Mutual investments in Eurasia reaches US $46 billion

ArmInfo. Russia is the largest exporter of direct investments in the post-Soviet area while Kazakhstan and Uzbekistan are the largest recipients of FDI from post-Soviet  countries. This is stated in the analytical report of the Eurasian  Development Bank (EDB), which has renewed its flagship analytical  project for monitoring mutual direct investments of 12 states (CIS  countries and Georgia).

According to the report, private investors account for 55% of mutual  FDI stock in the EAEU. Investments in knowledge-intensive sectors and  greenfield projects are growing at a high rate in the EAEU. This  indicates an intensification in technology transfer and the  modernisation of the Union's economies.

The review notes that deeper Eurasian integration drives the growth  of mutual foreign direct investment (FDI) volumes. Over a ten-year  horizon, the mutual direct investment stock by post-Soviet countries  declined in 2013-2015. Monitoring data show that since 2017 EAEU  companies have been ensuring an upturn in mutual FDI in the CIS.   Between 2016 and 2020, investments by the Eurasian corporate sector  led to a 25% increase in total mutual FDI in the CIS, to US $45.9  billion.

By the end of 2020, the mutual investment stock of the EAEU  countries reached US $25.4 billion, up 24% over the last four years.  Kazakhstan boasts the highest FDI stock value and growth rate among  the EAEU member states: US $11.2 billion at the end of 2020, and an  increase of US $3 billion over four years.  Bank analysts note that  corporate ties within the EAEU are more intense than those within the  CIS. At the end of 2020, the share of mutual FDI stock of EAEU member  states in total mutual CIS FDI amounted to 55%.  That said,  investment ties between the EAEU and other CIS countries remain  strong. At the end of 2020, the relevant FDI amounted to US $18  billion (39% of total FDI of the CIS countries). Most projects are in  Trade (both Wholesale Trade and Retail Trade), as well as in  Financial Services, Real Estate, and Machine Engineering. The most  capital-intensive projects were in Extraction of Oil and Natural Gas  and Chemical Industry. 

The report suggests that the growth of mutual FDI in the EAEU is  qualitative. Investors are increasingly interested in  knowledge-intensive production, greenfield projects, and projects  with low capital intensity.  

This facilitates the modernisation and diversification of the EAEU  economies.  "In the coming years, the sectoral structure of mutual  FDI will gradually become more diversified with the development of  Retail Trade, Financial Services, and Manufacture of Machines and  Equipment," said Evgeny Vinokurov, Chief Economist at the EDB and the  EFSD. 

"With the growing importance of the global climate agenda, mutual FDI  in green economy projects will also grow. Over the past two years,  mutual FDI in such projects has increased by 56%. Kazakhstan will  consolidate its leadership in attracting direct investments in  renewable energy, and Uzbekistan will become one of the largest  recipients of FDI not only from Russia but from other EAEU member  states as well." 

At the end of 2020, the key sectors in terms of mutual FDI stock  values in the CIS were Extraction of Oil and Natural Gas (22.8% of  total FDI stock), Chemical Industry (11.9%), and Mining of Metal Ores  (11.0%) (Figure 2). The predominance of projects in Extraction of Oil  and Natural Gas was due to Russia's projects in Uzbekistan and  Azerbaijan.  The sectoral structure of mutual FDI in the EAEU  countries differs from that in the CIS. The leading sector in the  EAEU is Mining of Metal Ores (19.8%), followed by Land Transport and  Transport via Pipelines (14%) and Financial Services (11.4%) (Figure  2). Extraction of Oil and Natural Gas (9.5%) ranks only fourth. The  leading position of Mining of Metal Ores is secured by projects in  Russia and Kazakhstan. 

EDB analysts estimate that this sector contributed the most to the  increase of mutual FDI stock of EAEU member states over the last four  years (US $2.2 billion).  The report notes an emerging trend - the  growth of mutual FDI of the EAEU countries in the Manufacture of  Motor Vehicles, Machines, and Electrical Equipment. Over the past  three years, FDI in this sector has increased by a factor of 1.6. The  absolute figures remain small for the time being. 

Interestingly, national private investors dominate the ownership  structure of companies that invest within the EAEU, with a share of  55% at the end of 2020. The share of state-controlled investors (with  the state's equity participation of more than 50%) has remained  almost unchanged since 2016 and made up 36% in 2020. The number of  projects where foreign transnational corporations are among the  investor company owners has declined from 10% to 6% over the last  five years.  

There have been significant changes in the rating of the mutual CIS  FDI recipient countries. Kazakhstan steadily tops the list of FDI  recipients and is now followed by Uzbekistan. Russia has fallen by  two notches while Azerbaijan came close to it in 2020 with the fifth  ranking. Ukraine has moved from the top ranking in 2012 to eighth by  the end of 2020.  Russia is the only net exporter of mutual FDI stock  in the post-Soviet area. 

At the end of 2020, Russian investors accounted for 80% of total  outward FDI to both the EAEU and CIS countries. Kazakhstan is  Russia's main investment partner, with 30% of total Russian outward  FDI in the CIS countries.  Russian investors are building up capital  investments in the CIS countries, especially in Uzbekistan and  Azerbaijan. Over the past four years, Russian FDI in Uzbekistan has  grown 2.1 times and in Azerbaijan 1.2 times.  Uzbekistan received 99%  of all post-Soviet FDI from Russia (US $9 billion) (Figure 4), and  Azerbaijan 99.3% (US $4.2 billion).

As the authors of the report note,  the Eurasian Fund for  Stabilization and Development (EFSD) amounting to US$8.513 billion  was formed on 9 June 2009 by the governments of the same six  countries. The EFSD assists its member states in overcoming the  consequences of the global financial crisis, ensuring their economic  and financial stability, and fostering integration in the region. The  EFSD member countries signed the Fund Management Agreement with  Eurasian Development Bank giving it the role of the EFSD Resources  Manager.