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Kyrgyzstan|business|December 28, 2016 / 11:50 AM
EDB: Asian economies scale up direct investments in EAEU despite economic instability

AKIPRESS.COM - Eurasian Development Bank researchers believe that in 2017 direct investors from Eurasian countries will more active in the EAEU. The development of China’s “One Belt, One Road” initiative is expected to become one of the stimuli for FDI inflows.

Chinese investors have already begun to show interest not only in hydrocarbon production, but also in transport, infrastructure, and the power sector, among others. Most investments are expected to be made by Chinese companies and financed with the proceeds of loans by national development institutions.

Japan and the Republic of Korea will be China’s competitors in that respect. "In 2017, if dialogue between Russia and Japan and between EAEU countries and the Republic of Korea steps up, there’s a chance that Japanese and South Korean FDI will grow in a wide range of sectors. As investors, these countries are at least as promising as China," Evgeny Vinokurov, Director of the EDB Centre for Integration Studies, points out.

Asian investors continue to increase direct investments in the EAEU. Over the observation period, FDI stock from nine Asian countries (China, Japan, Turkey, India, the Republic of Korea, the United Arab Emirates, Iran, Singapore, and Vietnam) has increased from US $30.4 billion in 2008 to US $61.9 billion in early 2016.

These findings are presented in EAEU and Eurasia: Monitoring and Analysis of Direct Investments 2016, a report prepared by Eurasian Development Bank’s (EDB) Centre for Integration Studies. The report is based on unique "bottom-up" data on investment projects, i.e. corporate statementsand other primary information. This enables to define more precisely the ultimate beneficiaries of investments and take into account reinvested profits.

China continues to expand its economic presence in EAEU countries, retaining its leadership among Asian countries in terms of FDI stock in the region. Since 2008, the overall amount of Chinese companies’ FDI stock in five EAEU countries has increased by 138%, to US $25.7 billion. In terms of investment growth rates, the top recipients of Chinese investments are Belarus and Kyrgyzstan where FDI has grown by 48% and 19% respectively over the recent period. In absolute terms, Kazakhstan traditionally remains the main recipient of Chinese FDI in the EAEU (US $21 billion). The most attractive sectors for Chinese investors in this country are Oil and Gas and Trunk Pipelines.

Chinese investors’ interest in Russia’s market is growing rapidly, however no records of a large-scale intervention by Chinese companies in the country have yet been made. At the beginning of 2016, Chinese FDI stock in Russia amounted to $3.4 billion. According to the EDB Centre for Integration Studies, a considerable number of major transactions announced in and prior to 2014 are still awaiting their final implementation. In some cases Chinese companies have assumed a wait-and-see stance to avoid EU and US sanctions. In addition, in the current weak economic environment Chinese investors often wait for more profitable offers from Russian businesses.

While Chinese investors are gaining pace, Japan has become a solid leader in terms of FDI in Russia, being way ahead of other Asian countries. Neither economic recession, nor the devaluation of the Russian rouble have affected Japanese transnational companies’ FDI stock in Russia, totalling US $14.5 billion, with 70% channelled into the Oil and Gas sector.

The recent crisis in the relations between Russia and Turkey has not had a significant effect on Turkish FDI. Turkey remains one of largest investors in the EAEU. According to the most recent data, Turkish FDI stock in the EAEU has reached US $7.4 billion, up 1.4% over the year. The stability of investment flows from Turkey is largely due to the high country diversification of Turkish FDI. Projects with Turkish capital were recorded in all EAEU countries, except Armenia. Russia accounts for approximately a half of all transactions and 66% of Turkish FDI in the EAEU. An important feature of Turkish FDI is the significant sectoral coverage: Turkish capital is represented in a rich of sectors. This is the key distinction of Turkish capital from Chinese or Japanese investments. As a result, Turkey became the Asian top investor in the sectors not related to hydrocarbon production and transportation.

The Republic of Korea invests in both Russia and Kazakhstan, with Russia being the top recipient of South Korean FDI. According to the most recent data, it accounts for over US $2.1 billion, or 88% of total South Korean FDI stock in the EAEU. The sectors attracting the most significant amounts of Korean capital are Mechanical Engineering, Construction, Tourism, Agriculture and Food Products.

EDB researchers suggest that the data, analysis and conclusions presented in EAEU and Eurasia: Monitoring and Analysis of Direct Investments 2016 will help companies to better orientate themselves in the region’s business environment and the governments to promote mutually beneficial sector cooperation.

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