EDB Centre for Integration Studies: Mutual FDI accumulated by CIS countries reduced by US $5.5 billion, with fuel and energy, finance and telecommunications remaining the leading sectors for investment
Saint Petersburg, 30 September 2014. Mutual foreign direct investment (FDI) accumulated in CIS countries and Georgia amounts to US $49.1 billion. For the first time over several years of consistent growth this indicator went down by 10%. This conclusion is suggested in the annual report by Eurasian Development Bank’s (EDB) Centre for Integration Studies Monitoring Mutual Investments in CIS Countries 2014. Russia accounted for almost 85% of all accumulated mutual FDI in the CIS and Georgia (US $41.63 billion) and Kazakhstan 9% (US $4.37 billion).
Accumulation of Russian, Kazakh, Azeri, Ukrainian, Belarusian and Georgian FDI in the CIS in
Source: EDB Centre for Integration Studies, Monitoring Mutual Investments in the CIS, 2014
Two main reasons underlay the reduction in mutual FDI accumulated in the region. First, the number of completed investment projects is growing. In 2013 several real estate projects supported by Kazakh investors were completed and sold in Russia. In addition, Russian investment in Kazakhstan’s ferrous metallurgy decreased after Mechel had sold Voskhod Chrome as part of its business restructuring. Second, in 2013 Russian FDI in Ukraine reduced by 11% (from US $16.5 billion to US $14.7 billion). Ukrainian FDI in Russia also went down by 10% (from US $1 billion to US $0.9 billion).
Russian FDI in Belarus and Armenia, Kazakh FDI in Kyrgyzstan, Belarussian FDI in Russia, Azeri FDI in Georgia and Ukraine, and Ukrainian FDI in Moldova increased.
Completed investment projects according to the Monitoring Mutual Investments in the CIS database by years (number of projects)
Source: EDB Centre for Integration Studies, Monitoring Mutual Investments in the CIS, 2014
The largest recipients of mutual FDI accumulated in the CIS and Georgia are Ukraine (over 30%), Kazakhstan (19%), Belarus (16%), and Russia (9%). Russian-Ukrainian, Russian-Kazakh and Russian-Belarusian ties remain the key directions for mutual FDI. If to disregard Russia, the most noticeable capital flow is from Azerbaijan to neighbouring Georgia. The report by the Centre for Integration Studies also highlights Kazakh FDI in Georgia and Kyrgyzstan.
The structure of mutual FDI in the region is formed, to a significant extent, by Russian investors. These are primarily interested in sales and resources, as well as in the improvement of production effectiveness.
Sectoral structure of Russian FDI accumulated in the CIS and Georgia at the end of 2013
Source: EDB Centre for Integration Studies, Monitoring Mutual Investments in the CIS, 2014
According to the report, Russia’s two largest transnational oil and gas companies — Gazprom and Lukoil — account for 14% (each) of all mutual FDI accumulated in the region. These are followed by Russian services provider Vympelcom, which also has a very diversified business geography. The fourth largest investor is VS Energy (Russia), which has all its assets concentrated in Ukraine in the power sector.
The region’s second largest investor, Kazakhstan, has the largest share of FDI accumulated in the transport sector (23.4%) and agricultural and food production (22.8%), followed by tourism. Almost 68% of Kazakh FDI in the CIS and Georgia is accumulated in Russia. A significant portion of Kazakh investment goes into real estate: airports and warehouses in the transport sector, and farmland in agriculture.
«The report traditionally has a thematic section,» says Vladimir Yasinski, Managing Director for Research at EDB. «This time it analyses fundamental events in the region, which happened in the first six months of 2014. In the first place, the paper analyses the consequences of the political crisis in Ukraine for mutual FDI. In addition, it reviews the prospects for mutual FDI associated with the most important positive event in the region — the signature of the agreement to establish the Eurasian Economic Union in 2015 by Belarus, Kazakhstan, and Russia.»
The monitoring of mutual investment in the CIS, which has been performed by the EDB Centre for Integration Studies in partnership with the Institute of World Economy and International Relations (IMEMO) of the Russian Academy of Sciences since 2011, makes it possible to compare mutual FDI between the countries in the region with FDI channelled to the CIS from other regions of the world. In particular, the report points out that in Kazakhstan Russian investors face serious competition with transnational companies from other countries: Chinese investors in the resources sector and Western investors as technology suppliers. At the same time, one of the most promising areas for joint investment by Russian and China in Kazakhstan and other Central Asian countries is infrastructure. At present, however, the leading investment projects pursued by Russian and Chinese transnational companies are in the fuel sector and are primarily associated with oil and natural gas production, where these two countries are competitors.
The experts of the EDB Centre for Integration Studies and IMEMO believe that the data and findings provided in Monitoring Mutual Investments in the CIS 2014 will help companies to better understand business in the region and the governments to promote mutually beneficial sectoral cooperation.
The Monitoring Mutual Investments in the CIS 2014 report and presentation are available online.
Additional Information
Eurasian Development Bank is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth and the expansion of mutual trade and other economic ties in its member states. EDB’s charter capital exceeds US $1.5 billion. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan. Read more at https://www.eabr.org.