Foreign direct investment (FDI) into Russia rose in in the first half of 2017 to $17bn, as the mild economic recovery begins to pull foreign capital back into the country. However, the bulk of this money is actually Russian capital flight returning home via offshore havens, the Bank of Finland Institute for Economies in Transition (BOFIT) reported on December 8.
Outward FDI flows from Russia to its neighbours also increased slightly from the first half of 2016 y/y, with a net outflow of $16bn. For most of the last two decades Russia has been a net exporter of capital as Russian companies invest more into the “near abroad” than foreign companies invest into it. The total FDI stock in Russia was $405bn, while the Russian FDI stock abroad was $435bn or about 30% of GDP, BOFIT reports.
“While Russia's economic problems in recent years have reduced direct investment, the impacts have generally been limited. Most Russian FDI flows are, however, Russian capital that has been recycled through e.g. Cyprus or the Bahamas and invested back into Russia. The reasons for this recycling include e.g. Russia's own institutional weaknesses and a quest for more favourable tax treatment. The government has tried in recent years to diminish capital recycling and make Russian firms repatriate their operations,” BOFIT said in its weekly report.