FDI in Russia plummeted during 2020 as a result of the Covid-19 pandemic. Inflows fell from $32bn in 2019 to just $1.1bn in 2020, according to the UN Conference on Trade and Development’s (UNCTAD) Investment Trends Monitor.
Greenfield project announcements in Russia decreased 61% in 2020, and UNCTAD has predicted this decline in investment is likely to continue in 2021.
The pandemic hit at a time of improving investment levels in Russia. After two years of declining FDI, inflows rose by 140% in 2019. The country’s ranking in the World Bank’s Doing Business 2020 report has also improved in recent years, climbing three places to 28th out of 190 countries in 2020.
With Putin extending his stay in power until 2036 through a controversial amendment to the constitution, foreign perceptions of Putin’s authoritarian leadership are likely to continue to play a role in Russia’s attempts to attract FDI.
The EU’s pledge to be climate-neutral by 2050 threatens that investment flow, however, with Russia’s economy still largely based on oil and gas. The Bruegel paper highlights how European countries could provide the investment Russia needs in higher-value-added activities to diversify its economy and benefit more from knowledge transfer.
With global FDI flows set to continue to decline across transition economies in 2021, an investment recovery in Russia may depend on whether its main recipient sectors remain extractive industries or become more diverse.