East: UN Says Foreign Investment High, With Some Exceptions
Azerbaijan, Kazakhstan, and Russia are all major exporters of hydrocarbons (AFP)
Europe and the Commonwealth of Independent States (CIS) have for the
most part grown in the 15 years since the fall of the Iron Curtain,
especially in oil-rich countries such as Russia and the Caspian
nations. As a result, these states have attracted generous foreign
direct investment.
By Andrew Tully
October 16, 2006
In a report released today, the United Nations Conference on Trade and Development (UNCTAD) says foreign direct investment (FDI) in the region remained high in 2005. But in some areas, the level of investment is beginning to fall.
The UNCTAD report for 2005 was generally optimistic, reporting rising FDI globally for the second straight year, and a 37 percent increase in FDI for developed countries.
UNCTAD's "World Investment Report 2006" said FDI in Southeastern Europe and the CIS remained high last year. But it pointed to drops in FDI in three countries. In Russia, gross investment ran to $14.6 billion, down from $15.4 billion in 2004.
Decline In Energy Exporters
UNCTAD described that drop as small, but more significant declines were recorded in Azerbaijan and Kazakhstan, whose economies rely largely on oil and gas.
The report said FDI in Azerbaijan was $3.6 billion in 2004 and dropped to $1.7 billion in 2005. In Kazakhstan, investment dropped from $4.1 billion in 2004 to $1.7 billion last year.
The report said these declines don't indicate problems in the two countries' economies. They note that in both cases, major energy projects reached peaks, accounting for at least some of the investment decline.
Vitali Kramarenko, the mission chief for Azerbaijan at the International Monetary Fund in Washington, agreed, at least in terms of Azerbaijan.
He said that in Azerbaijan, 90 percent or even more of FDI goes into the oil sector. But because of the huge profits generated from Azerbaijani oil during 2005, the investors earned rich returns on those investments and didn't need to invest further. This is known as "repatriation" of capital.
Increased Repatriation
"Oil companies started to increase production, oil prices were high, so they were able to repatriate much more capital than before," Kramarenko said, adding that such declines can be expected to continue, at least in the near future. And he says the reason will remain the same.
"In the case of Azerbaijan, most projects would be completed by maybe 2007," Kramarenko said. "And these projects include a gas pipeline, an oil pipeline and exploration of a very large oil field and exploration of a very large gas field. So basically oil FDI is expected to decline in 2006 and 2007 in gross terms."
At the same time, Kramarenko said, capital repatriation will continue to increase during that period.
Kramarenko said he wasn't authorized to speak about the decline in FDI in Kazakhstan, but an International Monetary Fund spokeswoman said that country didn't experience so much a decline in investment during 2005 as a surge of investment during 2004 for a single oil project.
The spokeswoman said that after the surge of 2004, foreign investment in Kazakhstan in 2005 was comparable to the FDI of 2003.