Russian FDI in Central and Eastern European countries. Opportunities and threats (original) (raw)
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Pull factors driving Russian multinationals into five CEE countries: A sectoral overview
IWE Working Papers, No. 250, 2018
Investigating the Russian economic footprint through outward foreign direct investment (OFDI) and the activities of Russian multinationals has not become either outdated or less interesting, even though, understandably, most of the current attention on Russian influence in Europe has been focused on direct interference in political affairs. This paper is the second of a four-part series that outlines the international expansion of Russian multinationals in five EU-member Central and East European (CEE) states, i.e., the Czech Republic, Hungary, Poland, Slovakia and Slovenia. Here, the focus is on the pull factors responsible for Russian FDI inflows into these countries, as well as on the sectors in which investments are made. In doing so, the research relies on company data analysed using Dunning’s eclectic paradigm of international production and his typology of four motives behind FDI. We find that most Russian FDI has been done in hydrocarbons, iron, steel and machinery, but banking, software solutions, electronic production, real estate and even the light industry have also been targeted. Investment is dominated by market-seeking and, to a lesser extent, efficiency-seeking projects carried out by state-owned or state-related private firms. There are a limited number of innovative private Russian companies on the market that show features similar to those of multinationals from developed countries.
Russian outward FDI and its policy context
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Since the beginning of the transition from centrally planned to market economy, the FDI outflows of the Russian Federation have consistently exceeded the inflows. In the 1990s, most of the outflows were of an informal nature, and unregistered in the balance of payments, or misregistered under other items. Since 2003, their recording has improved. However, the question remains: how can a lower-middle income country become a net capital exporter? It is supposed to be the combined result of economic and political factors such as the economic and business environment, still deemed to be difficult. The fact that the ‘oligarchy’ created under the presidency of Boris Yeltsin (1991-1999) continues to control large parts of the privatized natural resources of the country also stimulated capital exporting behavior. With the political changes currently taking place, only a limited increase in the influence of the State is expected to happen. Moreover, the strategic interest of Russian firms to control their vertical value chains through outward FDI is expected to remain in the longer term.
Foreign Direct Investments in Russia and the Hungarian-Based Investors
Икономически изследвания (Ikonomicheski izsledvaniya)/Economic Studies, No. 2/2011, pp. 104–115, 2011
After becoming the 5th largest FDI recipient worldwide in 2008, foreign direct investments in Russia have largely been impacted by the big crisis. To put these changes in context, this paper starts with an overview of foreign investments in Russia from the beginning. Analyzing the source countries, we argue that round-tripping and trans-shipped FDI significantly mask the real sources. In terms of the regional distribution, high concentration is stressed. Reviewing the industrial breakdown of FDI in Russia, we point out that the fuel industry, mainly the oil production, except for 1999, has had a prominent or a leadership role only since 2003. Despite the Russian natural resource base, foreign investors are now motivated mostly by market-related factors. Before the crisis Russian macroeconomic, fiscal and debt policies improved the investment climate, while the growing state control has had a negative effect. Red tape, poor infrastructure, corruption and complex tax system remained major obstacles. Until the early 2000s, government made few steps to encourage foreign investment. Amid and after the crisis it was explicitly acknowledged at the highest level that resource based Russia needs the West, the foreign investments and knowledge for its modernization. The paper finally turns to investments from Hungary. Despite the low share of Russia in outward FDI from Hungary, there are a few significant investments of Hungarian-based investors, worth to be surveyed.
How to explain the foreign expansion of Russian firms
Journal of Financial Transformation, Capco Institute, 2008
This article explores the main features of outward foreign direct investment by Russian corporations and some of the implications of their recent rise to global prominence for the theories of international investment. Surprisingly, lower middle-income Russia is a net capital exporter, and some of its firms, such as Gazprom, Lukoil, Norilsk Nickel, and Severstal, have already leapfrogged to a global status. This article also aims to identify issues for further analysis, such as the growing role of the state in controlling natural resource-based firms and its implications for the future of the Russian multinationals. It suggests that different investment theories fare divergently in trying to explain Russian outward foreign direct investment. For example, the eclectic paradigm could be applied to Russian multinationals with its extension to home-country factors. Other theories, however, would require more radical rethinking in future research.
Obstacles to foreign direct investment in Russia
Explores the obstacles facing trans-national corporations (TNC) considering FDI in Russia. Dunning (1994) suggests that countries' abilities to attract and exploit the potential economic benefits of inbound FDI vary according to their national political, economic and legal cultures, traditions and infrastructures, together with the economic objectives and policies pursued by host governments. This paper seeks to make use of Dunning's model, in exploring the obstacles to FDI in modern Russia, and their implications for TNCs. The papers' findings suggest that Russia's relative lack of success in attracting FDI and exploiting its potential benefits during the 1990s can be attributed to her national infrastructural factors and government policies, as Dunning's model suggests. Russia's ability to attract a larger share of FDI in future seems likely to be constrained by national ambivalence towards the benefits of FDI, together with the political and economic realities of her current situation.
Outward foreign direct investment from Russia in a global context
Expansion or Exodus: Why do Russian Corporations …, 2005
Since the beginning of the transition from centrally planned to market economy, the FDI outflows of the Russian Federation have consistently exceeded the inflows. In the 1990s, most of the outflows were of an informal nature, and unregistered in the balance of payments, or misregistered under other items. Since 2003, their recording has improved. However, the question remains: how can a lower-middle income country become a net capital exporter? It is supposed to be the combined result of economic and political factors such as the economic and business environment, still deemed to be difficult. The fact that the ‘oligarchy’ created under the presidency of Boris Yeltsin (1991-1999) continues to control large parts of the privatized natural resources of the country also stimulated capital exporting behavior. With the political changes currently taking place, only a limited increase in the influence of the State is expected to happen. Moreover, the strategic interest of Russian firms to control their vertical value chains through outward FDI is expected to remain in the longer term.
FDI to and from the Russian Federation: A Case Study of the Western Balkans and the Role of the EU
Contributions to Economics, 2020
The present contribution discusses foreign direct investments in the Russian Federation, mainly after the imposition of the western sanctions, the state of play of the European sanctions, and uses the Western Balkan countries as a case study of Russian and European influence in their economic sectors. Furthermore, it investigates the immediate measures the Russian Federation took in transferring key aspects of the national industry to its domestic producers. At the second part of the chapter, the situation in the Western Balkan countries is discussed, as the soft power the Russian Federation projects in the region is based on influence and economic ties while the EU projects its membership perspective, its power of attraction, and the dual advantage it possesses as investments are made both from the EU as a sui generis international organization but from its member states as well. Nonetheless, the investment policy of Russia by focusing on strategic sectors is promoting its international stance making its foreign economic policy of great importance in ensuring the country's global leading position.
This paper analyses cooperation between state institutions and state-owned energy companies of the Russian Federation on the basis of three examples of outward foreign direct investments (OFDI): the acquisition by nuclear power company Atomstroyexport of Nukem Technologies in Germany; the gas giant Gazprom and its South Stream investment package in Hungary; and the oil company Zarubezhneft’s acquisition of the Optima Group in Bosnia-Herzegovina . The research is based on the analyses of media reports, official state and company documents, and interviews conducted with representatives of the state-owned energy companies and state officials. The analysis suggests that Russian state-owned energy companies only initiate cooperation with state institutions when the circumstances require certain financial and diplomatic support to conduct OFDI. This paper reveals that, despite usually being portrayed as channels for Russian political influence, the drivers for the OFDI of Russian state-owned energy companies in fact represent a complex range of commercial considerations.