019 www.intellinews.com