Russia faces investment vacuum as allies shun economic ties
The Kremlin's hopes that "friendly" countries would replace Western investors have proved futile, writes "The Moscow Times." Since the beginning of the war, billions of dollars have evaporated from the Russian economy, and there are no takers to fill this gap.
According to statistics from the Central Bank of the Russian Federation, as cited by The Moscow Times, the volume of foreign investments in Russia in October last year dropped to its lowest level in the past 15 years and continues to fall sharply. More precisely, in the first three quarters of 2024, foreign investors withdrew another 44 billion dollars in capital, causing a decline in direct foreign investments in the Russian economy to 235 billion dollars.
Foreign direct investments (FDI) occur when businesses, multinational corporations, or individuals from one country invest capital in the assets of another country on a scale that allows for direct participation in their management. As The Moscow Times reminds us, in 2023, Russia lost 80 billion dollars in FDI, while in the first year of the war, it was 138 billion dollars. As a result, within three years, the pool of FDI in the Russian economy, which was nearly 500 billion dollars before the invasion of Ukraine, has been halved, decreasing by 262 billion dollars.
Allies are not listening to Putin
Although Russian President Vladimir Putin declared maximum openness for investors from BRICS countries (an informal group comprising developing nations initiated by Brazil, Russia, India, and China) and urged them to invest in Russia, the central bank's statistics did not record any inflow of money. According to Janis Kluge, a researcher at the Institute for International and Security Studies, cited by The Moscow Times, this indicates the growing isolation of the Russian economy.
For instance, the authorities in China, Russia's largest trading partner, with whom Putin maintains strategic relations, have banned local companies from investing in the Russian oil and gas sector, refused investments in the Power of Siberia 2 pipeline, and instructed car manufacturers not to build factories in Russia.
Before the war, three-quarters of foreign direct investments in Russia came from countries on the "unfriendly" list, whose investments ceased after sanctions and countersanctions were imposed. They invested an amount equal to 20 percent of all fixed assets in mineral extraction and manufacturing, which account for 50 percent of Russia's GDP and 40 percent of employment. Their share is even greater in trade (constituting 80 percent of fixed assets), finance (nearly 70 percent), and the scientific and technical sector (40 percent), according to analysts from Loko-Invest.
At the same time, China accounted for only 3.3 billion dollars in direct investments in Russia, or 0.66 percent of the total. India accounted for just 613 million dollars, or 0.012 percent, and investments from Brazil and South Africa were so negligible that they were not included in the central bank's statistics.
According to The Moscow Times, the assets of Western investors remaining in Russia are at risk of confiscation. The government is preparing to submit to the Duma a draft law that will establish a mechanism for seizing private property in response to the freezing of the central bank's reserves in the West. Sources familiar with the document have informed that the practice of confiscation will be extended to all countries that have imposed sanctions on Russia.
