Monitoring of Mutual Investments in CIS Countries 2016

18 October 2016

According to the seventh report of a years-long research project, mutual foreign direct investment (FDI) stock in CIS countries continued to go down, having decreased by $2.2 billion or 5% over the year. The main reason for this was the devaluation of the national currencies and the revaluation by companies of their earlier investments. Companies, however, tend to preserve their projects abroad, in the hope of better times, and not sell off their undervalued assets. In 2008–2015 mutual FDI in the five EAEU countries was more sustainable than in the CIS as a whole. At the end of 2015, total mutual FDI stock in the EAEU amounted to $23.7 billion. The contribution of mutual FDI by EAEU countries to total mutual direct investments originating from CIS countries and Georgia went up from 47% in 2008 to 56% in 2015.

Russian transnational companies continue to remain the largest investors. They accounted for almost 80% of the total mutual FDI in CIS countries. The second place goes to Kazakhstan (11.6% of total exported FDI). Azerbaijan is also a notable FDI source (5% of total mutual FDI stock originating from CIS countries and Georgia), while Ukrainian and Belarusian FDI origination is rather modest. Apparently, the share of non-Russian FDI is slowly climbing. We are witnessing a gradual internationalization of business in CIS countries which previously lagged behind Russia; in addition, having established steady footprints in adjacent regions, Russian TNCs now oftentimes prefer to invest into third countries.

By the end of 2015, Russian FDI stock decreased the most in Kazakhstan, where it fell by 19% on the back of a massive tenge devaluation and subsequent asset revaluation. In Belarus, Russian investment stock went down by 2.4%, while Armenia, Kyrgyzstan, and Tajikistan reported its increase.

Ukraine still remains the largest mutual FDI recipient with 20.2% of total FDI imports from the CIS (at the end of 2012 that indicator stood at 32%). But by the end of 2015 Ukraine was almost overtaken by Belarus (19.8% of total FDI imports). Kazakhstan came in third with 16.8% of total FDI imports from the CIS.

The structure of mutual investments is dominated by the sectors, which are traditional for Russia – Oil and Gas and Non-Ferrous Metals. FDI is also significant in Transportation, Agriculture and Food Products, Communication and IT, Finance, and Infrastructure Networks. The leading positions of Oil and Gas are buttressed by the two largest projects in EAEU countries – Gazprom’s gas transportation subsidiary in Belarus and LUKOIL’s hydrocarbons production project in Kazakhstan. The Russian Investors Top Five includes Gazprom, LUKOIL, MTS, VimpelCom, and VTB Group. At the end of 2015, they accounted for $18.3 billion of total FDI stock. This represents 43% of the total mutual direct capital investments in the CIS.

Portfolio investments in CIS countries are significantly lower compared to FDI. According to EDB Centre for Integration Studies’ estimations, such capital investments stand at about $3 billion. On the whole, in 2015 CIS mutual portfolio investment stock went down by 13%, mostly due to devaluation of bonds denominated in national currencies. Leading portfolio investors are Russia and Kazakhstan.

There have been recorded practically no large projects with mutual portfolio investments. The only really significant portfolio investment from CIS countries is LUKOIL's 5% share in the Tengiz oil field development project in Kazakhstan (about $1.8 billion).

EDB Centre for Integration Studies believes that, in the near future, the structure of investment flows in the post-Soviet area will be determined, to a significant extent, by integration processes within the EAEU. The emergence of real opportunities to work for the common market of the Eurasian Economic Union can change the picture of transboundary investments significantly.

EDB researchers suggest that the data, analysis, and conclusions presented in Monitoring of Mutual Investments in CIS Countries 2016 will help companies to better orientate themselves in the region's business environment and the governments to promote mutually beneficial sector cooperation.

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