Studies Eastern European Markets
Eastern European Markets

December, 2005

Peeter Vahtra
Electronic Publications of PanEuropean Institute, 9/2005

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Along with the economic upturn of recent years, the Russian enterprises have become more active in their internationalisation ventures. Whereas the current investment trendsof Russian companies include increased geographical diversification of investments, the share of CIS countries among the investment targets of Russian enterprises is again in the rise. In the current paper, the phenomenon is discussed through providing corporate examples on Russian investments in the CIS region with related discussion on economic and political influence they leverage in Russia’s neighbouring areas.

Due the fact that Russian companies invest abroad through offshore units and investment companies, the official statistics often possess weak explanation power when assessing the Russian investments in the region. The Russian investments in the CIS are largely channelled through third countries, such as Cyprus, Netherlands, and British Virgin Islands. In nearly all the CIS economies, the three countries continuously appear on the list of top foreign investors. Hence, as the statistical data is of little use in determining the Russian business presence in the CIS, the alternative approach was employed, providing several company cases and discussion on the extent and influence of Russian enterprises in the CIS.

During the recent years, Russia has come close of regaining her superpower status, onlythis time leveraged by her economic resources. The Russian leading enterprises bear strong economic and, in some occasions, political influence in the neighbouring CIS countries. At current, few countries in the world hold the leverage comparable to that of Russia in their neighbouring areas. Employing her vast natural resources and related economic power, Russia has established considerable economic empire near abroad. In several occasions, Russia’s leading companies have acquired control over entire industrial sectors of the CIS countries.

In Ukraine, for instance, Russian oil companies’ estimated share of petroleum market stands between 80 and 90 per cent. Similarly, the country’s mobile telecommunication sector is dominated by the Russian mobile companies; currently four out of five leading mobile operators in Ukraine are majority27 owned by Russian entities, accountable for lion’s share of Ukraine’s subscriber base. One can add to the list the major acquisitions of Gazprom in the CIS countries, in many of which the Russian gas giant is the sole supplier of natural gas and the majority owner of national gas companies, and the giant oil exploration projects by Lukoil in Kazakhstan and Uzbekistan. Further still, the Russian electrical energy monopoly, RAO UES, controls major assets and extensive power grid throughout the CIS.

'In the foreseeable future, the Russian energy sector will remain the core of Russia’s economy, and, consequently, the main driver of the country’s foreign economic policy interests. The growing Russian economic resources and developing enterprise sector are the leading bearers of Russia’s influence in her neighbouring regions, in contrast to the military resources of the past. For many of the CIS countries, the presentday

Russia is the most viable economic and political partner while others are fighting to shrug off the past dependencies on Russia. Whether the dependencies are broken or strengthened, will increasingly depend on economic developments in the region, among which the crossborder investments play the key role.

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Mirja Mäkelä
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Turku School of Economics and Business Administration
Pan-European Institute
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