Question of the day: why have both local and foreign companies stopped investing in Russia?
Analytics

Question of the day: why have both local and foreign companies stopped investing in Russia?

26 January , 11:59
In 2020, investments in our countries practically stopped not only from foreign companies, but also from the Russian ones.

Russia has become a country without foreign investment - neither foreigners nor domestic oligarchs from offshore companies invest. Foreign direct investment in Russia was practically absent last year. According to the Central Bank, they amounted to a measly $ 1.4 billion, or 0.1% of GDP.

According to the balance of payments data, there was practically no foreign direct investment (FDI) in Russia in 2020. They amounted to $ 1.4 billion or 0.1% of GDP (in 2019 it was $ 28.9 billion or 1.7% of GDP). If you look at the cumulative total for 4 quarters (right graph), then there was less only after the Crimea. And in the 2000s, we attracted a large amount of FDI, which reached $ 65 billion (3.9% of GDP) in 2008.

At the same time, the net capital outflow from Russia in 2020 amounted to $ 47.8 billion.

For comparison, in 2019 the figure was at $ 22.1 billion.

Financial analysts explain this process by the fact that most large Russian companies are registered offshore. And this is where the profits of the owners settle, which are then often returned in the form of FDI. The failure of FDI is not only evidence of the loss of interest of foreign investors in Russia, but also an indicator that Russian oligarchs are also not eager to invest here. By and large, we do not see any difference at all between foreigners investing in Russia and “ours”. "Our" - they are only more manageable for the authorities. But the capital has no nationality.

In addition, the devaluation of the ruble and political scandals in the country influenced the drop in investment levels.

Economist Dmitry Prokofiyev and financier Nikita Demidov lucidly explained the reasons why this is happening in Russia:

“One of the explanations why the“ police state ”cannot play“ modernization ”and break through the ceiling called the“ middle income trap ”. It seems like they bought the technology, and the boss calls for growth, and they give money - but it doesn't work. "Physical capital" (machines, machines, iPhones and tomographs - there are), but "turn it on - it doesn't work." There is not enough human capital, economists explain. And where does he go?

It seems there are bulldozer courses, management schools, and entrepreneurship universities all over the place. And for some reason there are not enough people with the necessary competencies. It is not enough just to “invest” in human capital; you need to make sure that these investments are in demand. Moreover, they are in demand actively and constantly. And there are problems with demand

Why - explained Professor Milan Svolik, author of the book "The Politics of Authoritarian Rule". (As an example, he considered Argentina during the military junta).

In an "authoritarian state" a person has, in essence, only two career tracks, Svolik explained.

You can get an education that allows you to live by your own labor (no matter what kind, even a mechanic, even a dentist). There are risks here - there is no guaranteed income. But on the other hand, there is no dependence on the policy of the regime - even if the caudillo is in power, or even the people's council - someone has to fix the taps or put teeth in. In this case, such a professional is motivated to invest in his human capital and improve his skills - this will come in handy for any boss.

But instead of a "professional career" you can choose a "police career" and enroll in the detachments of armed mercenaries of the authorities (or their accomplices). There is a demand for these too. There are many advantages here - guaranteed income, career, and personal safety.

True, in exchange for loyalty, the regime will demand complicity from the "policeman" in his crimes. Maybe in small ones, and maybe in significant ones.

Therefore, Professor Svolik calls investments in a “police career” (in all forms) under an authoritarian regime “non-transferable” - they can be justified only if the regime is preserved. Change the power - the "policeman" will have to answer for what he did.

“It is not easy to make a correct risk assessment in such a situation. If the regime is at the peak of its power, it seems that the overwhelming majority of its servants are projecting the current situation into the future, believing that nothing threatens them, "Russian economist Ivan Lyubimov commented on Svolik's findings.

Why is this choice bad for economic development? Because the more people choose (in one form or another) a "police career", the more the market for "professional career" shrinks.

The less demand for “professionals”, the less motivation for investment in education and high technologies.

People are well aware that there is no point in wasting time, effort and money on "education" - when the same benefits can be obtained with less time and effort, simply in the right place and at the right time by swearing allegiance to the authorities.

The greater the demand for "police" and "security guards" - the less demand for "professionals" and "innovators".

Authoritarianism can push the economy in a “short distance”, but it slows down the country's economy “in the long run”, because it distorts the system of incentives for investment in human capital.

Therefore, there is no investment, because “there are no people with the necessary competencies”, and “there are no people”, because people do not see the point in obtaining such competencies - they just earn their living differently and put efforts in a different direction.

All these crushing "oh, there are no professionals, where are they" is meaningless - today we are reaping what was sown in the mid-2000s, when the key political decisions that determined the current economic and social appearance of the country were finally adopted..."

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