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

According to UNCTAD's World Investment Report 2023, FDI flows to the Russian Federation were negative by USD -18.6 billion in 2022 compared to USD 38.6 billion in 2021, as following the invasion of Ukraine in February 2022, 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 withdrew from the country, and amid international pressure, French TotalEnergies announced it would gradually withdraw from its Russian investments. Norway’s sovereign wealth fund, the world’s largest, also decided to divest itself of its Russian investments. In the same year, the total stock of FDI stood at USD 379.1 billion, around 17.1% of the country’s GDP. Major investors in the country include Cyprus (mostly due to Russian activities domiciled on the island), Bermuda the Netherlands, and the UK. In terms of sectors, the extractive industry is the main FDI recipient, followed by manufacturing, wholesale and retail trade, and financial and insurance activities. According to the latest OECD data, in the first half of 2023 negative FDI flows to Russia reached USD 4.5 billion.

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 had undertaken economic reforms in recent years, but administrative problems, corruption and uncertainties regarding the stability of the region remained major challenges. The Ministry of Economic Development (MED) is responsible for overseeing investment policy in Russia. Russian legislation imposes two key limitations on foreign land ownership: firstly, it prohibits foreigners from owning land in border regions or other sensitive territories; secondly, it restricts foreign ownership of agricultural land, encompassing individuals, companies, stateless persons, and agricultural firms with over 50% foreign ownership. However, they can access agricultural land through leaseholds. Typically, foreign companies opt to lease land for a maximum of 49 years, the legal limit for such arrangements. Moreover, the Russian Federation recently broadened the range of activities deemed critical for national security and thus subject to FDI scrutiny. This expansion encompasses assessments of the vulnerability of fuel and energy complex installations, ensuring their physical protection, managing sea and inland water transportation of goods, as well as related information technology services. Russia ranks 51st among the 132 economies on the Global Innovation Index 2023 and 131st out of 177 countries on the 2023 Index of Economic Freedom.

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).