TsMAKP experts have compiled a list of countries that are promising for mutual investments

Against the backdrop of investors leaving Russia from developed countries, CMACP experts tried to assess the prospects for its investment cooperation with developing countries. The authors did not limit themselves to standard factors influencing the dynamics of foreign direct investment, such as macroeconomic stability and the development of institutions. According to their estimates, countries with similar levels of technological development are less likely to be inclined to mutual investment – the key motive for investment is the opportunity to exploit cheaper labor and other factors of production in technologically less developed countries. With this approach, the most attractive partners for the Russian Federation from the point of view of the resource motive for investment are Ethiopia, Argentina, Iran, and Saudi Arabia.

The potential of developing countries to attract foreign direct investment (FDI) remains largely untapped, write CMAKP experts Vera Pankova and Denis Pehalsky in the study “Technological proximity of economies as a factor in attracting foreign direct investment in developing countries.”

The work notes that, despite the growing influx of FDI into developing countries in recent decades, the share of accumulated investments in the global volume has increased slightly. If in 1990 the share of FDI invested in developing countries was about 15% of their total value, then in 2022 it is already 56% (including China – 71%). The share of accumulated FDI over the years has grown from 22% to only 26% (including China – 34%). The short-term nature of investing in such countries is explained by the lower reliability of their markets – a strong influx of FDI was observed “in periods after global crises, when capital flows were partially redistributed from developed countries in search of higher returns and “temporary refuge” from the risks that arose in their markets”, the authors write.

According to the Central Bank, the outflow of direct investment from Russia in 2022 amounted to about $40 billion (the incoming flow of FDI was negative for the first time), in the first two quarters of 2023 – another $9 billion. For the Russian Federation, against the backdrop of investors leaving developed countries, investment cooperation with developing countries is feared economies becomes a determining factor. CMAC experts have compiled a list of countries that are the most attractive from the point of view of increasing mutual FDI among the “expanded BRICS” (actual and invited participating countries from 2024).

Data from 87 largest investment recipient countries (34 developed and 53 developing countries) and 246 investor countries (including unrecognized ones) for 2009–2021 were analyzed. The authors took into account both standard factors of FDI dynamics and the dependence of mutual FDI on the technological proximity of countries. The first group of factors – macroeconomic stability of countries, openness of trade, availability of production factors, development of infrastructure, institutions and technologies – turned out to be less significant for developed countries (investors understand that these conditions are at a high level). In developing countries, the effect remains noticeable.

Technological proximity of the export structure is an important factor, but its influence is heterogeneous. It turned out that countries with similar levels of technological development carry out less mutual FDI. If the recipient country is less technologically developed, then this stimulates the influx of FDI – due to cheaper factors of production. If it is more developed, then the influx of FDI decreases – due to high competition in the market of the recipient country. Despite this, CMAKP calls the most attractive partners for the Russian Federation, taking into account the proximity of the technological structure of exports, the UAE, Saudi Arabia, Iran, Egypt, India, South Africa and Brazil. From the point of view of the resource motive for investment, Ethiopia, Argentina, Iran, Saudi Arabia and Brazil are named as target countries.

Diana Galieva