Foreign Investment in Russia Grows Again
The inflow of foreign investment to Russia nearly doubled between 2004 and 2005, from about $38.8 billion to $73.3 billion. As was noted in the most recent "Newsletter of the Bank of Russia," the increase was brought about by the growing investment appeal of Russia.
Direct foreign investment, according to the Central Bank, reached $14.6 billion - an amount comparable to the total Russian direct investments abroad at $13.1 billion. Also, 2005 saw a $0.9 billion outflow of foreign portfolio investments (down from an inflow of $3.5 billion last year), and an three-fold increase ($10.7 billion) in portfolio activities of Russian companies abroad. Both Russian and foreign companies withdrew capital from the Russian share market while mainting the volume of direct investments at former levels.
In this process, the most active players were banks. They actively sought foreign loans, thereby putting money into foreign assets: of the $10.7 billion in Russian portfolio investments, $9.1 billion came from these loans.
The Central Bank has noted that direct foreign investment, excluding that into the financial sector, has reached $12.6 billion with a positive balance of $1.5 billion. This means that foreign investors have invested a little more into Russian enterprises than Russia has invested in enterprises abroad. The Central Bank also noted that this balance would be greater if not for a number of "significant exits from stakes in Russian enterprises by non-residents," which appears on the balance sheet as an outflow of capital. Lastly, the Central Bank noted that "a fundamental change in the structure of the external debt of the country" occured in 2005 due to a reduction of the share of government debt; In 2004, it made up almost half of cumulative external debt of Russia, while in 2005, about a third. The external debt for the Russian Federation increased last year by 20.5%, or to $258.5 billion, with promissory notes from the private sector accounting for $176.2 billion of this.