Page 52 - bne IntelliNews monthly magazine December 2024

52 I Eurasia bne December 2024
Cut off from Western goods by sanctions, Russia turned to its friends in the Commonwealth of Independent States (CIS) for help and they happily stepped into the breach, fuelling an FDI and manufacturing boom. Sanctions have proved to be a boon for the countries of the former Soviet Union. / bne IntelliNews
Ukraine war fuelling a manufacturing
and FDI boom in the CIS
Ben Aris in Berlin
The war in Ukraine is fuelling an FDI and manufacturing boom in the Commonwealth of Independent States (CIS) as local entrepreneurs rush to fill the gaping holes left in Russia’s supply chains by departing Western firms, reports Oxford Economics on November 5.
Several ex-Soviet economies are continuing to grow at rates exceeding pre-conflict expectations, buoyed
by major changes to the make-up of Russia’s economy and trade patterns across the region.
FDI surges in 2022-2023
Foreign direct investment (FDI) in 2022-23 surged across the entire region, leading to a manufacturing boom that is likely to be sustained into the mid-
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2020s, although growth is expected to moderate somewhat in 2025-26 as the Russian economy is cooling as the military Keynesianism boost factors begin to wear off.
Russia has re-emerged as what the European Bank for Reconstruction and Development (EBRD) previously dubbed a “node country” for investment in the region; Russia plays an economic role similar to that of Germany in Western Europe, as a source of investment and a driver of growth for all the former mem- bers of the USSR, funded by its excess income from raw material exports.
Industrial growth up on high demand
Russian demand for manufactured goods soared after extreme sanctions were imposed in 2022 and fostered
regional industrial growth, with Kyrgyz- stan, Uzbekistan, Armenia and Belarus benefitting the most from the exit of Western firms from the Russian market, says Oxford Economics. “This shift
has allowed regional manufacturers to capture new market share in Russia,” Oxford Economics said. Alongside domestic demand, the growth is underpinned by “real wage increases and relatively low inflation,” allowing for looser monetary policy and reduced borrowing costs across the CIS.
The biggest winner has been the civilian sector. While there are suspicions
that some of the countries are helping to supply Russia’s military industrial complex, by far the biggest demand
is from the civilian sector as Russia seeks to replace simple products that