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25 Aug, 2009 18:27

Russia wears investment slump as banks wait for rebound

Foreign Direct investment into Russia has nearly halved in the first half of the year. But overall investment is holding up better.

Foreign Direct Investment into Russia fell by an all-time record sum in the first half of 2009. It's dropped 45% on the same period last year – to just $6.1 billion dollars.

Globally, FDI volumes have fallen by 17% according to Vladimir Tikhomirov, Chief Economist, at Uralsib.

“Russia has suffered more, but I should stress here that for Russia FDI volumes were not that important over the years. Russia is not a country dependent on money coming in from abroad.”

Total foreign investment into Russia during the 2nd quarter was $20 billion – up from
$12 billion in the first quarter.

Overall, investment in Russia is slightly below last year's levels, at an average $25 billion a quarter. Investors – held back by the credit crunch – have been more cautious.

Banks look likely to be a target for investment interest once the economy shows clear signs of growing again, according to Greg Alton, Senior Investment Officer at IFC.

“Having government support clearly is an advantage at present. However, in the long term I think the question is going to be how much the State remains involved in the banking sector. And this is a question not only for Russia, but throughout the world."

Some analysts think that with uncertainty still clouding the world's financial markets, FDI is also unlikely to show any growth in the third quarter too.