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Friday, October 28, 2016

Foreign investors are returning to Russia

Investments foreign financiers in the Russian economy after the introduction of our country against economic sanctions has not fallen significantly, but on order. Many foreign companies fear that their money will not return, and will be lost. But, as practice shows, it is not. Russia has the opportunity to restore in the world market. Moreover, we have the advantage of allowing you to stay ahead of the competition.

photo: Gennady Cherkasov

More expats — more investment

Ten years ago Moscow and all Russia, was considered for Western investors a tasty morsel. Relatively stable economy, supported by high oil prices inspired confidence that our country can earn, but simply put — sugar is sweet. Expats, foreign experts do not hesitate to work in the Kingdom of eternal winter, balalaika, ear flaps, and polar bears,” the crowds poured in Russia, to Supplement the purses with revenues from domestic resources.

Came with families, that is, were ready to settle in for a long time. Have bought apartment or shelter they provide the company in which they worked. A stronghold of foreign specialists were employees of the United States and Europe. But a lot of experts came from the Middle East or India. Almost half of the “hunters Russian treasure he held senior positions.

Together with expats in Russia dragged on foreign investment. For example, in the first half of 2007 foreign revenues for our country exceeded $60 billion, which was more than 2.5 times more than the year before. Overall for 2007 the volume of foreign investments into Russia exceeded $120 billion.

Even the crisis of 2008-2009 has shaken the faith of foreign financiers in the promise of our country. Of course, during the crisis, investments decreased initially in 2009, according to Rosstat, the number was just over $80 billion But in 2011 investment income increased to $190 billion, Even to the point of entering against us Western sanctions we came up with a good result in 2013 investment was at least $170 billion.

Less investment — less expats

After the introduction of sanctions, the situation is a mirror turned. Especially this was noticeable when you look at the number of foreign specialists working in Russia, they began to flee from our country. According to the FMS, in early 2015, the number of expats is only in the US and Western Europe to Russia decreased by 34%.

It turned out that the number of expatriates in proportion to the foreign investments. As evidenced by the report of the UN Conference on trade and development, in 2014 foreign direct investment in Russia fell by 70%.

Maybe a complete collapse and it did not, but was dealt a severe blow. In 2013, our country was ranked third in the world in terms of foreign investment. We conceded only the USA and China. After just two years as a springboard, we have fallen into a much worse position and is actually in the list of losers.

In 2015 amid falling oil prices and low ruble exchange rate and further deterioration of international relations wishing to invest in the Russian economy is markedly diminished. According to the UN Conference, foreign investments in Russia last year decreased by 92%.

About the lack of interest of foreign investors to our country, testified survey data analytical holding BDO International Business Compass, which are held annually in conjunction with the Hamburg Institute of world Economics among 174 countries. In 2015, Russia has taken only the hundredth place. 100 — the number is undoubtedly sacred, but we have fallen below Nicaragua, Paraguay, Vietnam, and other developing countries.

You can add on to that the outflow of capital from Russia. In 2014, it exceeded $151 billion — a record figure in the history of the country. In 2015, it crawled to $57 billion — in fact, to take there was nothing.

It is clear that in terms of anti-Russian sanctions and a lack of confidence in our economy to rely on capital inflows would be weird, but this investment of “flight” was not expected.

In other words, the Crimea returned to Russia two years ago, has cost far too much.

However, the Ukrainian conflict and sanctions have scared away investors from our country. The UN estimates that investment in emerging economies (Southeast Europe and all States of the CIS in 2014 decreased by 51%. In particular, in Ukraine foreign direct investment reached negative values. According to estimates of the UN Conference, the outflow of investments from the Square then was $200 million.

Elephants remember for a long time

It would seem that foreign investors agonize when I think of Russia. Indeed, over the past two years, our country appeared a lot of competitors that have to compete for funds. Now not only is China well-known third world economies (according to some estimates, even the first), but most Asian States and Africa. On the world scene the countries of the Black continent, which has significant reserves of oil, gas and metals.

The Ministry of economic development admits that by the end of 2016, rely on the inflow of foreign capital is not necessary. According to its head, Alexei Ulyukayev, a small increase will only begin in 2017.

At first glance, to believe that economic Agency is to bet on zero. Previously, the Ministry Ulyukayev predicted that the decline in investment in the Russian economy in 2015 will amount to only 10.6 percent in 2016 and all will begin to rise by 3.1%. This, as we have seen, did not happen. Real, not projected numbers, at least for 2015, we have cited above, and they were far from optimistic forecast of economic development.

Assessing these indicators, it is possible to believe that it is time to “cut the veins” or “stick your head in the noose”. Interest in our market is still large, but the mass arrival of foreign capital still lacks main conditions: a stable economy and a clear geopolitical situation.

However, foreign investors did not retreat. Frank fleeing their actions can not be named. It was a deliberate and short-term retreat. The money in Russia continue to go. And not only in Russian bonds that would be needed to pay interest, but in the campaign that serve as some guarantee of confidence in the Russian economy as a whole.

The MICEX index stormed all-time highs, despite the fact that the recession has not yet ended, and geopolitics has not changed much in favorable for the Russian side: the sanctions are not lifted, and the chances of being elected are loyal to our country, Donald trump President of the United States is highly unstable.

But what inspires investors are primarily dividend payments of Russian companies. For example, if Russia will finish in Europe, the gas pipeline “Nord stream-2, which prevents Brussels, his Western owners will be able to obtain in the coming years as dividends of about $7 billion.

In addition, judging by the fact that the visits of Western financiers in our country in recent times (evidenced by the representatives of Russian companies), they are eyeing the purchase of Russian securities.

Over the past year the number of projects in Russia, which invested by foreign investors increased by 61%. Statistics shows no immediate money, but in the future there is an understanding that the funds will still go and our businesses will be able to use them. Thus, the results of study of investment attractiveness of Europe conducted by Ernst & Young, the figure in Russia was one of the highest among the countries of the Old world. The most attention of foreign investors attracted by the sphere of Russian production.

We will present the main findings of the study: Russia retained the 8-th place among European countries in activity of international investors and is ranked fourth in Europe in number of projects of foreign direct investment (FDI). Moreover, the number of FDI in Russia grew by 61%. The rate of growth of Russia managed to come out on top in Europe among 10 European countries with the largest number of FDI projects. For Russia followed by Poland where the growth was 60% and the Netherlands with the similar figure at 47%. Jobs created thanks to FDI, Russia ranked 4th place in Europe.

In other words, the threshold of the fresh money that could help the ruble. After all, in order to purchase ruble-denominated securities, to provide new jobs, you have to first buy rubles. Foreign financiers have to spend dollars, respectively, the Central Bank will not have to return to the policy of foreign exchange intervention.

Or “checkers” or “go”

But do we need these investments? Or rather, whether they are necessary to our state? Lately, the dollar is kept in the area of 63-64 rubles (recall that in the early years the cost of “green” exceeded 83 ruble). Sometimes the dollar has fallen to 62 rubles. It is hoped that this corridor we will see in the near future.

It is no secret that many politicians and economists believe that the ruble is artificially “kept” before the elections to the state Duma. It is not so. Russian officials have long complained about the strong ruble, which is “strangling” export and inhibits import substitution and the Central Bank made it clear that he did not intend to intervene in the free exchange rate, do not plan foreign exchange intervention in one direction or another.

To turn the situation against the ruble unless the sharp decline in the key rate of the Central Bank or the collapse of oil prices. Unlikely. In the case of a sharp decline in key rates will decrease the yield on ruble-denominated bonds and the inflow of speculative Western capital.

There are optimists who believe that the Central Bank at the next meeting of the Board of Directors may decide on the reduction of the key rate by one percent, from 10.5% to 9.5%. But this kind of fiction. According to the Central Bank, the difference between the level of inflation and size of the key rate should be around 2-2,5%, and if you start from the projected inflation at 7% this year, the size of the key rate should be in the region of 9.5%.

But even with this size of bet capital will continue to go to Russia, keeping afloat ruble quotes. In addition, the Central Bank considers that in order to fight inflation it is better to overdo than insufficient salting. According to the Bank of Russia, namely high interest rates will reduce consumer price growth to 4-5% in the coming years.

As for oil prices, they are likely to find balance around $50.

Global demand for oil increases. The global economy will grow by about 3% this year, and some developing countries, especially such large, as China and India increase their consumption by 6.5–7%. Moreover, if China will continue to buy raw materials for strategic stockpiles, prices will remain at their original locations.

However, when quotations in excess of $50, there is a possibility of growth in the supply of a commodity relative to demand. Assuming a production growth of shale oil in the United States, the danger is escalating.

There are long-term risks to oil prices. Are they in the development of alternative energy. It is most unlikely that oil prices will return to $100 or $80.

However, the oil price forecast — a thankless task. Short-term prices will be influenced by speculation about freezing of oil production, a kind of strategic agreement of Russia with OPEC. The odds are there. Why does Russia need — a question special. We don’t want to cut government spending and to rapidly spend the reserves, it is better to stake out for themselves the more favorable prices in the case of freezing.

Keep your money in a “miscellaneous offices”

But for most oil — the subject specifies. Everyone knows this word, know that this factor depends on the development of our economy and welfare, but they do not assess the impact of “black gold” has on Russia as a whole.

Everyone looking at the ruble. Now, even with the relatively positive short-term view on Russian money and currency risks still exist. Therefore, savings is always relevant, a reasonable diversification of assets, including currency and ruble deposits, bonds and stock market instruments. However, if someone understands them.

But the most attentive can invest the excess funds in mutual Funds, Russian stocks and bonds, the profitability of investment in which is likely to interrupt the Deposit yield. Interest rates on deposits decreased after inflation. In addition, banks tend through lower payments on deposits to obtain additional profit.

Stock population is the total mass of fear, fear of excessive volatility. In vain. In the long term, stocks beat not only inflation but also bonds. One of the richest people in the world — American financier Warren Buffett — made their capital for a successful investment in shares.

Naturally, such investments can be done, if there is free money. But as practice shows, they are not practical in 90% of the Russian population.

Sanctions . Chronicle of events

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