Capital Growth Rekindled

According to a report prepared by the Centre for Integration Studies of Eurasian Development Bank, after three years of decline, mutual direct investment growth within the EAEU was rekindled in 2016. In particular, that covers growth of investments of Russian companies in Belarus and Kazakhstan, as well as the transaction related to buying a stake in Uralkali (Belarus’ investments in Russia). But, in general, the experts note that the share of Russian companies within the CIS is diminishing as these companies move to markets of third countries.

After three years of decline, the stock of foreign direct investments (FDIs) within the EAEU member countries has grown by 15.9% over the last year, reaching US $26.8 billion (in 2012, mutual FDIs were US $27.6 billion). This finding is grounded on the data provided in a joint study prepared by experts of the EDB Centre for Integration Studies and IMEMO RAS, which is based on companies’ reports on investment transactions exceeding US $1 million—unlike the official statistics prepared by the Central Bank of Russia, it allows to take into account the FDI inflows routed via off-shore zones, as well as re-invested profits gained abroad.

Mutual FDIs of the EAEU member countries grew at a pace twice as high as that of the total stock of FDIs within the CIS countries and Georgia, which increased by 7.9%, reaching US $45.1 billion (at their peak in 2012, mutual investments were US $57.2 billion, then they were declining, dropping nearly by 5% in 2015). As noted by authors of the report, the key reasons for growth in both cases were appreciation of the Russian ruble and economic recovery in Russia. For instance, the stock of direct capital investments in Russia originating from the EAEU member countries has increased by 77%, reaching US $5 billion. Russia, however, is still lagging behind Belarus (US $8.6 billion) and Kazakhstan (US $8.2 billion).

The major capital exporter is still Russia, but its share in mutual FDIs in the EAEU member countries is gradually declining—it used to be 82.6% four years ago and now makes 78.6%. Most of Russian investments were routed towards Belarus (US $8.5 billion against US $8.3 billion a year earlier) and Kazakhstan (US $8.2 billion against US $7.1 billion), while investments in Armenia made US $3.4 billion (US $3 billion in 2015), and those in Kyrgyzstan – US $0.86 billion (US $0.8 billion in 2015). Moreover, the FDIs of 25 major Russian companies investing in the EAEU member countries account for 71% of the total FDI stock in the EAEU. The general dependence on Russian capital in the CIS countries and Georgia has somewhat eased, with the share of the non-Russian FDIs now being 22.8%, while it stood at 16.3% at end-2013. “Having grown familiar with the post-Soviet area, Russian TNCs now often prefer to invest in third countries,” note the experts.

Kazakhstan’s investments in Russia, in their turn, made US $2.95 billion as at end-2016 against US $3.37 billion in 2015, while the investment flow originating from Belarus surged from US $204 million to US $2.05 billion, with such a jump explained by the transaction of a Belarusian investor buying 20% of Uralkali shares. Mutual investment flows between Kazakhstan and Belarus remain small: US $57 million originating from Kazakhstan, and US $34 million – from Belarus, while Kazakhstan is the largest investor in Kyrgyzstan (US $605 million).

At the same time, investments in Ukraine are still on the downward path—as at end-2016, the total investments originating from the CIS countries and Georgia were US $5.6 billion (12.4% of total FDIs), while in 2013, they made US $17 billion (31.2%). The current level is comparable with investments in Uzbekistan (US $5.4 billion).

The fuel and energy complex account for the largest share in total FDIs within the EAEU—over the last year, its share has grown from 42.6% to 43.8%. It is followed by the non-ferrous metal industry (10.9% against 12% in 2015). Communications and IT now rank the third (9.6%, in 2015 FDIs in the transport sector held the third position). However, Belarusian and Kazakhstani investors prefer investing in the Russian chemical industry (35.1% of investments, again related to the transaction with Uralkali), as well as the agri-industrial (15.8%) and transport sectors (14.2%).

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