Russian Economic Activity in the Developing World

Francisco A. Laguna & Jennie Linder Cunningham

In an earlier series, we discussed China’s economic influence in Africa, Latin America and Southeast Asia.  Today, we look at Russia’s global economic activity.

Moscow City Photo Credit: Melberg Via Wikimedia Commons

Moscow City
Photo Credit: Melberg Via Wikimedia Commons

Despite overwhelmingly positive expectations for the financial and political liberalization of Russia and the former Soviet states, more than two decades later, the Russia of today far more closely resembles an economically liberalized but politically authoritarian state on the order of China rather than western countries. This is a particularly intriguing time to examine these tendencies in Russia, in the wake of several recent censorship and leaking scandals (Edward Snowden, Wikileaks, Bradley Manning, etc.) as well as Russia’s role in the brokering of the Syria chemical weapons solution.

Map of  Russia Fremantleboy Photo Credit: Via Wikimedia Commons

Map of Russia
Fremantleboy Photo Credit: Via Wikimedia Commons

The United Nations considers Russia (the Russian Federation) to be a transitioning, rather than developing, economy, like China, Brazil and India. Russia itself was ranked 8th in the world as an investor country, behind only the US, Japan, China, Hong Kong, UK, Germany and Canada, and accounted for 92 percent of total outward foreign direct investment (FDI) from all transition economies, even though total investments fell in 2012. Russian FDI tends to focus on natural resource-related companies.  Interestingly, however, investments in foreign financial sectors topped natural resource investments in size during 2012.

In 2012, the BRICS countries accounted for $145 billion in global outward foreign direct investment – 10 percent of the world’s total – and continue to be the primary source of FDI for emerging investor countries. China and Russia account for the majority of those outbound BRICS investments.

Saint Petersburg  Photo Credit: Heidas Via Wikimedia Commons

Saint Petersburg
Photo Credit: Heidas Via Wikimedia Commons

In Africa, Russian FDI has grown very quickly, and follows patterns similar to Chinese investment patterns in the region: the search for natural resources and raw materials, including strategic commodities, as well as locating and obtaining new markets. Russian banking moved into African countries like Cote d’Ivoire and Nigeria, and Russian-owned Renaissance Capital (RenCap) continues to increase investment in Africa, particularly in sub-Saharan markets, hosting its 4th Annual 1:1 Pan-Africa Investor Conference in Nigeria earlier this year.  RenCap is an emerging markets investment bank, part of the ONEXIM Group, one of Russia’s largest private investment funds, focusing on the mining industry and innovative projects in energy and nanotechnology”, finance, media and real estate.

Russian FDI is also heavy in the former Soviet states, many of whom have limited and developing economies, and sometimes characterized as authoritarian regimes. Recipients include Armenia, Belarus, Bulgaria and Uzbekistan. Regional projects tend to be natural resource-related, particularly oil and petrochemical investments, extending far into the eastern reaches of Europe. Top Russian multi-national corporations, including LUKOIL and Gazprom, have also been very active in regional foreign investment.

TransLegal works in Russia to understand local laws and regulations governing how to do business in the Russian Federation.  Call us with your questions concerning Russia.

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