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On February 24th 2022, Russia initiated a military conflict on the Ukrainian territory, which profoundly upsets the current political and economic context in both countries and will have substantial ramifications on the investment climate. For the ongoing updates on the developments of Russia-Ukraine conflict please consult the dedicated pages on BBC News.
The latest specific information on economic sanctions against Russia in response to the conflict in Ukraine is available below:
• What sanctions are being imposed on Russia
After plummeting by 70% in 2020 due to the COVID-19 pandemic, FDI flows to Russia rebounded by 267% in 2021, reaching USD 38.2 billion (compared to USD 10.4 billion in 2020) according to UNCTAD's World Investment Report 2022. Russia ranked 9th top host economy in the world. In 2021, the stock of FDI was about USD 521.9 billion (UNCTAD). However, following Russia’s invasion of Ukraine in February 2022, various Western companies have decided to stop or limit their activity in Russia. For example, major oil and gas groups such as BP, Shell and Exxon withdrew from the country, and following international pressure French TotalEnergies announced it would gradually withdraw from its Russian investments. Norway’s sovereign wealth fund, the world’s largest, also decided to divest itself of its Russian investments. With the aim of provoking the collapse of the economy, Western countries adopted an unprecedented range of sanctions against Russia, which triggered the flight of foreign capital. Russia’s central bank assets have been frozen, selected banks have been removed from the international communication tool SWIFT, the EU airspace has been closed to Russian aircraft, exports of high-tech components to Russia have been restricted, and the Nord Stream 2 certification was withhold, among other measures. In reaction, in August 2022, Russian President Vladimir Putin issued a decree imposing an overall ban on transactions with certain assets, preventing foreign investment exiting the country without specific permission. According to OECD data, in the first half of 2022 negative FDI flows to Russia reached USD 24.3 billion.
Major investors in 2021 included Cyprus, the Bermudas, the UK, the Netherlands, Ireland, Luxembourg, Germany, the Bahamas and France (Central Bank of Russia). The geographical proximity has also driven FDI within the territory of the Russian Federation, with ongoing Chinese cross-border investment in the Russian Far East and resilient investment from Finland. The main sectors receiving FDI are the extractive industry, manufacturing, financial and insurance activities, wholesale and retail trade, administrative and service activities, and real estate.
Before the war, the share of FDI in GDP remained relatively low given the country's growth and economic potential, and working capital investments represented a significant share of total FDI. Russia had undertaken economic reforms in recent years, but administrative problems, corruption and uncertainties regarding the stability of the region remained major challenges. Russia passed a law allowing it to seize the assets of foreign states on its own territory, in reaction to the confiscation of Russian property by European countries in the Yukos case. Russia ranks 58th (out of 82 countries) in the latest The Economist’s Business Environment ranking. The war in Ukraine and associated sanctions, as well as the government's increased control over the economy, weigh on the overall business environment. The main assets of Russia are its abundant natural resources (oil, gas and metals) and its large and skilled workforce.
Foreign Direct Investment | 2020 | 2021 | 2022 |
---|---|---|---|
FDI Inward Flow (million USD) | 10,410 | 38,639 | -18,681 |
FDI Stock (million USD) | 449,050 | 497,690 | 379,127 |
Number of Greenfield Investments* | 178 | 156 | 15 |
Value of Greenfield Investments (million USD) | 8,062 | 14,921 | 296 |
Source: UNCTAD, Latest data available.
Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.
Main Investing Countries | 2020, in % |
---|---|
Cyprus | 28.6 |
Bermuda | 8.9 |
Netherlands | 8.7 |
United Kingdom | 7.8 |
Luxembourg | 6.0 |
Ireland | 5.6 |
Bahamas | 4.4 |
France | 3.6 |
Germany | 3.5 |
Main Invested Sectors | 2020, in % |
---|---|
Mining and quarrying | 24.0 |
Manufacturing industry | 21.0 |
Wholesale and retail trade, repair of motor vehicles | 15.7 |
Financial and insurance activities | 13.3 |
Professional, scientific and technical activities | 9.6 |
Real estate | 5.5 |
Source: Central Bank of Russia, Latest data available.
Many investors see Russia as still under-exploited. The key advantages for FDI in Russia include:
Russia has an investment climate that is complicated to control and generally unstable. The major disadvantages for FDI in Russia include:
For more information, please visit the website Invest in Russia.
Country Comparison For the Protection of Investors | Russia | Eastern Europe & Central Asia | United States | Germany |
---|---|---|---|---|
Index of Transaction Transparency* | 6.0 | 7.5 | 7.0 | 5.0 |
Index of Manager’s Responsibility** | 2.0 | 5.0 | 9.0 | 5.0 |
Index of Shareholders’ Power*** | 7.0 | 6.8 | 9.0 | 5.0 |
Source: The World Bank - Doing Business, Latest data available.
Russia’s basic legal framework governing investment includes
The Federal Law on Special Economic Zones in the Russian Federation dated 22 July 2005 No. 116-FZ created a platform for the strengthening of economic growth of the regions and specific areas in Russia. The main aims of SEZs are the development of: manufacturing, tourism, and recreation industries, port and transport infrastructures, technologies and new product production. The Law on SEZs distinguishes four types of SEZs:
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Latest Update: November 2023