Foreign Direct Investments in Russia and the Hungarian-Based Investors

Abstract

After becoming the 5th largest FDI recipient worldwide in 2008, foreign direct investments in Russia have largely been impacted by the big crisis. To put these changes in context, this paper starts with an overview of foreign investments in Russia from the beginning. Analyzing the source countries, we argue that round-tripping and trans-shipped FDI significantly mask the real sources. In terms of the regional distribution, high concentration is stressed. Reviewing the industrial breakdown of FDI in Russia, we point out that the fuel industry, mainly the oil production, except for 1999, has had a prominent or a leadership role only since 2003. Despite the Russian natural resource base, foreign investors are now motivated mostly by market-related factors. Before the crisis Russian macroeconomic, fiscal and debt policies improved the investment climate, while the growing state control has had a negative effect. Red tape, poor infrastructure, corruption and complex tax system remained major obstacles. Until the early 2000s, government made few steps to encourage foreign investment. Amid and after the crisis it was explicitly acknowledged at the highest level that resource based Russia needs the West, the foreign investments and knowledge for its modernization. The paper finally turns to investments from Hungary. Despite the low share of Russia in outward FDI from Hungary, there are a few significant investments of Hungarian-based investors, worth to be surveyed.

Keywords: Foreign Direct Investment, Russia, Hungary

JEL Classification: G31, G32