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Nguyen Dieu ThuNguyen Dieu ThuLe Thi Thu TrangLe Thi Thu Trang

FDI IN RUSSIA Report in 2010

Content

I. Introduction

II. Pattern of FDI in Russia

III. Determinant of FDI in Russia

IV. Conclusion

V. Preferences

I. Introduction

• Foreign direct investment (FDI)Foreign direct investment (FDI)

• FDI provides a package of financial capital, FDI provides a package of financial capital, technology, managerial skills, information, and technology, managerial skills, information, and goods and services that can make an economy goods and services that can make an economy more competitive in the world marketplace, more competitive in the world marketplace, promoting growth and reducing poverty.promoting growth and reducing poverty.

About Russia

•Full name: Russian Federation •Population: 142.8 million (2011) •Capital: Moscow •Area: 17 million km 2 •Major language: Russian •Main exports: Oil and oil products, natural gas, wood and wood products, metals, chemicals, weapons and military equipment

Facts

Economic reforms in the 1990s privatized most industrynotable exceptions in the energy, defense-related sectors

In 20091 natural gas

2 oil

3 steel

primary aluminum less competitive heavy industries remain dependent on the Russian domestic market

Russia is now the largest non-EU economy in Europe andone of the 10 largest economies in the world.

RUSSIA ECONOMY

The collapse of the Soviet Union: A globally-isolated economya market-based economyA centrally-planned economya globally-integrated eco

RUSSIA AS AN ATTRACTIVE NATION

1. Dynamic Economic Growth

2. One of the Largest Consumer Markets

3. World-Renowned Human Capital

4. Vast Natural Resources

5. Unique Geographic Position

6. Technologically Advanced Economy

7. Attractive Taxation System

RUSSIA AS AN ATTRACTIVE NATION

II. Pattern of FDI in Russia1. RUSSIA – AN ATTRACTIVE DESTINATION OF FDI IN EUROPE

Russia among European countries

II. Pattern of FDI in Russia1. RUSSIA – AN ATTRACTIVE DESTINATION OF FDI IN EUROPE

Top cities for FDI in Europe

II. Pattern of FDI in Russia1. RUSSIA – AN ATTRACTIVE DESTINATION OF FDI IN EUROPE

FDI inflows in the Russian Federation from 1996 to 2010

2.1. FDI distribution by economic activities

2.2. FDI distribution by investors

2.3. FDI distribution by regions

2. FDI DISTRIBUTION IN THE ECONOMY

II. Pattern of FDI in Russia

2.1 FDI distribution by economic activities

Russia’s great potential in various economic activities.

2.2 FDI distribution by investors

Table 4: Total Foreign Investment in the Russian Federation by main country – main investors in 2010

Million of USD

Percentage of total

Total investments 114746 100

of which by countries:

United Kingdom 40770 35.5

Netherlands 10696 9.3

Germany 10435 9.1

Cyprus 9003 7.8

China 7631 6.7

Luxembourg 5374 4.7

Switzerland 4679 4.1

France 3702 3.2

Ireland 2557 2.2

Virginian Islands (UK) 2383 2.1

Source: Federal State Statistics Service, 2012, table 24.11

Total foreign investment into Russia by main countries

2.2 FDI distribution by investors

Changes in the FDI into Russia by investors 2010 - 2011

2.3. FDI distribution by region since 2007

62% of the FDI concentrated in four regions: 1. Moscow (44.2%)2. Moscow Oblast (9.8%)3. St. Petersburg (5.3%)4. Leningrad Oblast (2.7%).5. Other regions (<2.5%)

III. Determinants of FDI

1

Brock (1998) FDI determinants (1993-1995)

market size and the crime situation

education of the labour force only influenced FDI decisions for the Moscow and St. Petersburg regions.

III. Determinants of FDI

2

Broadman & Recanatini (2001) determinants of FDI inflows (1995-1999)

market size, the extent of infrastructure development and prevailing policy frameworks

Their model excellently capture cross-regional variation in FDI flows from 1995-1998, loses its explanatory power after the 1998 crisis.

III. Determinants of FDI

3 Iwasaki and Suganuma (2005)

FDI inflow (1996-2003).

resource endowments, market factors, degree of industrialization and infrastructure factors

business climate and regionally favorable FDI measures may affect investment.

III. Determinants of FDI

4Ledyaeva and Linden (2006)

the determinants of the number of foreign firms registered in 2002.

Gross products of host regions and source countries, agglomeration effect, Moscow city advantages, cultural closeness and an abundance of skilled labor

The distance between host regions and source countries is negatively related to the dependent variable

5

Svetlana Ledyaeva (2007)

the determinants and spatial relationships of FDI inflows into Russian regions during transition (1996-2005)

Market size, the presence of big cities and sea ports, oil and gas resources and political and legislative risks

more suitable in accordance with the situation in recent years

III. Determinants of FDI

1. Leading determinants

in this analysis include:

Big market size

(population, various

markets in the economy)

The determinants and spatial relationships of FDI inflows into Russian regions during 1996-2005 by Svetlana Ledyaeva (2007)

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The determinants and spatial relationships of FDI inflows into Russian regions during 1996-2005 by Svetlana Ledyaeva (2007)

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Big city advantages:

• Abundant resources (Sakhalin has oil and gas, Magadan has gold and coal and Khabarovsk has big gold and forest resources…)

• Skilled labour force (in Moscow, Leningrad and St. Petersburg)

• Transportation infrastructure (sea ports in Primorskii, Sakhalin and Krasnodar)

The intensive development of oil and gas minefields in Sakhalin region

has been largely funded under production sharing agreements

(PSA) in recent years

=> The Sakhalin and Tyumen regions are the most strategically promising oil and gas regions in Russia

Their attractiveness to foreign investors has gained along with rising world oil and gas prices

The determinants and spatial relationships of FDI inflows into Russian regions during 1996-2005 by Svetlana Ledyaeva (2007)

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2. Other determinants: Vertical FDI

strategies in resources industries and the fast development of export-oriented fuel industry

The determinants and spatial relationships of FDI inflows into Russian regions during 1996-2005 by Svetlana Ledyaeva (2007)

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A flexibly developing legal framework:

“Foreign Investment Law” in 1991 Elaborate framework in 1999 “Labor code” in 2002 “Capital Flow” in 2006 …

Russia owns one of the lowest tax rates in Europe

The determinants and spatial relationships of FDI inflows into Russian regions during 1996-2005 by Svetlana Ledyaeva (2007)

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The determinants and spatial relationships of FDI inflows into Russian regions during 1996-2005 by Svetlana Ledyaeva (2007)

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3. Some policy implications: Export tariff policies Import tariff policies

The determinants and spatial relationships of FDI inflows into Russian regions during 1996-2005 by Svetlana Ledyaeva (2007)

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IV. Conclusion•Russia is now the largest non-EU economy in Europe and one of the 10 largest economies in the world.•Main exports: Oil and oil products, natural gas, wood and wood products, metals, chemicals, weapons and military equipment •Russia is an attractive nation - the 4th favorable destination of FDI in Europe. Moscow was the 7th out of 10 European cities attracting FDI (2010)•Russia has great potential in various economic activities. Industry - the strong point of Russia’s economy•Determinants of FDI

IV. Preference

• Ernst & Young’s (2011), “Ernst & Young’s European attractiveness survey, FDI in Europe”.

• Federal State Statistics Service, Investment, April 6, 2012 • The World Bank, world development indicators, foreign direct

investment, net inflows, April 6,2012 • Luscio Vinhas de Souza (2008), “ECFIN Country focus, foreign

investment in Russia”, volume 5, issue 1. • Tullio Buccllato and Francesco Santangelo (2009), “FDI distribution

in the Russian Federation: Do spatial effects matter?”, appendix table 2.

• Svetlana Ledyaeva, BOFIT Discussion Papers (15 / 2007) “Spatial econometric analysis of determinants and strategies of FDI in Russian regions in pre- and post-1998 financial crisis periods”

Thank you for your attention !

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Nguyen Dieu ThuNguyen Dieu ThuLe Thi Thu TrangLe Thi Thu Trang