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Investments in Russia

Investment Summary | Investment in Fixed Capital | Foreign Direct Investment | Investment in Non-Financial Assets | Gross Capital Formation | Portfolio Investment | Venture Capital Investment | Investment Projections | Definition of Investment | Datasheet | Sources |


Last updated: June 20, 2017


Volumes of Investment in Fixed Capital

Dynamics of Investment in Fixed Capital

Share of Investment in Fixed Capital in GDP

Share of Investment in Fixed Capital in GFCF

Structure of Investment in Fixed Capital

BRICS Comparisons (Gross Fixed Capital Formation)

Assessment of Average Age of Fixed Assets

Factors Limiting Investment Activities




Volumes of Investment in Fixed Capital



In the recent years the annual volumes of investment in fixed capital have been slowly growing in nominal terms in Russia, while contracting substantially in the real terms and, correspondingly, if nominated in foreign currency.


Investment in Fixed Capital in 2011-2015, Current Prices


Source: Russian Federal State Statistics Service, data for 2015 revised on January 24, 2017.

In the year 2013 the aggregate volume of investment in fixed capital was around RUR 13.45 trillion (about USD 0.42 trillion), and in 2014 it increased to RUR 13.9 trillion at the same time contracting if nominated in US dollars to USD 0.36 trillion. In the year 2015 the aggregate volume of investment in fixed capital was below the one of the previous year even in nominal terms and was estimated at RUR 13.897 trillion with further decrease in US dollars terms to about USD 0.228 trillion calculated using average annual RUR/USD rate of 60.9579.[5]

Share of investment of fixed capital in GDP is estimated at 17.1% in 2015 relying on estimates of GDP volume and revised investment in fixed capital for 2015 that is a substantial contraction as compared to 2013-2014 figures (19.5% and 20.6%, correspondingly).

The Gross Fixed Capital Formation (GFCF), an indicator quite close to definition of investment in fixed capital that is used in international comparisons, approached USD 0.45 trillion in Russia in 2013[6]. That is close to the levels of Brazil and India (USD 0.49 trillion and USD 0.55 trillion, correspondingly), but substantially below China’s benchmark (USD 4.34 trillion). In 2014 the Russian GFCF decreased to USD 0.383 trillion[7] and in 2015 there was a consequent slump to USD 0.29 trillion in line with the negative dynamics of the fixed capital investment.

In terms of share of GFCF in GDP in 2013-2014 Russia has been performing at the level of the world’s average (21-22%) but with substantial lag as compared to the rapidly developing economies like China and India (45-46% and 29-30%, correspondingly).[8] In 2015 the share of GFCF in GDP was estimated at 21.9% (fixed capital investment revision made on January 24, 2017 not considered).



Dynamics of Investment in Fixed Capital



The beginning of transition to the market economy in Russia led, among other multiple shocks, to outstanding decrease in investment in fixed assets. The investment volumes have not yet approached the level of the year 1990, and given the present developments it is likely to take decades to revert to that level.


Dynamics of Investment in Fixed Capital, Physical Volume Indices (1990=100)


Source: VneshEconomBank (VEB).

The lowest point for deteriorating investment volumes was 1998, the year of dramatic economic crisis, when investment in fixed capital was at 17% of 1990 level (i.e. more than 5x contraction took place).[9]


Dynamics of Investment in Fixed Capital in Russia in 1995-2004


Source: Russian Federal State Statistics Service.

Starting from the year 1999 there started long-term revival of investment mostly in line with overall positive economic developments driven to a great extent by constantly growing oil prices. There was still substantial slowdown of investment growth rates in 2002 that can be primarily explained by changing tax legislation (introduction of the new Tax Code led to withdrawal of a number of benefits for investors). A number of experts also mention the lack of feasible investment options in capital-intensive industries and redistribution of investment towards the shadow economy.[10] The positive trend that retained over decade was interrupted by 2009 crisis with investment volumes falling by 13.5% as compared to 2008.


Dynamics of Investment in Fixed Capital in Russia in 2005-2015


Source: Russian Federal State Statistics Service, data for 2015 revised on January 24, 2017.

The economy revived relatively fast after the crisis, and that was reflected by rapidly accelerating growth of investment in fixed capital in 2009-2010.

While looking at investment dynamics starting from 2012, it becomes evident that the Russian economy started to experience structural problems much in advance of 2014 shocks associated with rapidly falling oil prices and introduction of sanctions. In 2012-2013 the negative trend was reflected by gradually reducing investment growth rates. Economy-wide deceleration of investment volumes, which started on the annual basis in 2014, showed up already in the first quarter of the year, when oil prices were still high, and the sanctions in connection to Ukrainian crisis had not been introduced yet.


Quarterly Dynamics of Investment in Fixed Capital in 2014-2015


Source: Russian Federal State Statistics Service, quarterly data for 2015 have not been yet revised after revision of annual data made on January 24, 2017.

The investment in fixed capital contracted in 2014 (-1.5%)[11], but the investment dynamics most probably hit the bottom in 2015, when the impact of sanctions and oil prices deterioration on the national economy showed up to full extent. Throughout the year 2015 investment contraction projections varied from 7.5% to 11%. On January 25, 2016 the Russian State Statistics Service released preliminary estimate of investment in fixed capital contraction for 2015.[12] The registered slump of 8.4% was much harder as compared to deterioration observed in 2014. On January 24, 2017 the estimated slump for 2015 was further revised to 10.1% by the state statistics body.[13]


Dynamics of Investment in Fixed Capital in 2015


Source: Russian Federal State Statistics Service, Ministry of Economic Development of the Russian Federation, revision of 2015 data made on January 24, 2017 is not considered.

2016

Starting from 2016 the Russian State Statistics Service (RosStat) has not been delivering monthly data on dynamics of investment in fixed capital, and the quarterly information is only available.

Even though the fixed capital investment continued to deteriorate in 2016, it has been demonstrating decreasing contraction rates throughout the year, and both the State Statistics Service[14] and the Ministry of Economic Development[15] reported the minor growth at 0,3% for 3Q 2016. The growth was confirmed by the Central Bank of Russia, which estimated it at 0.4%.[16]

On the one hand, registered dynamics can be considered as first signs of revival. On the other hand, very low base for comparisons shall be taken into account, while there are no clear prerequisites for further substantial growth.


Quarterly Dynamics of Investment in Fixed Capital in 2015-2016 (Russian State Statistics Service)


Source: Russian Federal State Statistics Service, revision of 2015 data made on January 24, 2017 is not considered.


Quarterly Dynamics of Fixed Capital Investment Growth in 2016 (Ministry of Economic Development)


Source: Ministry of Economic Development of the Russian Federation.


Quarterly Dynamics of Gross Fixed Capital Formation and Investment in Fixed Capital in Russia in 2015-2016, % to appropriate period of previous year


Source: Ministry of Economic Development of the Russian Federation.


Quarterly Dynamics of Gross Fixed Capital Formation and Investment in Fixed Capital in Russia in 2015-2016, % to previous period (seasonally adjusted)


Source: Ministry of Economic Development of the Russian Federation.

Monthly Data

Addressing the lack of monthly data on investment dynamics, the Investment Activity Index (IAI) was introduced by the Centre for Macroeconomic Analysis and Short-term Forecasting. The index reflects the dynamics of supply of investment goods in the national economy (base year 2007) and is calculated as a weighted average of the following components:

Important note: Investment Activity Index does not address changes in inventories of investment goods.

Important note #2: The index values for previous months are being constantly revised presumably subject to releases of adjusted monthly data on production, imports and exports by the state authorities.

Important note #3: the most recent Investment Activity Index report was provided by Centre for Macroeconomic Analysis and Short-Term Forecasting for July 2016, while there have been no public updates since that time.


Dynamics of Investment Activity Index in 2015-2016 (2007=100, seasonally adjusted)


Source: Centre for Macroeconomic Analysis and Short-Term Forecasting.

It can be seen that the supply of investment goods in Russia has been staying at stably low level throughout 2016 with no significant signs of improvement.



Share of Investment in Fixed Capital in GDP



In the recent years the share of investment in fixed capital in the Russian GDP remained quite stable at the level of 19-21%. This reflects that the investment volumes closely followed GDP dynamics in Russia and vice versa.


Dynamics of Share of Investment in Fixed Capital in GDP in 2005-2015


Source: Russian Federal State Statistics Service (SNA 1993 with deviations for 2005-2010, SNA 1993 for 2011-2013, SNA 2008 for 2014-2015), revision of 2015 data made on January 24, 2017 is not considered.



Share of Investment in Fixed Capital in GFCF



Referring to the calculations of the Ministry of Economic Development, the share of investment in fixed capital in GFCF (Gross Fixed Capital Formation) varied mostly in the range of 82-87% in the recent quarters except the first quarters of appropriate years, when the seasonal decline in volumes of investment in fixed capital is observed.


Russian Investment in Fixed Capital as % of GFCF


Source: Ministry of Economic Development of the Russian Federation.



Structure of Investment in Fixed Capital



1. Breakdown by investment source (own funds vs. external funds)

The share of borrowings and other external funds in the structure of investment in fixed capital deteriorated substantially in the recent years from the maximum of 62.9% in 2009 to the minimum of 49.8% in 2015 considering the period of 2000-2015. As of 3Q 2016 the share of external funds dropped further to 46.4%.


Investment In Fixed Capital in 3Q 2016: Breakdown by Investment Source


Source: Russian Federal State Statistics Service.


Investment In Fixed Capital in 2015: Breakdown by Investment Source


Source: Russian Federal State Statistics Service.


Russian Investment in Fixed Capital in 2014: Breakdown by Investment Source


Source: Russian Federal State Statistics Service.

2. Breakdown by property holder

The share of foreign property in the structure of fixed investment reached the peak of 9.1% in 2012 and then deteriorated to 7-8% by 2014-2015 following the developments of the business environment.


Russian Investment in Fixed Capital in 2015: Breakdown by Property Holder


Source: Russian Federal State Statistics Service.


Investment In Fixed Capital, Current Prices in 2014: Breakdown by Property Holder


Source: Russian Federal State Statistics Service.

3. Breakdown of property of Russian origin

Over the several recent years we have evidenced decreasing role of the state in fixed capital investment. The share of the state property in the structure of the Russian fixed investment has declined from 17.2% in 2013 to 14.8% in 2015 together with the share of municipal property (from 3.4% to 3.0%) with corresponding increase in share of private property (from 53.9% in 2013 to 56.8% in 2015).


Russian Investment in Fixed Capital in 2015: Property of Russian Origin, Breakdown by Property Holders


Source: Russian Federal State Statistics Service.


Russian Investment in Fixed Capital in 2014: Property of Russian Origin, Breakdown by Property Holders


Source: Russian Federal State Statistics Service.

4. Breakdown by direction of investment

The fixed capital investment in Russia overcame a dramatic change in 2016 as compared to previous year due to stagnating real estate and construction market. The share of investment in the housing (residential space) had decreased nearly threefold by 3Q 2016 as compared to 2015. That cut was distributed among other investment directions with lesser share falling at machines, equipment and vehicles.


Investment In Fixed Capital in 3Q 2016: Breakdown by Direction Of Investment


Source: Russian Federal State Statistics Service.


Investment In Fixed Capital in 2015: Breakdown by Direction Of Investment


Source: Russian Federal State Statistics Service.


Investment In Fixed Capital in 2014: Breakdown by Direction Of Investment


Source: Russian Federal State Statistics Service.



BRICS Comparisons (Gross Fixed Capital Formation)



As far as investment in fixed capital is not an internationally recognised indicator, the domestic investment volumes can be compared with other countries using Gross Fixed Capital Formation indicator instead (differences between indicators and specifics of calculation of GFCF in Russia can be found in Definition of Investment section).

1. GFCF volumes

The Russian GFCF volumes were at USD 0.29 trillion in 2015 that is quite close to the performance demonstrated by Brazil, but substantially below India’s figure and hardly comparable to volumes observed in China (based on 2014 data).


BRICS: Gross Fixed Capital Formation in 2015, USD trillion


Source: World Bank (available data for selected BRICS countries as of December 2016)


BRICS: Gross Fixed Capital Formation in 2014, USD trillion


Source: World Bank.


BRICS: Gross Fixed Capital Formation in 2013, USD trillion


Source: World Bank.

2. GFCF growth rates


BRICS: Gross Fixed Capital Formation in 2015, % growth to previous year


Source: World Bank (available data for selected BRICS countries as of December 2016)


BRICS: Gross Fixed Capital Formation in 2014, % growth to previous year


Source: World Bank.


BRICS: Gross Fixed Capital Formation in 2013, % growth to previous year


Source: World Bank.

3. Share of GFCF in GDP

Over the last 7-8 years the share of investment in fixed capital in the Russian GDP was near 20%, and the share of Gross Fixed Capital Formation in GDP was at 21-22%, which is near the world’s average, but substantially below figures of the emerging economies like China and India.[17]


BRICS: Share of Gross Fixed Capital Formation in GDP in 2015, %*


Source: World Bank (available data for selected BRICS countries as of December 2016)


BRICS: Share of Gross Fixed Capital Formation in GDP in 2014, %


Source: World Bank.


BRICS: Share of Gross Fixed Capital Formation in GDP in 2013, %


Source: World Bank.



Assessment of Average Age of Fixed Assets



According to survey of Russian State Statistics Service, average age of the fixed assets of Russian organisations was at about 16.5 years in 2014. The figure more or less comparable to similar indicators in the US and the EU. Specifically, average age of non-residential private fixed assets (capex) amounted to 15.9 years in the US in 2014[18], while in the EU it was estimated at around 13-14 years in 2013[19]. It still shall be noticed that both in the EU and the US average fixed assets’ age is presently at enormously high level. Specifically, in the EU an average age before replacement was at 9 years before 2008-2009 financial crisis.[20]

Distribution of Russian Organisations by Estimated Age of Fixed Assets in Use in 2014, % to total

-BuildingsFacilitiesMachines and EquipmentVehicles
Up to 3 years2347
3-5 years461119
5-10 years6102730
10-15 years682118
15-20 years9131611
20-30 years2422135
Above 30 years35223-
Average age, years2519129

Source: Survey on 10 200 Russian organisations carried out by Russian State Statistics Service.[21]

As a result of continuous under-investment in the Russian industry throughout 1990-2015, the age of 2/3 of equipment operating in the Russian processing industries exceeds 10 years, while more than 50% of that equipment is aged 15 years or more.[22] The newer equipment is represented to a great extent by the assembly and similar equipment that finalizes the value chain and relies on imported components.

Average Age of Operating Equipment in Selected Processing Industries of Russia in 2015

IndustryEquipment Age, Years
Production of goods made of rubber and plastics8.6
Textiles and clothing manufacturing9.3
Vehicles and transportation equipment manufacturing9.6
Production of electric, electronic and optical equipment10.3
Production of machines and equipment10.4
Production of food and beverages12.1
Mechanical wood processing and production of articles of wood13.1
Manufacturing of other non-metal mineral products14.4
Pulp and paper manufacturing; publishing and printing industry15.5
Production of chemicals15.6
Metallurgy and production of articles of metal16.2
Crude oil refinery, production of bitumen and oils16.7
Production of leather, articles of leather and shoes17.0

Source: Investment in Fixed Capital. Key Trends, Factors and Structural Characteristics. Presentation for VEB by Mr. Vladimir Salnikov, the Head of Laboratory of Analysis and Forecasting of the Industry's Developments, the Centre of Macroeconomic Analysis and Short-Term Forecasting.[23]



Factors Limiting Investment Activities



The major reasons of underinvestment in the real sector of Russia are outstanding cost of debt capital, high level of investment risks, especially in capital-intensive industries, as well as turbulent and challenging investment climate that all in all create poor incentives for thinking long term.

Survey of the Russian State Statistics Service, which was accomplished in 2014, shaped some of specific factors of concern in relation to investment activities and revealed mainly negative dynamics in their assessment. Please, note that the survey does not consider effects of sanctions and low oil prices that showed up in the end of 2014 and proceeded to 2015.

Distribution of Russian Organisations by Assessed Factors Limiting Investment Activity in 2014, % to Total Number of Organisations Participating in the Survey

-201220132014
Lack of demand for manufactured products192123
Lack of own sources of financing645960
High commercial loans rate252729
Complex scheme of getting loans for investment projects implementation131416
Investment risks272730
Overall poor condition of PPE in operation787
Low profitability of investment in fixed capital101313
Uncertainty of economic situation in the country262634
Imperfect legislation that regulates investment processes11911

Source: Survey on 10 200 Russian organisations carried out by Russian State Statistics Service.[24]



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