Net FDI inflow to Russia falls to lowest level in over a decade

BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/17

The net inflow of foreign direct investment into Russia last year was less than $5 billion and remained positive only due to reinvested profits. New equity investment did flow into Russia, but slightly more old equity investment was repatriated. As earlier, the bulk of FDI flows consisted of intra-group credit. The net inflow to Russia of intra-group credit was also slightly negative as firms paid down more old debt than acquired through new borrowing.

Net outbound FDI flows from Russia also contracted sharply last year to $22 billion. Equity investment of banks increased substantially, quite the opposite of non-bank firms. Non-bank firms, however, granted more intragroup credit abroad than ever, even as they also received much repayments of old debts.

The total value of the stock of Russian inward and outward FDI has shrunken dramatically over the past two years. As of end-2015, the values of inward and outward FDI stocks were about $340 billion each. The reduction in the value of the overall FDI stock primarily reflects changes in exchange rates and valuations. On-year, the net FDI flows have remained positive. Both in Russia’s inbound and outbound FDI the share of various intermediate countries, like Cyprus, is still about 60–70 %. A large part of these investments is believed to be of Russian origin, but have taken a circuitous international route to e.g. avoid taxes.

Russia’s net FDI flows
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Source: Central Bank of Russia

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