The Russian economy (catch all)

[Firn]

Just short article at the Russian economy in terms of capital inflow or better capital flight.


In

The real potential damage to Russia's economic future is self-inflicted. The real fallout from a prolonged conflict in Ukraine, or even of a worsening of the already negative international perception of Moscow's role in the affairs of its neighbor, may be to radically slow the inflow of much-needed investment capital while capital outflows accelerate.

Last year, Russia scored a spectacular success in attracting $94 billion worth of foreign direct investment according to a report compiled by the United Nations and released in mid-February. That was a jump of 83 percent over the previous year and placed Russia third in the table behind China, which attracted $127 billion, and the U.S. with $159 billion. Some of the high figure was due to the BP investment into Rosneft as part of the deal to sell TNK. But the success of Russia's Direct Investment Fund, which attracted about $10 billion of fresh commitment in 2013, is also an important factor, The fund is well-placed to repeat that success in the coming years.

That money is critical if the country is to pull out of the current growth slump and achieve the targeted annual growth rate of 4 to 5 percent. Last year, the economy grew at just under 1.3 percent, and the macro data published for January suggests the annualized rate has slowed further, possibly to less than 1 percent. While some government officials are talking optimistically about a bounce in the economy from the spring or in the second half of the year, others are more realistic. Despite the fact that the weak ruble and high oil price are boosting the revenues of the federal budget, oil wealth is no longer capable of delivering higher growth. The combination is certainly helping to improve the national balance sheet, but it is definitely not a growth driver.

Out

But attracting foreign capital is only part of the story, of course. Russia also needs to persuade its own citizens to keep their money at home and to invest in their own country's future. Capital flight is a catch-all description that combines normal trade and capital flows with individuals' money being exported out of the country, which is estimated to be about one-quarter of total capital flight. In 2013, total capital flight was $62.7 billion. This means that about $15.5 billion, or 50 percent more than the Russia's Direct Investment Fund attracted from big investment funds in the Middle East and Asia, is money that individuals prefer to save or spend elsewhere rather than at home. Between 2008 and the end of 2013, capital flight totaled $420 billion. Applying the same formula suggests that more than $100 billion of that was from individuals.

Although only two months into 2014, this year is already shaping up to be another big one for capital flight. The total for January was $17 billion, or just greater than the $16.6 billion reported for the fourth quarter of 2013. Given the ruble's weakness and growing crisis in Ukraine, the total for February is expected to have been higher. March could be even worse if the Central Bank is unable to stabilize the currency and the standoff in Crimea escalates.

Good to seem some fresh numbers. I'm pretty sure many financial managers with Russian clients will be rather busy at the moment...

---

BTW the OCSE* storms an Ukrainian shop:



*Minus some countries. I would love to know what the guys working in the shop were thinking....