FDI IN RUSSIA BY EU COUNTRIES IS OF CRUCIAL IMPORTANCE

Foreign direct investment (FDI) in Russia reached a record $94 billion in 2013, a leap of 83 percent on the year before according to a United Nations report. Russia follows the US and China as the third most attractive country for investors. The Global FDI research published by the UNCTAD – the UN agency responsible for international trade and development – has Russia jumping 6 places from its 9th spot in 2012. The shift was primarily caused by the UK’s BP taking an 18.5 percent stake in Rosneft as part of Rosneft's $57 billion acquisition of TNK-BP.

Two-thirds of the foreign investment in Russia comes from European countries, namely from Germany (21.9%), France (10.9%), Finland (3.9%), Italy (3.9%), Netherlands (3.2%), Spain (2.3%), Sweden (2.3%) for a combined total of over 45%

 In 2012 US investments accounted for 22.7% of the total FDI in Russia.

Foreign investment has grown to the point where it is now vital to the long-term prospects of the Russian economy.

Foreigners bring vital technology and organizational know-how that Russian is unable to produce itself. The automotive sector attracts 21% of foreign investment projects and more than a third of the jobs created. It is one of Russia’s fastest growing industries. Foreign investors have also transferred vital technology in the chemical and aerospace industries.

In the energy industry, foreign technology and knowledge is vital to the exploitation of oil and gas fields located deep under the Arctic or underneath the permafrost of eastern Siberia. This is especially important at a time when the older oil fields of western Siberia and the lower Volga basin are becoming exhausted. Without the involvement of the likes of Exxon-Mobil, BP, Statoil, and Total in tapping geologically demanding oil deposits, future flows of energy revenues would be threatened.

As foreign companies play such a key role in Russia, anything that might reduce investment would be severely damaging to the economy. Without technology and expertise, modernization efforts are likely to fail.

The mere creation of any legal basis for the expropriation of foreign assets – whether as a reaction to developments at the global level, or because of domestic political struggles – would be considered a matter of grave concern for foreign companies. Such a development would very likely lead to capital, both foreign and Russian, fleeing the country.

Under such conditions, it would be more difficult to maintain yet alone increase current energy production. Investment – key to long-term structural transformation – would slump. And any hope of Russia acquiring the high-technology productive capabilities that would buttress its claims to great power status would be dashed.

Therefore, while it is always possible that domestic politics might drive the adoption of legislation that would be counter-productive, the enormous economic damage that would be inflicted would surely force the Russian leadership to think long and hard before taking such a self-defeating course of action.