Foreign Investment Plummets

Foreign direct investment fell in 2009 to a fourth of the level of previous years, while authorities have said the return to the pre-crisis level until 2013 is unlikely.

FDI came to $15.9 billion last year, down 41 percent year on year and massively below the $60 billion to $70 billion that came in the years before the recession enfeebled the resources-rich economy, according to Central Bank statistics.

The decline in FDI comes in line with the average slide seen across all regions of the world — with the UN Conference on Trade and Development estimating total FDI falling to $1 trillion last year from $1.7 trillion a year earlier.

But while UNCTAD expects FDI inflows to gain momentum in 2011 and rise to $1.8 trillion, Russia — currently one of the top five most attractive nations for FDI — is not likely to see its pre-crisis levels until 2013 or so, Finance Minister Alexei Kudrin said earlier in February.

And Cyprus — home to a number of investment vehicles belonging to Russian firms or individuals — remained the biggest investor in Russia, distorting somewhat the real volume of foreign investment.

Resource-rich Russia saw its economy shrink by 7.9 percent in 2009, before slowly starting to grow anew in 2010.

The recovery remains unstable, with data showing mixed signals, but the economy is expected to grow by some 3.7 percent this year, according to a Reuters poll. Official estimates put GDP growth at 3.1 percent.

But with the economy still dependent on crude prices and with the prospect of a renewed fall in oil prices later this year on the disappointing pace of the global economic recovery, Russia's growth will likely falter to just 1.5 percent in 2011, economists at Capital Economics in London warned.

"We think that output may not return to its pre-crisis levels until 2012," Neil Shearing and David Oxley said in a research note. "By contrast, the Chinese and Indian economies are expected to grow by more than 25 percent over the same period. So for now at least, Russia seems destined to remain the fourth BRIC."

Prime Minister Vladimir Putin has called on the government to create more favorable conditions for foreign investment.

“In the post-crisis period, the competition for attracting this investment will be fairly tough, and it has already begun,” Putin said earlier this month.

Overall foreign investment climbed to $27.2 billion in the fourth quarter from $22.5 billion in the third quarter of last year, the State Statistics Service said.

Foreign investment in stocks and bonds tumbled 37.7 percent in 2009 to $882 million from the previous year, according to the statistics office.  

Other foreign investments, including loans from foreign banks and Russian companies’ foreign divisions, were down 13.5 percent in the period to $65 billion, the data showed.

The wholesale and retail industry received the largest amount of investment, followed by manufacturing and transport and communications, according to the statistics service. Foreign investors brought $22.8 billion into the retail industry, including stock and bond purchases.

(Reuters, Bloomberg)