"Business New Europe" - 01.11.2012 - EDB - monitoring mutual investments
The Eurasian Development Bank (EDB) is an international financial organization established by Russia and Kazakhstan in January 2006 to promote mutually beneficial investment that will bring the economies of member states closer together. So after half a dozen years of work, how is it going?
Since the EDB was founded, several other countries have joined: the Republic of Armenia, the Republic of Belarus, The Republic of Tajikistan and the Republic of Kyrgyzstan all became full-fledged members of the Bank between 2009 and 2011.
Most outsiders are surprised to find that Russia has been a net exporter of capital for most of the last two decades — most of it going to its neighbours. With similar markets, similar problems and similar cultures, intra-Commonwealth of Independent States (CIS) investments make a lot of sense to local businessmen, who are only now beginning to branch out to Western Europe, Africa and further afield. However, the bulk of their investment is going to countries next door.
«We are working to promote partnership amongst our members and doing this by investing long-term money into key projects from a variety of sectors,» says Dmitry Zhurba, Deputy Chairman of the Management Board of the EDB, who is responsible for coordinating the Bank’s investment activities. «The most important projects are infrastructure development for the real economy — things like energy, transport, municipal infrastructure and so on,» says Zhurba.
Zhurba highlights the example of the renovation of the Pulkovo airport in Russia’s northern capital of St Petersburg and the construction of the Western Speed Diameteraround the city. «This is being done on a private-public partnership-like basis and involves a huge consortium of banks. When it is finished, it should make a huge difference to transport in the northwest of Russia.»
The importance of foreign direct investment (FDI) to the region is widely recognized, but the assumption is that the capital will come from the developed markets of the West; however, in practice investment from the other countries of the CIS has also played a significant role. In September, the EDB released the first comprehensive database of mutual investment, which differs significantly from the FDI numbers recorded in official statistics. One of the things that immediately jumps out the research is that Ukraine is a highly attractive market for Russian FDI due the combination of its proximity, large population and close cultural ties.
The major investment ties without Russian participation are all predicated on purely economic factors: neighbours tend to invest in each other (for example, the overwhelming FDI from Azerbaijan flows into Georgia) and the leading local companies tend to push aggressively into markets where neither Russian or western companies are established.
The statistics also show that while there was little mutual FDI in the 1990s, there has been a veritable boom of cross-border investment in the CIS during the following decade.
«Despite the global downturn since 2008, investor companies from the CIS have continued to be active and the number of projects — while not back at its pre-crisis peak — is recovering,» says Zhurba.
Russia still plays a leading role in these mutual investments: of the 25 largest deals, only three didn’t involve a Russian transnational corporation; between them Gazprom, MTS, VimpelCom, Lukoil and steel company Evraz have invested a total $15.75bn in the other countries of the CIS.