Foreign Direct Investments in the EAEU and Greater Eurasia in 2017

_ EDB. Saint-Petersburg, 21 December 2017.

Asian investors continue to increase direct investments in the EAEU. During 2008–2016, FDI stock originating from 12 Asian countries (China, Japan, Turkey, India, Israel, Mongolia, Republic of Korea, Saudi Arabia, the UAE, Iran, Singapore, and Vietnam) has increased from $32 billion in 2008 to $75.6 billion in the beginning of 2017.

China continues to expand its economic presence in EAEU countries and other CIS states, retaining its leadership among Asian countries in terms of FDI stock in the region. At the end of 2016, FDI stock accumulated by Chinese TNCs in the five EAEU countries, Azerbaijan, Tajikistan, and Ukraine amounted to $33.7 billion, a 12.7% year-on-year increase. The bulk of direct capital investments originating from China is concentrated in Kazakhstan, with an FDI stock of $21.5 billion.

Russia is becoming the priority target for new projects by Chinese investors. In 2016, five out of eight new projects with Chinese FDI in the EAEU were in Russia. On the whole, Chinese FDI stock in the Russian economy amounted to $8.2 billion, having increased in 2016 by $3 billion, or 57.5%. The key target sector for most Chinese investors is Oil and Gas, although its share followed a persistent downward trend, having declined from 86.8% in 2010 to 74.1% in 2016. Over the last six years, a significant inflow of investment capital into Construction and Mechanical Engineering has occurred. Agriculture and Food Products (processing of agricultural raw materials) has shown vibrant growth for the last three years. The share of FDI in Transport, on the other hand, has declined.

Japan maintains the largest FDI stock in Russia among Asian countries. In 2016, the Russian economy received $15.1 billion of Japanese FDI compared to $14.8 billion in 2015. As for the other EAEU and Central Asian countries, Japanese companies have assumed a wait-and-see stance, and are now busy sizing up the most promising projects. Russian Oil and Gas accounts for 65% of total investment stock accumulated by Japanese TNCs in post-Soviet states, closely followed by manufacturing.

Against the background of creation of an EAEU-Vietnam free trade area and a possible start of negotiations on a free trade agreement between the EAEU and Singapore, these Southeast Asian states have been showing more and more interest in EAEU economies. However, 99% of total Vietnamese and Singaporean outward FDI stock is currently concentrated in Russia: at the end of 2016, total direct investments by those countries in the Russian economy amounted to $667 million and $786 million, respectively.

Kazakhstan has been quite successful in attracting investors from the Middle East. At the beginning of 2017, total UAE direct investment stock in that country stood at almost $1.5 billion out of a total of $2 billion registered in all EAEU countries. There are about 200 businesses with UAE equity participation already operating in Kazakhstan. Besides, by the end of 2016, Kazakhstan became a center of gravity for Turkish FDI: over the course of the year, direct investments by Turkish TNCs in Kazakhstan’s economy had increased by 34% to $1.3 billion. Capital of Turkish origin is represented in almost all recipient sectors, with the exception of Oil and Gas.

Capital investments by most other Southwest Asian and South Asian countries in the EAEU are modest in terms of total value, and lopsided in sectoral structure. India invests mostly in Russian Oil and Gas. Iranian investments in CIS countries go primarily to Azerbaijan (Oil and Gas). Saudi Arabia has a rather insignificant presence in Kazakhstan, while Russia has received no Saudi FDI at all (however, a breakthrough may be achieved following the historic 2017 visit by the King of Saudi Arabia to Russia).

Regarding outward FDI originating from the EAEU all countries of the Union without exception continue to boost their outward investments in Eurasia beyond the CIS. In 2016, that indicator went up by 4% ($3.6 billion) to $93 billion. In 2008–2016, total FDI stock by EAEU countries in Eurasia has grown by a factor of 2.5. European countries remain the main destination for outward direct capital investments originating from the EAEU. Russia is currently not particularly interested in investing in East Asia and South Asia. Over the last year, there has been a slight reduction of Russian FDI stock in those regions. In 2016, Russian FDI in Mongolia and India has demonstrated a sharp decline (by a factor of 3), while in Egypt it has posted a sizeable increase (by 45% to $3.3 billion).

European countries remain the main recipients of Kazakhstani outward FDI, with 85% of total Kazakhstani FDI stock in Eurasian countries. In 2016, Kazakhstani outward FDI stock in non-CIS Eurasian countries amounted to almost $6.5 billion. Oil and Gas remains Kazakhstan’s key international specialization sector, invariably accounting for more than half of its total FDI. The second position is held by Wholesale and Retail Trade (more than 1/4 of total outward FDI), the third position by Tourism (more than 1/5 of total outward FDI). Romania is the main recipient of Kazakhstan’s direct investment ($4.9 billion).

Armenian, Belarusian and Kyrgyz companies have few investment projects in Eurasian countries, all being insignificant in terms of their FDI value. The reason for this is the fact that in above mentioned countries there are virtually no large companies with competitive advantages which would enable the countries to expand into foreign markets.

A significant growth of FDI in Russia and other EAEU member states is expected in 2018 against the backdrop of execution of several agreements between Russian oil and gas companies and their Chinese partners, and keen interest displayed by Asian investors in Eurasian economies. This will reinforce the “turn-to-the-East” trend which manifests itself in the heightened intensification of cooperation between the EAEU and Asian countries.

Source: https://eabr.org/

Leave a Reply

Your email address will not be published. Required fields are marked *