Investments in Russia, the prospects and potential

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It seems that the best indicator of investment attractiveness is the flow of foreign direct investment (FDI) into the country. FDI, in contrast, seem to be, public investment is money available in the choice of the country for which they “vote” by attending to its economy.
The nominal FDI to Russia in the 13th year, took 4th place in the world in the world Bank. However, it is necessary to take into account the fact that a significant portion of these investments are in fact of Russian origin money, but invested in the country’s economy through foreign jurisdictions, which gives investors the best investment protection and, sometimes, the possibility of tax optimization.It should also be borne in mind that the FDI outflow from Russia at the same time exceeded the inflow.
In the 14th and 15th years due to the unfavorable situation on the market of raw materials and the growth of country political risk was a collapse of investment, both direct and portfolio. Then after the commodity market groped the bottom, followed by some recovery in the 16th year. In the 17th again went abbreviation.
According to the report of the Bank of Russia, incoming FDI into the country in 2017 amounted to $27.9 billion (-14.3% yoy), outgoing — $38.6 billion (+73.1% yoy). Accordingly, a net outflow for the year 2017 totaled $10.7 billion, which roughly corresponds to a net inflow in 2016-m to year of $10.2 billion.
With portfolio investment in the 17th year of the case also was not: according to the BofAMerrillLynch, the outflow from Russian funds amounted to $900 million. Thus, Russia at the moment is not called investment-attractive country.
In the last couple of years investments primarily come in the industry. The leader is food industry, followed by manufacture of machinery and equipment, chemical industry, manufacture of electrical equipment. There is also growing interest in agriculture. It should be noted that in recent years there has been a shift of interests of investors – the most active early investments came in the manufacturing and financial and insurance activities. This shift is not surprising and is a consequence of the long period of falling real disposable income and reduce imports of consumer goods.
Over the past ten years, Russia’s share in global FDI inflows has fluctuated from a record 5.1% in 2008-m to year, when in the first half of the year, raw material prices soared to multi-year cyclical highs, to 0.6% in 2015, when it was the cyclical bottom of the oil market. From this we can draw the simple conclusion that a global raw material market conditions and, as a consequence, the power of the trade balance of our country at the moment, and the security of its external debt current foreign exchange earnings, and is determined at the moment of investment interest.
On average, Russia over the last decade, accounted for about 2.5% of the FDI that just about corresponds to the share of Russia in world export. Only in 2008, when record oil prices, and in 2016, when the Russian economy “bottomed”, the balance of FDI was positive for Russia. In all the other years the export of capital prevailed over investment.
When the model of the economy that has developed in Russia, the growth potential of an investment is directly linked to potential growth in commodity prices.
It appears that this potential in the medium term is very limited, if not completely exhausted. The price of oil and metals are already quite high by historical standards. To change this situation is possible only by changing the structure of the economy, why the need for deep reforms that covered a wide range of established economic and political interests of oligarchic groups. Yet there is no indication that such reforms are prepared and can be implemented.
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Dmitry Golubovsky
Analyst
FG “Kalita-Finance”