Foreign direct investment

(FDI of Russia after sanction)

Alibek Makhambetov 201560555

So many countries concerning about where is better to invest which is less risky and high profitable. For nowadays geopolitical tensions among countries can reacts positive or negative affect to attraction of investors. One of the famous geopolitical tensions in current world is sanction against west world to Russia and Russian’s sanctions against west world, especially Europe and America. For next paragraphs I will try to explain and describe details of affects of sanctions to Russian’s economy.

One of the main goals of any country is to increase standard of life people, where for getting high point needs to increase or develop some aspects, which is one of them - foreign direct investment. Before sanction Russia did a lot of jobs to attract foreign companies to invest. So, after 18 years of negotiations, Russia in 2012 joined the World Trade Organization, which was big chance to participate in foreign trade. Over the past decade there was significant progress in creating attractive and competitive area for foreign investors, which led to an increase in FDI in 2008 till $103.8 billion. In the period 2008-2013, foreign direct investment increased from 103.8 billion dollars to 170.2 billion dollars. Reason of increasing is related with the development of new features and the development of a more open approach for foreign direct investment, and special events as Olympic Games in Sochi in 2014 which is also part of motivation.

The intensity of FDI in Russia around 2008-2013

As you can see from the index of the intensity of foreign direct investment in 2013 Russia achieved point 3.8% out of all GDP and significantly that result is much higher than the average for Eastern Europe, which was determined at the level of 2.6% in the same year. However, in the future, imposed sanctions against Russia rather negative impact on the inflow of foreign direct investment - particularly from the European Union, which is the largest trading partner of Russia (including 53% of total exports and 41.8% of the total imports in 2013. Between Russia and the EU covers in the various sectors trading of the economy, but it is most actively carried out in the energy industry. Russia makes big exports of energy and minerals to EU.

However, as mentioned before geopolitical tensions, EU and America and some other countries made sanctions against Russia, brought negative affect the business environment in Russia for next years. For next paragraph describes waves of sanction and to target people or organization addressing it.

Because of geopolitical conflicts EU, America and other some countries made a series of sanctions against Russia. The first sanctions were directed against specific individuals, groups of individuals and companies and provide for the imposition of restrictions on their travel and business operations, as well as the freezing of their assets. This was followed by sanctions against the defense, energy and financial sectors in Russia. However in August, Russia replayed answer by banning the import of food from those countries who made sanction.

From graph net flows of FDI you can see that amount in middle of 2014 was declined strictly and for 2015 it shows weak results climbing.

For understanding results of double sanctions from two sides lets measures analyzes of main flow of Russian exports and imports, and their commodity structure.

Export: 1. Netherland 2. Italy 3. Germany 4. China 5.Turkey 6.Ukraine 7. Belarus 8. Japan 9.Poland 10. Kazakhstan

Import: 1.China 2.Germany 3.USA 4.Ukraine 5.Italy 6.Japan 7.Belarus 8.France 9.South Korea 10.Kazakhstan

This diagram shows largest trading partners of Russia which are the most active and "significant" countries of Europe. The mostly objects of imports in Russia considers machines, equipment and products of manufacturing industry, textile and pharmaceutical products from China, Germany and the United States.

However, during 2014 export from Russia, according to preliminary estimates Ministry of Economic Development, decreased by 3.8% and imports 8.9%. Trade turnover between Russia and Ukraine decreased by 28.8% which is $ 28.187 billion. At the same time in the list of the most important trade partners of Russia climbed Turkey ($ 31.1 billion) and Japan ($ 30.6 billion). The volume of trade with the first of these countries declined in 2014 by 4.9%, with second - by 7.8%. The double-digit rate of declining were covered in trade with Russia by anti-Russian sanctions European countries which are the United Kingdom (-19.6%), France (-16.7%), Poland (-15.8%) and Finland (-14.4% ). At the same time the largest buyer of Russian steel products became Netherlands ($ 68.7 billion, -2% from the result 2013). In addition, the three leaders on this indicator were China ($ 37.5 billion + 5.4%) and Germany ($ 37.1 billion, +0.2%). However for import statistics maximum amount of imported Russian goods were China ($ 50.6 billion, -4.9% on the result from 2013). Imports from Germany declined by 13.4% (to $ 32.8 billion) from the United States - increased by 11.5% (to $ 18.4 billion).

From this data you can see main investors during 2013 and sectors on investment to Russia.

By during 2014 it has amazing statistics which shows no one expected results from China.

Generally, the number of greenfield FDI projects into Russia declined 39 % which is by amount 134 in 2014. Interesting thing that investors are keep continue to invest in Russia and doing it in huge volume. Russia was the second country among Europe countries where inbound greenfield projects estimated $12billion which is 10% of European FDI in 2014. Most of investors came from China and by statistic in bottom we can mention that for China second attractive country for investing is Russia despite geopolitical tension.

To sum up, for nowadays world is like big society where each of them has own interests and position. There can be misunderstanding or conflicts between two or three sides but not for whole. In current situation conflict between Europe and Russia should not impact to other countries decision. As we can see China skiped that fact cause they know that behind misunderstanding it has big progress. And this kind of strict rules can not help to develop for both sides.

Reference

1. Export Enterprise.(2015). Russia:Foreign investment. Retrieved on December 8,2015, from: https://en.santandertrade.com/establish-overseas/russia/foreign-investment

Date: 2015-12-18; view: 1696