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Foreign direct investment (FDI) in Russia

FDI in Figures

On February 24th 2022, Russia initiated a military conflict on the Ukrainian territory, which profoundly upsets the current political and economic context in both countries and will have substantial ramifications on the investment climate. For the ongoing updates on the developments of Russia-Ukraine conflict please consult the dedicated pages on BBC News.

The latest specific information on economic sanctions against Russia in response to the conflict in Ukraine is available below:
•    What sanctions are being imposed on Russia
•    The list of global sanctions on Russia for the war in Ukraine


Due to the COVID-19 pandemic, FDI flows to Russia have plummeted by 70% from USD 32 billion in 2019 to USD 10 billion in 2020, according to UNCTAD's World Investment Report 2021. In 2020, the stock of FDI was about USD 447 billion. In addition to the pandemic, weak international demand for crude oil and a price conflict drove prices to historically low levels and impacted investments in the sector. Yet, the Russian Federation remained the largest recipient of FDI in the region, accounting for more than 40% of inflows. According to OECD data, FDI flows rebounded in the first half of 2021, reaching USD 11.3 billion. However, Russia’s invasion of Ukraine in February 2022 is expected to deeply and lastingly deteriorate business climate. Various Western companies have decided to stop or limit their activity in Russia. For example, major oil and gas groups such as BP, Shell and Exxon decided to boycott the country, and French Total announced it would no longer bring capital to new projects in Russia. Norway’s sovereign wealth fund, the world’s largest, said it would divest itself of its Russian investments. With the aim of provoking the collapse of the economy, Western countries adopted an unprecedented range of sanctions against Russia, which triggered the flight of foreign capital. Russia’s central bank assets have been frozen, selected banks have been removed from the international communication tool SWIFT, the EU airspace has been closed to Russian aircraft, exports of high-tech components to Russia have been restricted, and the Nord Stream 2 certification was withhold, among other measures. In reaction, the government announced the preparation of a presidential decree aimed at preventing foreign investment exiting the country. Major investors in 2020 included some large economies such as France, Turkey, the UK and the US. The geographical proximity has also driven FDI within the territory of the Russian Federation, with ongoing Chinese cross-border investment in the Russian Far East and resilient investment from Finland. The main sectors receiving FDI are the extractive industry, manufacturing, financial and insurance activities, wholesale and retail trade, administrative and service activities, and real estate.
 
Before the war, the share of FDI in GDP remained relatively low given the country's growth and economic potential, and working capital investments represented a significant share of total FDI. Russia has undertaken economic reforms in recent years, but administrative problems, corruption and uncertainties regarding the stability of the region remained major challenges. Russia passed a law allowing it to seize the assets of foreign states on its own territory, in reaction to the confiscation of Russian property by European countries in the Yukos case. Russia ranks 28th (out of 190 countries) in the Doing Business 2020 ranking established by the World Bank (latest report), an increase of 3 places compared to the previous year. The main assets of Russia are its abundant natural resources (oil, gas and metals) and its large and skilled workforce.

 
Foreign Direct Investment 201920202021
FDI Inward Flow (million USD) 32,07610,41038,240
FDI Stock (million USD) 493,156449,050521,876
Number of Greenfield Investments* 290176156
Value of Greenfield Investments (million USD) 24,6028,05814,923

Source: UNCTAD, Latest available data

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

 
Country Comparison For the Protection of Investors Russia Eastern Europe & Central Asia United States Germany
Index of Transaction Transparency* 6.0 7.5 7.0 5.0
Index of Manager’s Responsibility** 2.0 5.0 9.0 5.0
Index of Shareholders’ Power*** 7.0 6.8 9.0 5.0

Source: Doing Business, Latest available data

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Russia

Strong Points

Many investors see Russia as still under-exploited. The key advantages for FDI in Russia include:

  • A strong economic base, based in particular on abundant natural resources (oil, gas and metals)
  • Large domestic market size
  • Accessible labour cost attractive to foreign investors
  • Skilled workforce trained in export functions and relatively open internationally (due to its geographical and cultural proximity to Western Europe and Asia)
  • Low public debt
  • Comfortable foreign exchange reserves
  • Current account surplus
Weak Points

Russia has an investment climate that is complicated to control and generally unstable. The major disadvantages for FDI in Russia include:

  • Deteriorated economic and investment climate due to severe economic sanctions imposed at an unprecedented scale by the EU, US and other Western countries following Russia's military invasion of Ukraine in February 2022
  • The Russian economy remains extremely dependent on the prices of hydrocarbons (39% of GDP) and raw materials as well as on imports of capital goods and foreign technology
  • Low business confidence in the country's legal system
  • Institutional and governance weaknesses (insolvency treatment, property rights, corruption)
  • Many sectors considered strategic are closed to foreign investments
  • Declining demographics
  • High level of social security contributions (30% of salaries)
Government Measures to Motivate or Restrict FDI
The Ministry of Economic Development (MED) is responsible for overseeing investment policy in Russia.  The Russian Direct Investment Fund (RDIF) was established to facilitate FDI in Russia.

The establishment of investment assistance in Russia is still in its infancy. The government prefers to improve the general investment climate by tax reductions and economic reforms. Majority foreign ownership is subject to authorisation in many sectors, particularly those linked to raw materials, heavy industry and aerospace.
Among the effective incentives are:

  • Regional incentives which are granted at regional and local levels, and are concerned with the taxes paid to the respective budgets (exemption from property, land and transport taxes, exemption from customs duties and import VAT, corporate profits tax).
  • Special economic zones which provide for special tax regimes (exemption from property and land tax, exemption from customs duties and VAT, reduced corporate profits tax)
  • Incentives regarding certain activities, for example IT business, different types of research and technologies works, and so on.

For more information, please visit the website Invest in Russia.

Bilateral investment conventions signed by Russia
Russia has 63 bilateral investment treaties (BITs) in force. To see the complete list of the countries, go to the Investment Policy Hub (UNCTAD).

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Latest Update: September 2022

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