BRICS nations reluctant to fill Russia's investment void
The Kremlin's hopes that "friendly" countries would replace Western investors have proved futile, writes "The Moscow Times." Since the beginning of the war, billions of dollars have evaporated from the Russian economy, with no takers to fill the gap.
According to statistics from the Central Bank of the Russian Federation, cited by The Moscow Times, the volume of foreign investments in Russia last October dropped to its lowest level in the past 15 years and continues to decline sharply. More specifically, in the first three quarters of 2024, foreign investors withdrew another 44 billion USD in capital, resulting in a decline in direct foreign investments in the Russian economy to 235 billion USD.
Foreign direct investments (FDI) occur when businesses, multinational corporations, or individuals from one country invest capital in the assets of another country on a scale that allows for direct participation in their management. As The Moscow Times reminds us, in 2023, Russia lost 80 billion USD in FDI, while in the first year of the war, it was 138 billion USD. Consequently, over three years, the pool of FDI in the Russian economy, which was nearly 500 billion USD before the invasion of Ukraine, has halved, decreasing by 262 billion USD.
Allies are not listening to Putin
Although Russian President Vladimir Putin declared maximum openness for investors from BRICS countries (an informal group comprising developing nations initiated by Brazil, Russia, India, and China) and urged them to invest in Russia, the central bank's statistics do not show any substantial inflow of money. According to Janis Kluge, a researcher at the Institute for International and Security Studies, cited by The Moscow Times, this indicates the growing isolation of the Russian economy.
For example, the authorities in China, Russia's largest trading partner with whom Putin maintains strategic relations, have banned local companies from investing in the Russian oil and gas sector, refused investments in the Power of Siberia 2 pipeline, and advised car manufacturers not to build factories in Russia.
Before the war, three-quarters of foreign direct investments in Russia came from countries on the "unfriendly" list, whose investments ceased after sanctions and counter-sanctions were imposed. They invested an amount equal to 20% of all fixed assets in mineral extraction and manufacturing, which account for 50% of Russia's GDP and 40% of employment. Their share is even greater in trade (constituting 80% of fixed assets), finance (nearly 70%), and the scientific and technical sector (40%), according to analysts from Loko-Invest.
At the same time, China accounted for only 3.3 billion USD in direct investments in Russia, or 0.66% of the total, while India accounted for just 613 million USD, or 0.012%. Investments from Brazil and South Africa were so negligible they were not recorded in the central bank's statistics.
According to The Moscow Times, the assets of Western investors remaining in Russia are at risk of confiscation. The government is preparing to submit to the Duma a draft law that will establish a mechanism for seizing private property in response to the freezing of the central bank's reserves in the West. As informed by sources familiar with the document, the practice of confiscation will be extended to all countries that have imposed sanctions on Russia.
