Principle theme

23 August 2010

Foreign investors bide their time

The global crisis is far from being the thing of the past. It keeps affecting the financial systems, the banking sector and budgets of many countries, including Russia. Even with definite signs of improvement, this country has to grapple with its aftermath. One of the battlefields is the investment market. Direct foreign investments in the first half of this year amounted to a mere 5.5 billion dollars, an 11 per cent fall over the same period of 2009. 

No matter what, experts do not view the fall as a critical one. There are serious reasons for the trend to persist. There is not enough motivation for the global big money to take chances on investing into developing markets. As for Russia, international and Russian business had enough reason to keep our raw materials sector afloat last year. But there was more to the money influx than may just meet the eye. 

“A sizeable chunk of direct foreign investments last year was the money coming in from Cyprus,” said Natalia Orlova, chief economist of Alfa Bank. “This was actually Russian money that had previously fled abroad and was repatriated. At present, Russian companies hit by the crisis don’t have enough money to continue its repatriation.”

Pure foreign investments have usually been channelled into the oil and gas sector and the metal smelting industries, so they are still going strong. Life is much harder for the real estate and trade sectors. Speaking about the latter, major retail chains and office centres here have been built on foreign money and not too many Western retailers are anxious to get a foothold in Russia now. But this type of investments is not absolutely essential for Russia, said Vladimir Osakovsky, chief economist of the bank “Unicredit”:

“There is enough available domestic investment resources, and though the influx of foreign money is a serious factor for modernization of our economy, it is not critical for its overall development,” Vladimir Osakovsky believes. 

Investments in the real sector and high technologies did not play a decisive role before the crisis either. Now the Skolkovo “innograd” project may help to improve this situation. Skolkovo, a small township 20 kilometres or so away from Moscow, is being devised as a cluster of science-intensive innovative research centres and companies. The government plans to invest more than 5 billion dollars in its development. Siemens, Microsoft, Google and Intel have shown interest in joining the project, and CISCO has promised to invest 1 billion dollars in Skolkovo.

Russia’s biggest foreign investors are Cyprus, the Netherlands and Luxembourg that are collectively responsible for about half of all the money influx into this country. Our Top Ten investors are Britain, Germany, the Virgin Isles, China, Japan and France. In their entirety, direct and other foreign investments amounted to 21 billion dollars this year.

At the same time Russia is a money donor in its own right, with major beneficiaries including Cyprus, the Netherlands and the United States. Foreign recipients got 22.7 billion dollars of Russian investments this year. Despite temporary difficulties, the two-way alley continues to show signs of volume growth.   

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