Foreign investment in Russia decreased by 95% in 2020

Foreign investment in Russia decreased by 95% in 2020
Photo: kremlin.ru

Last year, the volume of foreign direct investment (FDI) in Russia dropped to $1,4 billion, the lowest figure since 1994. The global economic turmoil has hit the country’s commodity sector hard making it less attractive for investment.

Russia received its lowest level of FDI in 2020 since the middle of the 1990s, says The Moscow Times citing data released by the Central Bank on 19 January. While in 2019, Russia managed to attract $29 billion from abroad, last year brought only 5% of that amount, or $1,4 billion. Such a low level of FDI was last time registered in 1994, as the economy was facing difficulties after the collapse of the Soviet Union, and successive governments’ attempts to reform and privatise the state economy triggered soaring inflation and economic hardship. In 2020, Russia’s commodity industries stayed under pressure along with the global economy due to the economic fallout from the pandemic, travel restrictions and a slump in global energy prices.

The Central Bank’s data also showed that Russia’s current account surplus — the sum of the country’s transactions with the rest of the world combining the value of imports, exports, investments, dividend payouts and other cross-border payments into and out of the country — halved in 2020 to $32,5 billion, or 2,2% of GDP.

Cyprus is officially Russia’s biggest foreign investor. Photo: kremlin.ru

Foreign investment, which is typically considered an indicator of an economy’s attractiveness abroad, is an important factor in long-term growth. However, its relevance as a metric has been questioned in recent years due to the prevalence of offshore investment companies and investment schemes. According to the International Monetary Fund, Russia receives 60% of investment in its economy from “shell companies”, which is higher than in other major economies.

Low-tax Cyprus is officially the biggest investor, while the real source of capital is difficult to determine. A significant portion of foreign investment into Russia may be of Russian origin, as Russian investors create holding companies abroad to invest back into Russian businesses, said Chief Economist of BCS Global Markets Vladimir Tikhomirov.

By Anna Litvina