Russia is searching for foreign investment

newsletter 17/01/2013

According to the Russian Federal State Statistics Service the inflow of direct investment made up $12,3 billon (381,3 billon rubles) for the 9 month period of 2012, that makes about 12% from the total amount of foreign investment in Russia. For comparison, from January to September of 2011 direct investment made about 9% from the total amount of foreign investment.

From January to September of 2012 Russian economy received $114,5 billion (3,6 trillion rubles) from foreign sources, which is 14.4% less that in the same period in 2011 (4,2 trillion rubles). 

Investors were most attracted to the construction market along with manufacturing companies. At the same time, investors are more careful with investment in finance and mining that is positive trend. Investment into processing sector creates the organizational capital, stimulates development of new technologies and approaches to work that in this sector especially doesn't suffice. While mining industry copes well without foreign investments.

The foreign legal entities acting as founders of Russian companies can serve as one of investment sources on the territory of the Russian Federation. Thus, according to data from the information system GLOBAS-i® of CredInform Agency, there are 41,690 companies registered in Russia, that have foreign legal entities among their shareholders. 52% (47% in 2011) of such companies are maintained completely by foreign owners who hold 100% of company’s charter capital. Most of the companies with foreign financial investments are located in Moscow (56.1%), Saint Petersburg (10.8%), and the Moscow Region (6.9%). According to data from the information and analytical system GLOBAS-i®, the largest successful companies with 100% foreign capital are occupied in auto industry and adjacent productions (Toyota Motor LLC, Hyundai Motor CIS LLC, Kia Motors Rus LLC, Jaguar Land Rover LLC,  Ford Sollers Holding LLC, Nokian Tyres LLC, Volvo Cars LLC, Honda Motor Rus LLC, Bridgestone CIS LLC), in the sphere of electronics and household appliances (Samsung Electronics Rus Kaluga LLC, PHILIPS LLC, BSH Household appliances LLC, Libherr-Russland LLC), chemical industry (Henkel Rus LLC, Johnson & Johnson LLC), food industry (Coca-Cola HBC Eurasia LLC, Danon Industry LLC, Heineken Breweries LLC).

The flight of the capital abroad is a significant problem at the present time. The outflow of Russian capital is nominally divided into three streams. The first is illegal money transfers, which are usually hard to track. It is so called “shadow capital”, acquired through criminal activity.

The second part is - the profits earned legally, but flowing out of the country due unstable investment climate and investors' disbelief in perspectives of safe and efficient business in Russia. The Central Bank of Russia estimates that $57,9 billion (1,8 trillion rubles) were taken out of the country in January-September of 2012 ($80,5 billion and 2,5 trillion rubles in 2011 accordingly). The CredInform Agency experts suggest that the outflow in 2012 was over $67-80 billion. 

The third part of the outflow of Russian capital is an investment in foreign companies and business that stimulates promotion of Russian goods and services on the world market, creation of branch companies and other structures, which are engaged in advertising, information services, processing of raw materials and the semi-finished products delivered from Russia, and realization of the corresponding production. The amount of the investment in January-September of 2012 made up $109,4 billion (3,4 trillion rubles) that is 13% more than in the same period of 2011. 

The capital outflow is non-uniform, multicomponent, and it is difficult sometimes to draw a line between a reimbursement of loans to foreign banks and the actual capital flight. But the general rule of the investment market is if the money outflow is greater than the money inflow, then the investment climate within the country is not favorable for foreign investors. 

Among the main reasons of the unattractiveness of the investment climate in Russia are – corruption, as well as high administrative barriers, as well as lack of security of owner's rights. It should be noted that the improvement of investment climate in Russia will not just attract nonresidents, but also will stimulate activity of the Russian businessmen.