DUSHANBE, September 30, 2014, Asia-Plus -- The Eurasian Development Bank (EDB) has released Monitoring of Mutual CIS Investments 2014.

This is the fifth report on the results of the long-term research project devoted to monitoring of mutual direct investments in the CIS countries and Georgia.  The report provides detailed information on the scope and structure of mutual investments of CIS countries up to the end of 2013.  It provides information on the most important trends in the first half of 2014, including the situation in Ukraine and its impact on the Russian direct investments in the country.  The report also presents an analysis of the prospects for mutual direct investments of the Eurasian Economic Union countries.

The database of monitoring of mutual direct investments in the CIS and Georgia has been maintained since 2011.  As of September 2014, it contains comprehensive information obtained from open sources on 1,100 investment transactions in the region committed since 1992.  Just as in previous years, the MIM CIS data diverge from the official statistics, which is clearly illustrated by the Russian foreign direct investment (FDI).  This is primarily due to the extremely high value of the investments made through offshore companies and other trans-shipping jurisdictions.

The report, in particular, notes that outside investors are unwilling to invest in Abkhazia, South Ossetia, and also Tajikistan due to the high political risks (including foreign policy risks).

They are followed by Belarus, Uzbekistan and Armenia. Very high figures, with the share of Russian investors is at the level of 10–20%, are characteristic for Ukraine, Kyrgyzstan and Moldova. They have only a few foreign counterparts to be compared with — such as Bosnia and Herzegovina through investments of Zarubezhneft in Republika Srpska.

According to the report, Georgia indicated the lowest share of Russian companies in the total FDI stock in the region.  But even this value is similar to the countries popular among Russian investors, like the Baltic States, Mongolia, Iraq, Serbia, Montenegro, Bulgaria and Greece.

In May 2014, an agreement was signed on the establishment of the Eurasian Economic Union from January 1, 2015.  Most likely it should have a positive impact on Russian FDI in Kazakhstan and Belarus, and possibly also in Armenia and Kyrgyzstan, which are planning to join the union in the future. However, the situation is not quite clear for mutual FDI of these countries, confirming the lack of effect of the CU for investments expected in the medium term.

In Kazakhstan, Russian investors face strong competition with multinational corporations (MNCs) from other countries: Chinese MNCs in the resource sector; and the Western technology suppliers. Infrastructure projects are one of the most promising areas for joint investment by Russia and China, both in Kazakhstan and other Central Asian countries.

Like neighboring Tajikistan, Kyrgyzstan for a long time will be characterized by an unstable political situation, regularly accompanied by redistribution of property, the report says.  This is also not likely to contribute to improvement of investment attractiveness for Russian companies.

In summary, it can be noted that, among all foreign countries, for many years post-Soviet countries were considered by Russians as the most comfortable area for doing business.  However, a qualitative leap in the Russian investment expansion in the region never happened.  It must be remembered that without full corporate integration (integration “from below”), political and economic projects of rapprochement with the CIS neighbors initiated by Russia will be doomed to fail in the long run.  This means that it is high time to develop a full-fledged state regulatory policy, and in some cases even to stimulate legal export of capital from Russia, especially into the neighboring countries.

At the end of 213, the scope of mutual FDI between Russia and Tajikistan reportedly amounted to 1.3 billion U.S. dollars while the scope of mutual FDI between  Kazakhstan and Tajikistan at the end of last year amounted to 70 million U.S. dollars.