Russia last week hosted the 14th edition of it Russia Calling! investment forum in the country’s capital, Moscow.

The two-day event brought together government officials, central bank representatives and businesspeople to discuss the future of a multipolar world and how the country’s economy has been faring since its invasion of Ukraine in February last year.

Russia’s President Vladimir Putin opened the plenary session of the event, whose central theme was Making Deglobalisation: Uniting Sovereign Economies

In his speech, Mr Putin called for an end to the Western-dominated market and said: “The global system of economic relations is going through radical, irreversible changes […] due to the fact that a multipolar model is about to replace yesterday’s globalisation model.”

“What we want is to create a new model, a truly democratic model where honest competition between all economic players will dominate. This change in the global economic landscape and the rise of new leaders are an objective and to a large degree predictable process.”

Following his speech, Putin met with his Iranian counterpart, Ebrahim Raisi, who was on an official visit to Russia. During their meeting, the leaders discussed trade and economic cooperation between the two countries in different sectors, including transport and energy. Iran, which is a staunch ally of Russia, has supplied the Kremlin with weapons, including drones – the latter used in the bombing of civilian infrastructure in Ukraine.

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By GlobalData

On 24 February 2022, Moscow launched an unprovoked war against its smaller neighbour in the south. Western companies and investors immediately left the Russian market as sanctions started to bite into the economy. Country officials have instead focused on keeping the economy afloat, holding investment talk shops and striking trade deals with the few remaining partners on the global stage. 

But the relevance of these conferences has died out. What once accounted for large-scale events attended by Western leaders and worldwide experts have since flatlined, with political rants against the West now taking centre stage.

This summer, at the Sankt Petersburg Economic Forum, Putin announced that Russia had deployed tactical nuclear weapons to Belarus and promised to increase the number of warheads shipped to the region.

The theme of that event – Russia’s version of Davos – was Sovereign Development as the Basis of a Just World: Joining Forces for Future Generations. Separate from the nuclear talk, Putin praised the country’s economic resilience, saying that GDP in April 2023 rose by 3.3% year on year. For the full year of 2023, meanwhile, IMF forecasts indicate that Russia’s economy will increase by 2.2%.

The picture painted by country leaders, however, is different from the reality in which Moscow finds itself.

“Russia’s economy, in my opinion, is not thriving and is at significant risk,” John Kennedy, Research Lead at US global policy think tank and research institute RAND Corporation, tells Investment Monitor. “It remains dependent on the export of natural commodities.”

Once Russia’s natural gas exports to Europe plunged, he continues, one of Russia’s two dominant exports – the other one being oil – was now no longer available to underpin its embattled finances. “And Russia doesn’t have the infrastructure to move natural gas to the Asian markets in the way it could move gas to Europe,” Kennedy adds.

Kennedy also notes that the investment climate in Russia has lost much of the appeal it had before the war. Its strategic sectors - in particular hydrocarbons, agricultural products, metals and mining - are each dominated by one or two companies, imposing a monopoly on the market.

Hydrocarbons are controlled by the state - through Rosneft and Gazprom - and run by Igor Sechin and Alexey Miller, two individuals with close links to the Kremlin. The metals and mining sectors are controlled by private shareholders also with close links to the state.

After Russia’s invasion of Ukraine, these companies became more vulnerable to sanctions, with potential investors wary of partnering.

“Gazprom and Rosneft have partnered with Western companies in the past. In fact, European companies were the biggest hydrocarbon investors in Russia before the crisis,” Kennedy explains.

“Russia can be friendly to investors - when the moment is right - but as we have seen, the Russian state ultimately controls its most important export sectors and, more generally, who gets what in the wider economy,” he continues, saying that at present it would take a brave investor to look at the Russian economy today and think of it as a promising destination for FDI.

Fading investments in Russia

Despite the Kremlin’s efforts to provide guarantees to investors and pull them in from abroad through conferences, only a small number announced new FDI projects in Russia in 2023.

As a result of the war in Ukraine, greenfield investments in the country have fallen from 128 in 2021 to just 9 in 2023, according to GlobalData’s FDI Projects Database. The largest number of them (3) came from South Africa last year, while China, Italy, Netherlands, India, the United Arab Emirates and Iran each came up with one.

Direct investments, as a whole, dropped by more than 11%, with the value of foreign assets in Russia going down from $381.2bn at the end of December 2022 to $337.6bn on 30 June 2023, according to Russia’s Central Bank.

“Greenfield foreign investments into Russia have, as expected, dried up significantly,” said Glenn Barklie, Head of FDI Services at Investment Monitor's parent company GlobalData. “Historical top source markets, such as the US, Germany and France, have all but ceased investments in 2022 and 2023. The West is on a continued path to hurt Russia economically because of its invasion of Ukraine.”

Those still investing in Russia, Barklie adds, tend to come from either neutral or pro-Russian countries. 

Meanwhile, in Ukraine - a country devastated by Russia’s war of aggression - government officials have managed to introduce a series of initiatives, including deregulation, in a bid to attract Western private equity and FDI. Big names, including Bayer and Laude Group, have already come up with plans to invest and expand their businesses in Ukraine, mostly in logistics and construction - sectors that would help Kyiv rebuild the infrastructure damaged by the invasion. 

In July 2023, net FDI inflows stood at $403m, up from $150m recorded in July 2022, shortly after the Ukrainian army liberated the country’s north from Russian occupation. The overall FDI net inflows reached $1.3bn in Q2 2023, compared to just $286m in the same quarter last year, according to the National Bank of Ukraine. 

“Although Ukraine as a country has been devastated by the war, foreign investors are continuing to invest in the country. It has continued to see investments from its top (Western) source markets such as the US and UK,” Barklie tells Investment Monitor.