Monitoring of mutual investments in CIS – 2

Where do people invest in the post-Soviet space?

By VK

The Eurasian bank of development and the Institute of World Economy and International Relations carried out the research “Monitoring of mutual investments in the CIS countries.” The initiators believe that their monitoring will help companies to get oriented in the business-world and will contribute to segmental cooperation between states.

Alexei Kuznetsov, Director of the Center of European Studies of the Institute of World Economy and International Relations

The leading receivers of direct investments are Ukraine, Kazakhstan, and Belarus. Of course Russia gets less because it is a receiver of direct investments from other CIS countries. Russia dominates in almost all countries as an investor, in Belarus this index is maximal, but Georgia is and exception where the role of Kazakhstan, Azerbaijan, and Ukraine is great.

We conducted analyses of separate companies whether non-involvement of Russia is present and alternative projects are developed in Georgia. It appeared separate companies which are very active in Georgia come to Russia and Belarus. Information on certain banks show that the Georgian market is less attractive than Russian, and they are focused on the territory of Russia, while Georgia is interesting by absence of competition, including the Russian business, plus neighborhood. Domination of Russia is extremely big. And it is interesting to see where Russian direct investments are going in the post-Soviet space. The first important conclusion is leadership of Ukraine: despite the fact that it is not intensively involved into recent integration projects, it is in advance of our Customs Union partners – Kazakhstan and Belarus. It can be explained by the size of the country and the fact that Russian businessmen, despite statements on political and other problems, have no cultural and language barriers; sometimes Russian businessmen are from Ukraine, and of course it is a great motivation. More diversified branch structure of Ukrainian economy also encourages additional investments.

Among other countries Armenia is marked by very a high share, considering a small territory of the country. On contrary, there are almost no Russian investments in Turkmenistan.

Regarding the question who and how invests to Russia itself which is the biggest recipient due to the huge territory, the leading investors are Kazakhstan and Ukraine. It is important to pay attention to the disproportion between the official statistics and what we have revealed in our monitoring. The official statistics significantly diminishes indexes of all major investors. According to our monitoring, the Ukrainian business in Russia invested around $1 billion. At the same time, the official data of the Central Bank by the end of 2011 shows $263 million – the index is diminished by 3.5 times. As if 90% of Ukrainian investments come to Cyprus, but the significant part of them returns from Cyprus not to Ukraine, but to Russia.

Kazakhstan is the largest investor among the CIS countries: about $3 billion, according to our data base. The Central Bank of Russia shows that the index is less than $1 billion. Once again we see diminishing of indexes.

As for small countries, various proportions are presented. As a rule the Central Bank statistics exaggerates indexes of such states as Armenia and Azerbaijan. It is connected with the limit in 3 million. Diasporas are huge, and it is difficult to detect citizenship of Armenians and Azerbaijani who invest. Moreover, their projects are small, and there is no sense in consideration of them in our data base.

The same reason is for absence of contradictions on Belarus, as too many small projects, so called commodity producing nets in Belarus and Russia, exist. We considered major nets, and as we didn’t consider small nets the picture is similar.

As we look at cooperation between the former Soviet republics without participation of Russia, we see that only economic factors play the role. For example, in the case of Georgia these are any infrastructural projects, any banking business is partially an infrastructural project too. For example, the largest deal between Azerbaijan and Georgia is transportation and export of oil and gas. The same concerns Kazakhstan and Georgia. Third significant cord is Kazakhstan and Kyrgyzstan. It is explained by territorial proximity.

As the result, politically initiated projects like GUAM have no economic basis which is typical for projects which involve Russia. Furthermore, the projects where Russia participates aim not only at extension of Russian economic interests, but also at interests of economic cords which exist in the post-Soviet space.

Yugeni Vinokurov, Director of the Integration Studies Center of the EABD

In the 1990s the history of post-soviet cross-border investments began. They were few. The whole 1990s contain only 1/6 of all projects in this data base which include the 20-year period. By the way, mostly 1995-1999. At that time many Russian companies began to found their cross-national character – for example, LUKOil or Itera. One of first major projects of LUKOil was its participation in the Treaty on Separation of Production in Azerbaijan – later the company had to withdraw this project.

The history of cross-border investments of the 1990s is not cloudless. In the 2000s a boom of cross-border investments to the CIS began – a sharp growth beginning from 2000-2002. The peak of this boom was achieved in pre-crisis 2006-2008. Our data for the crisis period is interesting – 2009-2011 and first half of 2012. Amounts of cross-border investments reduced. However, the base shows that the volume of mutual investments remained. It is one of the main conclusions of our monitoring. Intensive mutual activity of investing companies from the CIS was maintained – more than 40 deals in 2009, 25 – in 2010, and 25 – in 2011. This variant of monitoring didn’t cover the information about 2012, but we can say that in 2012 we will have about 25 cross-border deals in the CIS. It means no revival of pre-crisis boom is taking place, but the companies still try to find niches and sign new treaties.

In the 1990s resources were invested into oil and gas, in the 2000s attention was paid to telecommunications when MTS, Vympelfon, and Megafon came to the CIS markets, but now new points of growth appear – food industry, consumer goods industry, buildings, hotels, and machinery. Today the branch points of growth are felt, which probably will be significant in the near five years,