Press release

20 Jul 2020 Moscow, RU

Despite the COVID-19 pandemic, 99% of foreign direct investment projects in Russia will be implemented

The results of the EY European Attractiveness Survey.

Press contact

Anastasiya Khutko

Senior Manager – Russia and CIS Brand, Marketing and Communications

Related topics COVID-19 Attractiveness
  • In 2019 Russia remained ninth among the top 20 destinations globally for investments.
  • Germany ranked first in the number of FDI projects, which increased by 50% to 36 in 2019.
  • Because of the COVID-19 pandemic, 10% of FDI projects in Europe were canceled and 25% more were frozen. 51% of businesses expect a minor decrease in their 2020 FDI plans, while 15% expect a substantial decrease.
  • In Russia 34% of FDI projects were at the completion stage, while 65% had obtained regulatory approval for further implementation this year. Only 1% of FDI applications still awaited approval.

2019 was one of the most successful years for Europe in terms of attracting foreign direct investment (FDI): 6,412 FDI projects were announced in Europe last year, a 0.9% uptick from 2018[1]. Foreign investors put up capital in 191 new projects in Russia in 2019. This indicator allowed Russia to remain ninth among the top 20 destinations globally for investments. FDI dropped by 9% in Russia in 2019 compared with the previous year. It’s worth noting that 55% of the European countries that are covered in this survey also showed a negative trend, and the total number of FDI projects in Europe increased by less than one percent (0.9%). The average rate of decline in the number of FDI projects among European countries with a negative trend was 34%. These are the results of the EY European Attractiveness Survey which has been held annually across 51 countries since 2010.

Despite the drop in FDI in Russia, the number of FDI projects remains high compared with previous years. The key factors included high levels of investors’ past activity against the backdrop of Russia’s sluggish economic growth and Western sanctions.

The growth of FDI in Europe is mainly due to a significant increase in foreign direct investment projects in France – investment in this country rocketed 17% to 1,197 projects in 2019. For the first time, France attracted more FDI projects than any other country last year. Investment in the UK increased 5%, demonstrating resiliency to Brexit uncertainty. However, the overall European trends were quite modest. This is due to increased tensions in international trade relations, uncertainty around Brexit, and a low rate of economic growth.

Locations

Germany ranked first in the number of FDI projects, which increased by 50% to 36 in 2019, a record number in the history of the survey. Germany has always been among the leading countries investing in Russia.

China and France shared second spot, establishing 22 projects each. The number of Chinese and French projects rose by 16% and 69%, respectively, in 2019. France has partly won back its title as a leading investor in Russia’s economy. China also stepped up investments in Russia after a dramatic drop of 59% in 2018.

The US slid to fourth spot in 2019, after ranking as the biggest foreign investor in Russia in 2018. The number of US FDI projects declined by 61% in 2019, from 33 projects to 20. The higher activity in 2018 should be attributed to investors’ adapting to sanctions against Russia and accepting them as the new normal. Investors began to adapt to the new realities in 2018, returning to projects suspended earlier because of the sanctions.

The share of European investors accounted for 48% of all investors on the list in 2018, soaring to 60% in 2019 as FDI dwindled from the US, Japan and South Korea while rising from Germany and France.

Sectors

For the fourth consecutive year, Russia’s agri-food sector attracted more FDI than any other sector, with the number of projects increasing by 28% to 41 in 2019. This growth was evidently driven by import substitution measures. The agri-food sector was the most attractive to Germany, establishing eight projects. Trailing behind were the US with seven projects and the Netherlands with four.

Machinery and equipment, historically the second-largest sector for FDI in Russia, posted a decline in the number of FDI projects in 2019, from 29 to 23. Germany was also the leader in this industry with seven projects, followed by the US with four projects and Finland with three.

Pharmaceuticals and logistics shared fifth spot in 2019. Pharmaceuticals ranked ninth among the sectors in 2018, slipping from second spot in 2017. In 2019, investors established 13 FDI projects in pharmaceuticals, up 62.5% from the previous year. Germany and France were the top two investors, establishing five and three projects, respectively, in 2019.

COVID-19’s impact on investments

Businesses around the world have revised their investment plans amid the COVID-19 pandemic and a plunge in oil prices. According to the survey of 131 European companies, 10% of FDI projects in Europe were canceled and 25% more were frozen. 51% of businesses expect a minor decrease in their 2020 FDI plans, while 15% expect a substantial decrease.

Alexander Ivlev, CIS Managing Partner: “Even though Russia has felt the impact of the economic crisis driven by the pandemic and oil price fall, previously started projects are still being implemented, and new deals are being signed. In May 2020, EY studied deals struck in 2019. 34% of FDI projects were at the completion stage, while 65% had obtained approval for further implementation this year. Only 1% of FDI projects still awaited approval. These figures are on average better than estimates for Europe, which is a sign that foreign investors in Russia have long-term and well-considered plans.”

It is worth noting that the approach to investment will also change under the influence of the crisis. According to the EY survey results, three megatrends are to drive European investment plans in the post-COVID world: the acceleration of cost reduction and customer access technology; a sharper focus on climate change and sustainability in investment decisions; and a reconfiguration of supply chains, with a new mix of reshoring, nearshoring and offshoring.

Methodology

The “real” attractiveness of Europe for foreign investors

Our evaluation of the reality of FDI in Europe is based on the EY European Investment Monitor (EIM), the EY proprietary database produced in collaboration with OCO. This database tracks the FDI projects that have resulted in the creation of new facilities and jobs. By excluding portfolio investments and mergers and acquisitions (M&A), it shows the reality of investments in manufacturing and services by foreign companies across the continent. Data on FDI is widely available.

An investment in a company is normally included in FDI data if the foreign investor acquires more than 10% of the company’s equity and takes a role in its management. FDI includes equity capital, reinvested earnings and intracompany loans.

However, our figures also include investments in physical assets, such as plant and equipment. And this data provides valuable insights into:

  • How FDI projects are undertaken
  • What activities are invested in
  • Where projects are located
  • Who is carrying out these projects

The EY EIM is a leading online information provider that tracks inward investment across Europe. This flagship business information tool is the most detailed source of data on cross-border investment projects and trends throughout Europe. The EY EIM is frequently used by government bodies, private sector organizations and corporations looking to identify significant trends in employment, industry, business and investments.

The EY EIM database focuses on investment announcements, the number of new jobs created and, where identifiable, the associated capital investment. Projects are identified through the daily monitoring of more than 10,000 news sources.

To confirm the accuracy of the data collected, the research teams aim to directly contact more than 70% of the companies undertaking these investments. The following categories of investment projects are excluded from the EY EIM:

  • M&A and joint ventures (unless these result in new facilities or new jobs being created)
  • License agreements
  • Retail and leisure facilities, hotels and real estate*
  • Utilities (including telecommunications networks, airports, ports and other fixed infrastructure)*
  • Extraction activities (ores, minerals and fuels)*
  • Portfolio investments (pensions, insurance and investment funds)
  • Factory and other production replacement investments (e.g., replacing old machinery without creating new employment)
  • Nonprofit organizations (charities, trade associations and government bodies)

*Investment projects by companies in these categories are included in certain instances: e.g., details of a specific new hotel investment or retail outlet would not be recorded, but if the hotel or retail company were to establish a headquarters or a distribution center, this project would qualify for inclusion in the database.

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY works together with companies across the CIS and assists them in realizing their business goals. 5,500 professionals work at 19 CIS offices (in Moscow, Ekaterinburg, Kazan, Krasnodar, Novosibirsk, Rostov-on-Don, St. Petersburg, Togliatti, Vladivostok, Almaty, Atyrau, Nur-Sultan, Baku, Bishkek, Kyiv, Minsk, Tashkent, Tbilisi, and Yerevan). 

[1] The survey tracks FDI projects that have resulted in the creation of new facilities and jobs. By excluding portfolio investments and M&A, it shows the reality of investments in manufacturing and services by foreign companies across the continent. (See the Methodology section)