Repatriation of Russian capital boosts investment
Russia's State Statistics Committee reported this week that foreign investments in Russia were up by 25.2 per cent in the first half of the year.
Aug 15, 2002
Russia's State Statistics Committee reported this week that foreign investments in Russia were up by 25.2 per cent in the first half of the year. In truth, however, foreign companies and individuals have been investing less in Russia's economy recently, but investments grew because Russian companies have been quietly bringing back capital hidden in foreign banks and offshore zones from earlier years.
According to the State Committee for Statistics' report, in the 1st half of 2002 foreigners invested $8.4 billion in Russia. As usual, the Committee's experts examined three categories of investments: direct foreign investments (whereby a foreign owner purchases a stake exceeding 10 per cent in a Russian company), portfolio investments (purchasing smaller stakes mostly for speculative purposes), and others (such as loans of international financial institutions, as well as so-called non-trade credits).
The latter type of investments is of most interest - those are funds that Russian companies receive in loans for the overhaul of their industries and the purchase of new equipment. In other words Russian companies receive money from foreign legal entities. Experts have long recognized that the biggest part of the 'other' investments is, in essence, Russian money returning home "on a foreign passport".
Such returns of capital are especially noticeable in mergers between various Russian companies and financing of such transactions, too, arrives in the guise of foreign investments. The first half-yearly results show that 'other' investments amount to the largest part of all funds that came from abroad. It was namely the increase in such investments that secured an overall rise in the volume of foreign investments.
Direct foreign investments in the first six months of 2002 amounted to $1.872 billion, or 25.4 per cent less than in the 1st half of 2001. Portfolio investments fell 16.7 per cent to $199 million, while the other investments amounted to $6.297 million, up 60 per from the same period in 2001. In other words, investments made by "real" foreigners decreased.
The decrease in portfolio investments that grew 3-fold last year shows that in unstable economic conditions speculators lose interest in emerging markets, to which Russia belongs. The hopes of some analysts that Russia would become "a safe haven" against the background of a world crisis, with attractive investments in its securities market, have proved futile.
In the opinion of the chief economist of Troika Dialog Yevgeniy Gavrilenkov, one must regard the State Statistics Committee's report with caution and that the Central Bank's calculations, expected to appear later, would be more precise. However, the general trend is determined correctly: the funds earlier siphoned off from Russia are now returning in the form of foreign investments, Gavrilenkov believes.
Also, recalls the expert, a considerable part of direct foreign investments is of Russian origin. Not without reason Cyprus holds the third place in terms of investments accumulated in the Russian economy - that offshore zone is outstripped only by Germany and the United States, where there are also many Russians.
But then, one should not think that Russian business is entirely gripped with patriotism and strives to bring back everything that was hidden in foreign banks. According to the State Statistics Committee in the same half year period of 2002, Russian companies invested $10.46 billion into foreign economies, most actively in Belarus, Iran, the US and Cyprus. Thus, Russian investments abroad still exceeds foreign investments in Russia.
However, Russian investments abroad are not cumulative, but tend to be short-term in nature, while foreign investments in Russia tend to be long-term and have a more lasting impact on the economy, the Statistics Committee said in its report.
By the end of June, 2002 only a third ($3.809 million) of the money invested by Russia abroad during the first half of 2002 actually remained abroad, while the stock of foreign investments in Russia's own economy was $38.15 billion at the end of the half.
Cumulative Russian investments abroad at the end of the first half of 2002 were $2.414 billion, which included $159 million in portfolio investments and $1.236 billion in other investments.
Most of the overall figure had accumulated in Belarus ($581 million) and Iran ($576 million). During the first six months, the biggest new investments abroad were $5.556 billion in the economy of the United States and $2.136 billion in Cyprus.
According to the State Committee for Statistics' report, in the 1st half of 2002 foreigners invested $8.4 billion in Russia. As usual, the Committee's experts examined three categories of investments: direct foreign investments (whereby a foreign owner purchases a stake exceeding 10 per cent in a Russian company), portfolio investments (purchasing smaller stakes mostly for speculative purposes), and others (such as loans of international financial institutions, as well as so-called non-trade credits).
The latter type of investments is of most interest - those are funds that Russian companies receive in loans for the overhaul of their industries and the purchase of new equipment. In other words Russian companies receive money from foreign legal entities. Experts have long recognized that the biggest part of the 'other' investments is, in essence, Russian money returning home "on a foreign passport".
Such returns of capital are especially noticeable in mergers between various Russian companies and financing of such transactions, too, arrives in the guise of foreign investments. The first half-yearly results show that 'other' investments amount to the largest part of all funds that came from abroad. It was namely the increase in such investments that secured an overall rise in the volume of foreign investments.
Direct foreign investments in the first six months of 2002 amounted to $1.872 billion, or 25.4 per cent less than in the 1st half of 2001. Portfolio investments fell 16.7 per cent to $199 million, while the other investments amounted to $6.297 million, up 60 per from the same period in 2001. In other words, investments made by "real" foreigners decreased.
The decrease in portfolio investments that grew 3-fold last year shows that in unstable economic conditions speculators lose interest in emerging markets, to which Russia belongs. The hopes of some analysts that Russia would become "a safe haven" against the background of a world crisis, with attractive investments in its securities market, have proved futile.
In the opinion of the chief economist of Troika Dialog Yevgeniy Gavrilenkov, one must regard the State Statistics Committee's report with caution and that the Central Bank's calculations, expected to appear later, would be more precise. However, the general trend is determined correctly: the funds earlier siphoned off from Russia are now returning in the form of foreign investments, Gavrilenkov believes.
Also, recalls the expert, a considerable part of direct foreign investments is of Russian origin. Not without reason Cyprus holds the third place in terms of investments accumulated in the Russian economy - that offshore zone is outstripped only by Germany and the United States, where there are also many Russians.
But then, one should not think that Russian business is entirely gripped with patriotism and strives to bring back everything that was hidden in foreign banks. According to the State Statistics Committee in the same half year period of 2002, Russian companies invested $10.46 billion into foreign economies, most actively in Belarus, Iran, the US and Cyprus. Thus, Russian investments abroad still exceeds foreign investments in Russia.
However, Russian investments abroad are not cumulative, but tend to be short-term in nature, while foreign investments in Russia tend to be long-term and have a more lasting impact on the economy, the Statistics Committee said in its report.
By the end of June, 2002 only a third ($3.809 million) of the money invested by Russia abroad during the first half of 2002 actually remained abroad, while the stock of foreign investments in Russia's own economy was $38.15 billion at the end of the half.
Cumulative Russian investments abroad at the end of the first half of 2002 were $2.414 billion, which included $159 million in portfolio investments and $1.236 billion in other investments.
Most of the overall figure had accumulated in Belarus ($581 million) and Iran ($576 million). During the first six months, the biggest new investments abroad were $5.556 billion in the economy of the United States and $2.136 billion in Cyprus.