The Impact of the New Ruble Crisis on Russian FDI
Baltic Rim Economies – Bimonthly Economic Review,No 1/2015, pp. 31-32
2 Pages Posted: 28 Feb 2015
Date Written: February 26, 2015
In December 2014, the Russian Federation plunged into a crisis again, the fourth one in a quarter of a century. Crises came in pairs, just like earthquakes and aftershocks: 1992-1996, followed by 1998; then 2009, followed by the current one. The new crisis will affect the economic prospects of Russia and its partner countries through two main channels: trade and investment. On balance, important drops are expected in both inward and outward FDI, to feed back to the crisis itself. The main channels of transmission are varied. In principle, the decline of the ruble stimulates new inward FDI (although it hits already established affiliates), and discourages new outward FDI, especially by natural-resource-based firms, which are also plagued by the fall in oil prices. A potential exception is exodus capital wishing to establish safety nests abroad, although these actors, too, will have to pay more rubles for the dollars to be invested abroad. As for the increasingly hostile Western attitude towards Russia, including economic sanctions, it will hinder both inward and outward FDI, with the exception of inbound round-tripping as it is carried out by foreign firms owned by Russians. In turn, certain transactions, especially by natural-resource-based State-owned and State-related firms put on the sanctions list, as well as outbound round-tripping and transhipment, which will be seen as attempts towards circumventing the sanctions, will face strong scrutiny and opposition in the EU and the United States. And if the clash with the West goes on for a longer time, even technology-based outbound FDI may face negative policy reactions in host countries.
Keywords: Russia, inward FDI, outward FDI, crisis, sanctions
JEL Classification: F21, F23, G01, O52
Suggested Citation: Suggested Citation