On July 5, the United Nations Conference on Trade and Development (UNCTAD) released its annual World Investment Report, which examined foreign direct investment (FDI) trends around the world. In evaluating global FDI, the report highlighted internal policies and external factors that shape investment patterns such as political risk, perceived levels of corruption and bureaucratic structure.
According to the report, Russia saw FDI flows grow 22 percent, reaching $53 billion, its third-highest level ever recorded. The economy’s growing consumer base, affordable labor market and strong commodities sector continued to attract a range of investors such as Unilever, ExxonMobil and PepsiCo, with the value of regional cross-border mergers and acquisitions rising from $4.5 billion in 2010 to $33 billion in 2011.
The report cited Russia’s WTO accession and privatization program as the key drivers of near-term FDI growth, noting that WTO accession will boost foreign investors’ confidence in the market as privatization opens new opportunities for investment. The report was particularly bullish on the potential impact of Russia’s WTO accession, noting that the move will improve the country’s investment climate significantly and have an especially positive impact on its services sector, which is already benefitting from liberalization measures designed to encourage foreign investment.
UNCTAD also highlighted several investor-friendly regulations that the Russian government introduced in the past year which included:
• Relaxation of the approval requirement for foreign acquisitions in subsoil extraction companies;
• Appointment of investment ombudsmen aimed at facilitating investor interaction with federal, regional and local authorities in each of the country’s eight federal districts.
Growing Russian companies across industries also continued their expansion into other emerging markets, resulting in record-high FDI outflows. Sberbank, for example, pursued several major acquisitions abroad, completing its acquisition of Volksbank affiliates in eight separate markets in 2011. Other Russian companies like VTB Capital also expanded their physical footprints abroad to match their global ambitions.
According to UNCTAD, outward FDI will likely continue to thrive in 2012 and beyond thanks to high commodity prices and strong macroeconomic fundamentals in Russia. FDI from developing countries such as China is also forecast to rise, particularly as Russia pursues joint initiatives such as the Russian Direct Investment Fund’s recent decision to launch a Sino-Russian investment fund with the China Investment Corporation.
The report comes on the heels of last month’s St. Petersburg International Economic Forum, during which numerous international executives and investors expressed positive outlooks on Russia’s prospects to become a leading destination for international investment. These positive sentiments will likely continue after Russia officially joins the WTO next month and continues its efforts to integrate with the global economy.
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