Monitoring of Mutual Investments in CIS Countries 2017

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According to the eighth report of a years-long research project, after three years of decline (2013-2015), mutual FDI of the EAEU member states grew by 15.9% reaching US $26.8 billion, mutual CIS and Georgia FDI stock increased by 7.9% to $45.1 billion. 

The largest capital exporters within the EAEU are Russian companies, which account for over 78% of FDI exports. Kazakhstan ranks the second (13.5%), Belarus comes the third (7.8%), while Armenia and Kyrgyzstan are significantly falling behind the largest EAEU economies. 

There is a new development observed in the region – Russia does not only invest in other EAEU economies, but has also started receiving an increasing amount of investment from neighbouring countries, with the FDI stock from other EAEU countries reaching US $5 billion. However, Belarus and Kazakhstan remain the major FDI recipients, with their FDI stock standing at US $8.6 billion and US $8.2 billion respectively as at end-2016.

According to the authors of the report, Russia’s high performance indicators are generated by a limited group of companies. As at the start of 2017, 25 largest Russian companies investing in the EAEU member countries accounted for 71% of the total mutual FDI stock within the EAEU. 25 major projects of Russian companies represented about 61% of the total mutual FDI stock within the EAEU. 

EDB analysts believe that the pattern of investment cooperation within the EAEU will change as a result of deepening Eurasian integration and developing common markets. In the meanwhile, these are mainly large investors that are benefiting from the Union. Large businesses find cross-border barriers less distressing as such companies have enough resources to efficiently overcome them. Medium businesses do not venture abroad for the moment.

Where do Russia’s EAEU neighbours invest? The Russian Chemical sector ranks the first, accounting for 35.1% of the FDI inflows from the EAEU member states as at end-2016. The Russian Agriculture and Food Products sector comes the second (15.8%), with most of the investments originating from Kazakh companies specialising in crop and dairy production. Direct investments from Kazakhstan to Russian airports have ensured the third place for Transport (14.2%), while engagement of Kazakh investors in the Russian Tourism has put this sector in the fourth position (14%). 

Russian companies increased their FDI in all the EAEU economies. As at the start of 2017, Belarus was a leading recipient of Russian FDI (US $8.5 billion), followed by Kazakhstan (US $8.2 billion), Armenia (US $3.4 billion), and Kyrgyzstan (US $0.9 billion). Oil and Gas sector accounts for over half of Russian FDI in the EAEU economies. FDI in the Non-Ferrous Metals, Communication and IT, and Finance also figure prominently. 

After the first full year of its membership in the Eurasian Economic Union, Kyrgyzstan registered an increase of its FDI inflow from the EAEU member states by 11% or up to US $1.5 billion as at end-2016, of which from Russia – by 21% or up to US $0.9 billion as at end-2016. Experts of the EDB Centre for Integration Studies expect that Kyrgyzstan’s membership in the EAEU will help the country improve its investment image. They forecast further growth of direct investments originating from Russia and Kazakhstan.

According to EDB Centre for Integration Studies analysts, future changes in mutual CIS FDI will be determined by investment activity within the Eurasian Economic Union. When mutual investments declined in 2013-2015, the rate of decline in the EAEU was considerably lower than in other post-Soviet states. When investments soared in 2016, the rate of growth in the EAEU was twice as high (16% vs. 8%).

EDB researchers suggest that the data, analysis, and conclusions presented in Monitoring of Mutual Investments in CIS Countries 2017 will help companies to better orientate themselves in the region’s business environment and the governments to promote mutually beneficial sector cooperation.