Entertaining capitalism

The main investments in the Russian economy were loans from state-owned companies

Growing macroeconomic indicators are gradually making Russia one of the leaders among investment-attractive countries in the world. Statistics from the first half of 2007 show that, despite constant talk about corruption, administrative barriers, an imperfect system of property protection, etc., investors fell in love with Russia for its high profitability against the backdrop of declining (or already habitual) risks.

According to Rosstat, in the first half of the year, investments in Russia amounted to $60.3 billion (this is 2.6 times more than in the first six months of last year). At the same time, as Rosstat notes, the significant increase in investment is explained by the significantly increased volume of loans attracted from abroad. According to statistics, today the largest share of accumulated foreign capital falls on loans (52.8%). The share of direct investment is 45.2%, portfolio investment - 2%. “The banking sector received serious credit. The situation was favorable; in the first half of the year, interest rates were quite low. At the very least, they were not comparable with the potential profitability in Russia,” Anton Struchenevsky, an economist at Troika Dialog, told Vremya Novostey. “As you know, a large share was made up of loans attracted by Gazprom and Rosneft, especially Rosneft, which took out two large syndicated loans worth more than $20 billion,” recalls Igor Belyakov, an analyst at the Economic Expert Group.

The volume of lending to the private sector has long been a concern for a number of economists and officials. At one time, Finance Minister Alexei Kudrin even proposed legislatively limiting the credit appetites of Russian state-owned companies, which are most active in this market.

“Judging by the ratio of private sector debt to GDP, everything is reliable here, but if we look at exports, then these indicators are partly alarming. Perhaps we will soon reach a critical point. Since all this (lending to state-owned companies. - - Ed. ) occurs against the backdrop of very good economic indicators, anxiety is not strongly felt. But nevertheless, this issue may become more acute in the near future,” says Igor Belyakov.

In the first half of the year, Russian companies were also eager to invest, using all opportunities to effectively withdraw funds from the Russian economy. Rosstat reports that in January-June almost $37 billion was invested abroad, which is almost two and a half times more than in the first six months of last year. However, it must be borne in mind that the lion's share of these investments was directed to countries that, in turn, are among the leaders in investment in Russia. These countries, so-called offshore zones, have attractive tax legislation, which makes investing through them more profitable.

As before, the largest investment flows in both directions closely connect Russia with Cyprus, the Netherlands, Great Britain, and Luxembourg. The first half of 2007 was no exception. True, as Anton Struchenevsky says, today it is no longer possible to assume that the investments passing through these countries are Russian: their volumes are too large. “Of course, there is some Russian money that was transferred abroad. But you shouldn’t blame everything on this. It’s just that Great Britain, Cyprus, the Netherlands, Luxembourg are places from which it is convenient to make investments. There are no serious restrictions on capital flows today,” he explains.

It is noteworthy that in the second quarter, according to Rosstat’s methodology, Great Britain became the absolute leader in terms of investment volume, despite the interstate conflict and London’s mute threats to limit economic cooperation. In addition to these four, the main countries investing in Russia in the first half of the year, according to Rosstat, were Switzerland, France, Germany, Ireland, and the USA. All these countries accounted for 86.3% of the total accumulated foreign investment and 85.1% of the total accumulated direct investment.

Meanwhile, in the second half of the year, the extremely favorable investment situation for Russia may change due to negative phenomena in global finance caused by the crisis in the mortgage market in the United States. “The situation is changing against the backdrop of events in the global financial system. I think that in the second half of the year the inflow of capital will be much lower compared to the abnormally high one in the first. Moreover, the situation will affect not only Russia, but also all emerging markets. Usually, after such events, investors lose their taste for risky investments for some time and begin to focus more on less risky assets rather than on profitability. And although Russia looks very advantageous compared to other emerging markets, according to formal rules we fall into the category of risky markets. We can already see that in July the net capital inflow was almost zero. There was even an outflow of capital in August,” says Anton Struchenevsky.

However, Igor Belyakov is more optimistic. He hopes Russia's "strong and reliable" economic performance will keep investors interested in Russia. In his opinion, this will also be facilitated by a possible decision to raise the country’s sovereign rating by the Fitch rating agency, whose experts recently came to Russia. Mr. Belyakov, however, does not rule out that if the current unstable situation in the financial world “leads to a slowdown in economic growth,” this will affect investment in Russia. “But until then, by inertia, the positive scenario in Russia will continue,” the economist is confident.

Vera SITNINA, Mikhail VOROBYEV