The Russian economy continues to lose its attractiveness in the eyes of large transnational businesses as consumers become poorer and the government continues the sanctions war with the West. Against the backdrop of a pandemic in 2020, the inflow of foreign direct investment into the Russian Federation collapsed 20 times, it follows from the data of the Central Bank of the Russian Federation. Foreign investors invested only $1.4 billion in the real sector of the economy against $28.9 billion a year earlier. The inflow recorded by the Central Bank has become minimal since 1994, notes Tatyana Evdokimova, ex-chief economist of Nordea for Russia. Even after the default of 1998, the global crisis in 2008-09 and the annexation of Crimea in 2014, foreign business invested more in the real sector of the Russian Federation: $2.5, 64.8 and 17.6 billion, respectively. The net balance of direct investment turned out to be negative at all: Russian residents invested $6.3 billion in foreign companies – 4 times more than the economy received from foreigners.
As a result, in 2020, Russia recorded a net outflow of FDI of $4.8 billion, which almost completely neutralized the inflow of the previous year ($6.3 billion). The Russian economy continues to suffer from the poor quality of government institutions, analysts from the international rating agency S&P write. Long-standing problems – such as “insufficient independence of the judiciary” and “selective enforcement” – may be exacerbated by the reform of the Constitution: it promises “further weakening of the system of checks and balances”, strengthening the role of the public sector and reducing competition, S&P believes.
In these conditions, Russia will continue to lose foreign investors: the net outflow of FDI will amount to 0.8% of GDP in 2021, 0.7% of GDP in 2022 and 0.6% each in 2023-24, the agency predicts. Following direct investors, portfolio managers are rapidly evacuating money from Russia, and on an even larger scale, follow from the statistics of the Central Bank of the Russian Federation. In 2020, non-residents continued to buy Russian government bonds, although the inflow decreased more than 5 times – $4.1 billion against $22.2 billion. However, all other segments of the financial market have experienced an exodus of foreigners who sold $14.1 billion worth of securities. Russian investors also flocked abroad, having bought foreign securities worth $10.2 billion in a year – almost 5 times more than a year earlier. As a result: the economy experienced a net outflow of private capital in the amount of $47.8 billion. Compared to 2019, the export speed has increased 2.2 times. Cumulatively since 1994, the net capital outflow from Russia reached $829.6 billion. This amount exceeds the GDP of countries such as Switzerland ($708 billion), Saudi Arabia ($681 billion) or Turkey ($650 billion).