Foreign Direct Investment in the Russian Economy: In the Trick Mirrors of Statistics

Abstract

With the latest statistics of the Bank of Russia (BR) and the Eurostat according to the directional principle, the article presents an appraisal of real (not formal) direct investment stocks between Russia and the rest of the world. It is shown that many large Russian corporations have subsidiaries abroad (mainly in the form of special purpose entities (SPE)), invest in them and then partially return the funds disguised as FDI, but under foreign jurisdiction. It is established that at least half of FDI in the Russian economy are in fact the returned funds of Russian corporations. In this manner, the last-mentioned can minimize the taxes, withdraw capital from the jurisdiction of Russia and furtively carry out dubious financial schemes (many countries treat SPEs activities as confidential). According to the BR, about 80% of direct investments in Russia belong to small or even tiny countries (the Bahamas, Bermuda, Cyprus, Luxembourg, etc.) that act in deed as intermediaries. The statistics of the BR contain thus little information on real direct investors in the Russian economy.