BISHKEK (TCA) — A significant growth of direct investments in Russia and other Eurasian Economic Union (EEU) member states — Armenia, Belarus, Kazakhstan, and Kyrgyzstan — is expected in 2018, according to the report by the Centre for Integration Studies of the Eurasian Development Bank “EAEU and Eurasia: Monitoring and Analysis of Direct Investments – 2017”.
According to EDB Centre for Integration Studies analysts, Chinese investors will be acquiring assets not only in Oil and Gas and Chemicals, but also in the manufacturing industry of EEU countries. However, the main upsurge of investment expansion is anticipated in Mining.
“In terms of investments, the ‘turn to the East’ – object of numerous discussions we have witnessed over the last several years – has been materializing since 2016. Asian investors needed time to examine high-potential projects, make final decisions, and close the relevant deals,” says Evgeny Vinokurov, Director of EDB Centre for Integration Studies.
“The Chinese investments have finally begun to gain momentum in Russia, as well. We observe rapid growth of Chinese direct investments in Russian Oil and Gas and Mining. On the other hand, so far there have been few, if any, noteworthy investment projects in the manufacturing industry, and no FDI at all in Transport.”
Meanwhile, China is actively investing in other countries, in particular, in Kazakhstan’s oil and gas.
In terms of Chinese FDI stock, Russia is lagging behind Kazakhstan, where this indicator is almost 3 times higher at $21.5 billion. In addition to that, since 2014 Chinese Transnational Corporations (TNCs) have been increasingly interested in Belarus, where 2016 investments in Mechanical Engineering and Transport have boosted Chinese FDI stock by 53% to $0.6 billion.
According to the report, Asian investors have continued to increase direct investments in the EEU. During the monitoring period (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.
For the time being, 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 EEU 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 about 65% of total investment stock accumulated by Japanese TNCs in EEU member states, closely followed by Agriculture and Food Products and Mechanical Engineering.
Successful acquisition of Russian oil and gas assets in 2016 helped Indian TNCs to increase their FDI stock in Russia by $3.3 billion. There was no significant inflow of Indian FDI in the other EEU countries. EDB Centre for Integration Studies experts believe that India will continue to invest in Russia and Kazakhstan, but Indian TNCs will be losing in their competition with Chinese companies.
Against the background of creation of an EEU-Vietnam free trade area and a possible start of negotiations on a free trade agreement between the EEU and Singapore, these Southeast Asian states have been showing more and more interest in EEU 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. Vietnam and Singapore are rapidly increasing their direct investments in Russia. EDB Centre for Integration Studies experts also forecast intensification of investment activity with other countries which are expanding their trade and economic relations with the EEU, in particular, with Iran and Egypt.
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 EEU 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 Kazakhstani 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.
