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Ford turns to the end of June, passenger car production in Russia. The pioneer of the Assembly movement in Russia, this company no longer sees prospects for themselves. And not only it. In Russia recorded the highest for the entire history of observations, the outflow of foreign direct investment (FDI). Than it threatens?
Not only money
Foreign investors withdrew from the Russian market share, more than $ 1 billion for five months of 2019, according to data Emerging Portfolio Fund Research (EPFR). But much more alarming outflow of foreign direct investment, which last year amounted to 6.5 billion dollars and peaked in the entire history of observations. If portfolio investors by selling shares, just take their money (and they can re-invest at least a week), then direct investors reducing or closing their business in Russia, taking more and technology, and new standards, which they brought to Russia. Than it threatens us?
it is Enough to recall the fall of 2014, when the U.S. announced the sanctions aimed at foreign companies operating in the Russian oil industry. Suddenly it turned out that our main industry, our nurse, at all its stages, from exploration to drilling and preparation for sale, holding for foreign technology, equipment and service. Great oil Empire was a colossus with feet of clay: leave the foreign company and we will cease to produce oil... you need to be aware, reading the news about a record outflow of foreign investment from Russia direct investment is not just money.
Net FDI outflow of capital of Russian companies in 2018 amounted to 6,548 billion dollars, informs Bank of Russia. This is the worst result in 22 years of such statistics. During this time, the Russian economy three times in the red zone on FDI: minus 445 million dollars in 2015, minus the 866 million USD in 2012, the largest outflow of 2.1 billion dollars in 2003. The current figure is three times greater than the previous maximum value.
What's worse, the money that had long prepared to leave. "Withdraw direct investment is not so easy and not so fast, investors watched the situation, because in the beginning there were assumptions that the sanctions — a fairly short-term situation that will pass quickly, — says senior researcher of the Laboratory of research in international trade, Institute of applied economic research, Ranepa Yury Zaitsev. But this did not happen and investors began to withdraw capital, but it is not very fast operation, unlike the portfolio, where liquid assets can sell for the day." Why is the money gone?
the Money flee from all emerging markets
this flight (the current figure is already difficult to be called "outflow") of foreigners from the Russian economy there are two reasons: the global and purely Russian.
it is Important to understand that the money goes from all emerging markets. Investor sentiment can be traced to the dynamics of the same portfolio of investments. In January this year, international investors have invested in weekly shares emerging markets more than 3 billion dollars in mid-February, the figure has halved, then the inflow turned to outflow, which in spring turned into a complete rout.
the Pessimism of investors is associated with lower forecasts of economic growth worldwide and in China. Thus, the OECD downgraded its forecast for the growth rate of the global economy in 2019, 0.2 percentage points, to 3.3%. Official estimates of the growth rate of China's economy this year is 6-6,5%, which would be the worst indicator for the last 29 years. And an emerging trade war between the US and China does not give reason to believe in a quick solution to a problem.
this pessimism Spreads, and direct investment. "In may 2019 foreign direct investment in emerging markets fell to its lowest level in 20 years, — says head of analysis and strategic marketing PSB Nicholas Kashcheev. — First of all, of course, the problem of China friction with the US, its own economic difficulties. Not to mention that all emerging markets are the most fat years was left behind at the end of the first decade zero". The outflows from equity — global trend associated with the decrease in demand in the global economy, says chief economist BCS Global Markets, Vladimir Tikhomirov. This forces companies to reduce their investment programmes.
However, Russia — often with China — and showed the results of a "worst market", even when the General trend in emerging markets were more favourable — for example, at the end of 2018 — beginning of 2019, draws the attention of the cm. Why?
"the most Important reason for this was, of course, as the effects of sanctions, and the condition of the real sector and General economy of the Russian Federation, — continues Nikolay Kashcheev. — After 2013 a whole set of negative factors simultaneously hit Russia."
the Russian specificity
"23 Among the key emerging markets of the world for 2015-2018 Russia dropped to last place, — says the managing partner of advocates' Bureau "of Bichenov and partners", member of expert Council of Committee Trading-industrial chamber of Russia on security of business activities of Alim Bishenov. — FDI Russian business excluding reinvested earnings amounted to 0.2% of GDP — worse than Nigeria, Venezuela and Ukraine". What's going on?
the Record of Russia can be explained by two types of reasons: external and internal. External is, of course, sanctions. Returning to the example, which we have already spoken. In autumn 2014 the USA forbade the American companies to deliver to Russia equipment and technologies, and provide services if they are to be used in Arctic, deepwater or shale projects for oil production. And there is a wide Russian public learned that without foreigners we have to extract oil may not: we have neither the right equipment nor technology. A striking example — the story of the world's largest private oil and gas company ExxonMobil, which has worked in Russia since 1992.
Russia minus oil
In 2011, Rosneft and ExxonMobil announced a strategic partnership in joint exploration and field development in the Arctic. The head of the Union of Industrialists of Russia Yuri Shafranik, commenting on the news about a strategic partnership, said that "Russian fuel and energy complex does not yet have the necessary capabilities for self-development of the Arctic oil fields, and the time to search for them we also have" and "if our oil companies late to start offshore exploration, the country in the future really risks losing leadership in the global energy market."
In 2014, in the Kara sea was opened a large Deposit "Victory" and began drilling the most Northern well of Russia "University-1", and the year before "Rosneft" and ExxonMobil signed an agreement on creation on Sakhalin of factory on manufacture of liquefied natural gas. But because of the sanctions the U.S. Treasury ExxonMobil has been forced to curtail their business in Russia, covering nine out of ten projects, including the Arctic. Rosneft and ExxonMobil remained only one joint project — "Sakhalin-1".
by the Way, speaking about the role of foreign companies in the Russian natural resource extraction it should be mentioned that the first in Russia plant for production of liquefied natural gas was built on the Sakhalin company "the Sakhalin energy", the shareholders of which were originally British-Dutch Shell and Japanese Mitsui and Mitsubishi, but the control package of which was later purchased by Gazprom.
the New reality
Other companies are not leaving because of already existing sanctions, but for fear of the new. "There is not only the expectations for the lifting of sanctions, but has all the formal reasons for their strengthening", — says Professor of the Russian economic school (NES) Natalya Volchkova.
the Situation around Rusal, the case Skipala — the Russian economy the whole of last year living under the threat of increased sanctions. In addition, the business realized that sanctions are a long time.
"Business in Russia for many foreign investors is a very unpredictable story, — said Yuri Zaitsev. And initially, there was hope that the sanctions — a temporary phenomenon. But now we see that this is the new reality and it is necessary to live. Of course, everything may change, but at the moment sanctions are a long time."
there is Nothing to catch
the Second type of reason is internal. We without us sanctions job of "discourage" foreign investors from the Russian market. Russia is becoming less attractive in terms of direct investment due to weak economic growth and corruption, says Exante managing partner Alexey Kirienko.
It is the set of reasons — sanctions, falling demand, lack of prospects, the overall uncertainty explained in the Western press, the decision of automaker Ford to close in late June, the production and sale of passenger cars in Russia. This means that will be closed plants in Vsevolozhsk and Naberezhnye Chelny and Elabuga plant, which is now going commercial model Transit, Kuga and Explorer will go to the Assembly of only one Transit.
But more recently, foreign automakers have seen an alternative damped car market in Western Europe, and Ford, Hyundai and Volkswagen have invested billions of dollars in building new factories and new models. But they lost: if in 2012 in Russia were collected to 1.97 million cars in 2018 — only 1.56 million
Quote There is someone to catch
another important internal reason which will play a negative role in the statistics of the outflow at the end of this year. "In the last year we see that law enforcement agencies have become an important bargaining chip in resolving business disputes — continues Natalya Volchkova. And high-profile arrests shows that in this respect they have no barriers and limitations. That is, any businessman can be held hostage to the system. Concerns are not only for business but also for themselves, increase the risks of the Russian economy for foreign investors".
at the same time Russia has developed legislation governing the work of foreign investors in the country, drew attention to the lawyer, managing partner of law Bureau of U&Partners; Andrey Andreev. "But at the same time we have the coercive pressure of the state on business, arrest, and retention of entrepreneurs in custody — says Andreev. — This legal immunity is missing including from foreign investors".
The resonant case was the arrest of Michael Calvey, head of a large investment Fund Baring Vostok Capital Partners, in February of this year. This event could be a significant factor in capital outflows this year. "It turns out that the economic argument for foreign and domestic investors is the decision of the arbitration court was moved in the plane of criminal prosecution, says Andrey Andreev. — Of course, such high-profile cases may not have a positive impact on the willingness of foreign investors to enter the Russian market. Any investment, including direct, imply the right of ownership and its protection."
"unlike the economy in neighboring Belarus, which is a key factor in reducing FDI is launched in 2015, the policy of de-dollarization in our country the main symptoms for foreign investors serve as a negative investment climate, low growth potential, complex political processes are unpredictable reforms contributing to social background, and hard administrative constraints — lists the Alim of Bichenov. Is hostile pain points that inhibit economic growth. Understand the investor can. He would prefer not to understand, and, unfortunately, will choose a more comfortable country for the deployment of their business-history."
According to preliminary estimates of the Bank of Russia, the volume of incoming FDI in the first quarter of 2019 amounted to 11.5 billion dollars. And the volume of outbound? "Since the beginning of the year outflow of capital from Russia doubled and reached 40 billion dollars", — said the head of the audit chamber of the Russian Federation Alexey Kudrin at session of the SPIEF last week.
Quote Minus FDI minus technology
"the Share of foreign capital recently exceeded 50% Russian in such industries as power engineering, railway engineering, was close to 50% in the production of vehicles, chemicals, printing, woodworking industry, tobacco industry and so on, — says Nikolai Kashcheev. Part of this, of course, offshore ownership, because metals do not show at all". By 2018, its share in average in the Russian economy amounted to 20.6%. And often the care of the money meant and care technologies.
"Technological transfers from FDI are significant, — says Natalya Volchkova. — In parallel with the increasing skill level of the Russian personnel working with these technologies. The taxes are rising and so on. The decline in FDI means that the economy today is in arrears in all respects. But even more significantly, lost development potential. Therefore, long-term consequences of this might even outweigh the loss today."
It would be wrong to keep silent about the fact that a lot of foreign capital left to work in Russia. This is evident, for example, such indicator as the reinvestment of earnings, which remained virtually unchanged: 16.8 billion dollars at the end of 2018 vs 16.7 billion by the end of 2017, cites the Bank of Russia.
Known and some new and potential projects with foreign participation. "Tenaris and Severstal create a joint venture for the production of welded pipes in Western Siberia — gives fresh examples of investment interest in Russia senior analyst "BKS the Prime Minister" Sergey Suverov. Also Severstal, RUSNANO and Windar Renovables has opened the first in Russia production of towers of wind turbines within the framework of projects for the development of renewable energy".
"Your contribution can make a joint Russian-Chinese projects on the location of production on the territory of Russia, in particular ADZ (territories of priority social-economic development. — Approx. ed.)", — adds the Deputy Chairman of the Board Loko-Bank Andrey lyushin.
But it is only a few promising examples on the General background of bleak. "To keep the pressure of sanctions and the deterioration in the investment image of Russia (including as a result of the arrest of Michael Calvey, the closure of the Russian office of the investment Bank Morgan Stanley) significant growth of direct foreign investments in the Russian economy still looks unlikely," say the authors of "monitoring of the economic situation" prepared by the Gaidar Institute, the Russian Academy of national economy and Ministry of economic development of Russia, Alexander Knobel and Yuri Zaitsev.
But what threatens Russia lives in conditions of constant net outflow of FDI?
"In today's world of technological development and integration in the world economy FDI — a prerequisite for sustainable economic development, — says Natalya Volchkova. — Examples of countries that have been able to grow and successfully for a long time to develop without this, there is simply no".
And state money to fill the lack of foreign investment, as it is trying to do in Russia (and in China), will not work. "All the outflow of foreign capital to compensate for is impossible, — said Nikolai Kashcheev. — First, the foreign capital market emce, deeper, more varied any of the national markets. Second, foreign capital is still the most advanced technologies, including not only material but also, for example, management".
FDI is one of the key indicators of investment climate in the country. "Foreign investors often rely local: if there is no interest on the part of foreigners, often a local business is also investing bad", — said Vladimir Tikhomirov. "Without FDI, the growth rate can fall significantly, says Alexey Kirienko. We find it also very cautious (outside of government) estimates of the effect that national projects are supposed to have on the economy."
"Russia will to develop without FDI, but very slowly — no more than 1-2% of GDP per year in the best case scenario — and particularly will suffer capital-intensive industries and projects, — says Alexey Kirienko. — The most striking example is the protracted M-11, the last area that has not been able to find an investor, despite the state guarantees. In General, I can assume the very slow development of infrastructure projects outside the major cities."
"If the current favorable situation with oil prices the state has a surplus budget revenues, which can be invested, including in the Russian enterprises, — says Natalya Volchkova. — That is the current problem of reducing FDI, the government can solve the relevant transfers. What, in General, and assumed a number of national projects. The problem is that Russian enterprises entered very little into the world economy and not very effective. They need to be protected from global competition that the state and makes a different kind of protectionist measures. But in the world market for the most part they are not competitive, which means that they may not provide sustained good growth in the future. So, while the price of oil is high, Russia can exist without FDI. But to develop this stock will not work."
the situation with FDI can change? "Investors will wait for a fundamental change of policy and the lifting of sanctions as a point for the new entrance to the Russian projects" — said Kiriyenko. Well, in this case, it is hoped that oil prices will remain high for a long time.
Milena BAKHVALOVA, Banki.ru
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