EDB: Companies re-appraise their projects in CIS countries, but do not withdraw
Mutual investments in the CIS and the EAEU have shrunken. The main reason is the devaluation of the national currencies and respective asset revaluation.
St. Petersburg, 19 October 2016. 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 in the recent years 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. 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%. The total accumulated amount has reached $23.7 billion. These are the findings presented in Monitoring of Mutual Investments in CIS Countries 2016, a report prepared by Eurasian Development Bank's (EDB) Centre for Integration Studies based on a unique database of investment projects.
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%. The total accumulated amount has reached $23.7 billion. These are the findings presented in Monitoring of Mutual Investments in CIS Countries 2016, a report prepared by Eurasian Development Bank's (EDB) Centre for Integration Studies based on a unique database of investment projects.
Comparison of Mutual FDI Stock of CIS Countries and EAEU Countries
EDB Centre for Integration Studies, Monitoring of Mutual Investments in CIS countries 2016
Russian investors account for almost 80% of mutual FDI in CIS countries. Kazakhstan ranks second with 11.6% of exported FDI. The share of non-Russian direct investment is growing slowly, but steadily. This can be explained by the gradual industrialisation of businesses in CIS countries, which previously lagged behind Russia. At the same time, Russian transnational companies, which have settled in the CIS, now often prefer to invest beyond the post-Soviet space. The devaluation of the national currencies in CIS countries has affected in particular Russian FDI stock. The most serious decrease over the last year was recorded in Kazakhstan (19%). In Belarus, Russian FDI was cut by 2.4%. In Armenia, the Kyrgyz Republic and Tajikistan, however, it increased slightly.
Ukraine remains the leader in terms of FDI imports from CIS countries, accounting for 20.3% of all investments attracted in the region. In the near future it can be, however, outpaced by Belarus, which has almost matched it with 19.8% of all attracted FDI. Kazakhstan ranks third with 17% of all imported FDI in 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. Oil and Gas sector's leadership is ensured by two major projects – Gazprom's gas transport subsidiary in Belarus and LUKOIL's production of crude hydrocarbons in Kazakhstan. According to the most recent data, Russia's top five investors – Gazprom, LUKOIL, MTS, VimpelCom and VTB Group – account for $18.1 billion or almost 43% of total FDI stock in the CIS. Portfolio investments in the CIS countries are significantly lower compared to FDI. 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).
The 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. "The development of a common market in goods and services in the Eurasian Economic Union dampens, to a certain extent, the negative effects of external shocks on mutual investments," Evgeny Vinokurov, Director of the Centre for Integration Studies, points out. "Companies preserve their projects abroad to ensure a good start in case the economic environment improves." 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. The report is available online.
Additional Information
Eurasian Development Bank (EDB) 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 totals US $7 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.
The Centre for Integration Studies is a specialist research centre of Eurasian Development Bank. The Centre organises research and prepares reports and recommendations on regional economic integration. Read more about the Centre’s projects and publications at https://eabr.org/analytics/
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