Studies Eastern European Markets
Eastern European Markets
Kari Liuhto & Jari Jumpponen
THE INTERNATIONALISATION BOOM OF RUSSIAN CORPORATIONS

- Studies of Russian Banks, Energy and Metal Companies

Research Report N:o 135, 20002. Lappeenranta University of Technology. Department of Industrial Engineering and Management

    Abstract

    The outward direct investment stock of Russia amounted to some USD 15 billion at the beginning of 2002. Recorded outward direct investment covers only a small part of the total capital outflow from Russia abroad. Capital flight represents the core of Russian capital outside Russia. During the period 1994ñ2001 recorded annual FDI outflow was approximately 10% of capital flight. The Russian government should continue fighting against illegal capital flight while simultaneously support the internationalisation of Russian corporations, since Russian companies and the Russian economy as a whole cannot become truly global without investing abroad. Via a more active participation in global business Russian corporations can prepare the Russian economy for approaching WTO membership. Moreover, the activities of Russian companies in the enlarging EU market facilitate the building of the Common European Economic Space between Russia and the EU.

    The recorded FDI outflow from Russia has multiplied since the mid-1990s. In fact, the FDI outflow in 2000 was almost 10-fold the mid-1990s amount. According to non-confirmed estimate, the recorded FDI outflow from Russia exceeded USD 3.2 billion last year. The growing FDI outflow suggests that the financial position of some Russian companies has significantly improved, making them increasingly interested in expanding abroad. The outflow is expected to increase along with more active participation of Russia in globalisation.

    It should be stressed that recorded FDI covers only a small part of the total capital outflow from Russia abroad: capital flight, which represents the core of Russian capital outside Russia, has to be taken into account in trying to reach an accurate estimate of outflows. A rough calculation shows that during the period 1994-2001 recorded annual FDI outflow was approximately 10% of capital flight
    Where have the Russian Investors Landed?

    At the end of the 1980s, less than 500 Soviet enterprises operated abroad. A decade later, a multitude of Russian companies had been established beyond Russian borders (Jumpponen, 2001; Liuhto & Jumpponen, 2001).

    Goskomstat (2000) data indicates that the overwhelming majority of Russian direct investment in 1999 went to the USA and the EU, especially the UK. Goskomstat offers much lower figures for Russian investments in ex-socialist states than some Western sources. For example, the PlanEcon Report (2001) suggests that at least 1/3 of the Russian FDI has landed in the former socialist block.

    According to Poland's statistics, some USD 1.3 billion of Russian capital has been placed in Poland, roughly 10% of Russia's outward FDI stock. Russia is the 10th largest investor in Poland with her 2%-stake. The five biggest foreign companies in Poland are: (1) France Telecom (USD 3.20 billion), (2) Fiat (1.64), (3) Daewoo (1.55), (4) Citibank (1.30), and (5) Gazprom (1.28).

    Gazprom has equity investments at least in two Polish companies: Gas Trading and Europol Gaz. The overwhelming majority of Gazprom's investments in Poland have been placed in Europol Gaz. Gazprom holds a 48%-stake of Europol Gaz. This company owns the gas pipeline, Yamal-Europe, inside the Polish territory.

    Bulgaria has attracted over USD 200 million of the Russian FDI. The biggest single investments in these countries have been placed in the gas and oil industry. For example, Lukoil, the biggest Russian oil company, has bought an oil refinery in Bulgaria .

    Russian corporations have invested over USD 130 million in Latvia. The three biggest Russian investments in Latvia are: (1) Latrostrans (Investor: Transneftprodukt; Investment: USD 62 million; Field of operation: transit of oil products), (2) Latvijas Gaze (Gazprom; USD 19 million; gas supply), and (3) Lukoil Baltija (Lukoil; USD 15 million; the transit of oil products and their trade). These three investments cover over 70% of the Russian FDI in Latvia. Russian energy companies have also been active in Lithuania. Lukoil is the biggest Russian investor in Lithuania. It has invested some USD 25 million in Lithuania through Euro Oil Invest, an investment company based in Luxembourg. In addition to Lukoil, Yukos has invested in Lithuania. It acquired a stake in the Mazeikiu oil refinery in June 2002 . If one includes this USD 75 million-investment of Yukos, the total Russian FDI in Lithuania will jump from the current level to close to the Russian investments in Latvia. Energy companies are behind the majority of Russian FDI also in Estonia. The biggest Russian investor is Gazprom, which holds almost one third of the Estonian gas company, Eesti Gaas.

    Besides equity stakes in the Baltic States, Gazprom is eyeing gas companies all over CEEC and the CIS. Gazprom aims at buying new stakes of Central East European gas companies (for example, Bulgargas in Bulgaria, SPP in Slovakia, MOL in Hungary, Lietuvos Dujos in Lithuania and petrochemical companies in Romania) or increasing its share in companies, where it already possesses a foothold .

    Currently, the researchers are not able to provide a comprehensive picture on the foreign nests of the Russian eagle. A further study concerning Russian investments in the CIS might contribute to the knowledge of Russia's outward FDI. A further study might reveal that significant Russian investments can also be found in Azerbaijan, Belarus, Kazakhstan, Turkmenistan, and Ukraine. Moreover, a closer investigation of Russian business expansion in the current EU member states and EU applicant countries would show to what extent the Russian enterprises have already been integrated into the enlarging European Single market.


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