Foreign Direct Investments: Structure and Dynamics in Russia

Author Name(s): Gulnaz M. Galeeva, Elena P. Fazlieva, Adel A. Daryakin , Elena N. Zagladina
Author Email: 49enzagladina52@gmail.com

Abstract

In this paper, we consider the structural dynamics of foreign direct investment that entered the Russian economy during the period of 2009-2015. In this regard, the main forms, methods and instruments of foreign direct investment were presented and the main areas of investment were highlighted. The study consisted of several stages and was based on the data published on the official websites of YUNKTAD, IMF, CBR. Leading countries on foreign direct investment attraction, the strategies and the methods for investment attraction were studied, the major sources of investment and the countries of origin were identified. In 2014-2015 20 countries were revealed, which were the leading ones in terms of foreign direct investment attraction, including the United States, Hong Kong and China. High investment values were observed among the countries that are leaders in the number of mergers and acquisitions (US). The priority areas of investment are engineering, information and medical technologies, biotechnologies. A special feature of foreign direct investment structure accumulated in Russian Federation by investor countries is the significant role of offshore investments. The share of Russian Federation in the global inflow of foreign direct investment decreased to 0.6% in 2015 against 3.7% in 2013.

Introduction

Foreign investments are the basis for economic development, the competitiveness of domestic production increase, the acceleration of economic and technological progress and the country export potential expansion. The state regulation of investments in the form of direct capital is carried out on two vectors: the control of foreign investment entry (the assessment of scale, distribution by industry and territory, forms) and the control of capital imports.

It is worth to highlight a universal set of incentive measures that is used in world practice to attract foreign direct capital: tax measures (the granting of tax privileges or “tax holidays” to an investor, his exemption from customs duties or fees); financial measures (an investor is provided with the subsidies from the government, grants, concessional credits and loans); the creation of a favorable investment climate, the creation of special economic zones, legislative base and the infrastructure necessary for investment activity.

These incentive measures are combined and used in many countries to attract foreign capital. In recent decades, the following features of FIA have developed in the countries with different levels of social-economic development. The countries with a high level of social-economic development focus on financial measures to stimulate investment. The developing countries prefer tax measures due to the fact that they lack the necessary financial resources to enhance investment. The second feature is the emerging stable trend towards the widespread use of non-financial incentives, for example, the creation of special economic zones with FIA attraction, the simplification of administrative procedures for opening and doing business to foreign investors.

The main forms of foreign direct investment are considered to be the creation of joint and subsidiaries and companies, the opening of its own branches and the M&A transaction. The importance of foreign investment in the economy of modern states increases, therefore they require regulation and control at the international and national level. Thus, it is necessary to use a systematic approach to understand the state regulation of foreign direct investment, taking into account the common interests of a host state and a foreign direct investor. The need for such state regulation is associated with the possible risks and negative consequences of uncontrolled inflow of FIA into the economy of the recipient country, as well as with the multidirectional interests of a foreign investor and the capital recipient state.

Summary

After the situation analysis that has developed in the sphere of FIA in Russian economy during recent years, a number of basic conclusions can be drawn regarding the nature of their impact on the country economy:

In 2015, Russia fell to 12-year minimum, having received only $ 9.8 billion of foreign direct investment according to UNCTAD estimates. The share of Russia in the global inflow FI fell to 0.6% in 2015 against 3.7% in 2013. The collapse is conditioned by geopolitical reasons and the fall of oil prices in 2015. All these events of recent years illustrate the lack of Russian economy attractiveness for foreign capital.

The share of accumulated FI in Russia gross domestic product remains insignificant, despite the trend of increase from 2014 to 2016, which indicates a low degree of foreign direct investment participation in the process of the country GDP creation.

The contribution of foreign sources in the development of investments into the fixed capital of Russian economy is not great, and this affects the competitiveness of the economy industrial sector negatively, because investments in fixed assets occupy a determining place for the growth and the development of the national economy. On the contrary, at present, Russian investments, which substantially exceed the volume of direct foreign investments in the fixed capital of Russian Federation, make the foundation for Russian economy growth and development.

There are the differences concerning the directions of foreign direct investment flows in the industry and the needs for their development in Russian economy. Foreign direct investment is mainly sent by investors to the industries that produce commodities of a raw nature and which have a high rate of return and the payback period is minimal. The trends of direct foreign investment do not stimulate restructuring and deep modernization of the national economy of Russia.

Acknowledgements

The work is performed according to the Russian Government Program of Competitive Growth of Kazan Federal University.

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