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Aug 7, 2022
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On financial interaction between the EAEU member states

https://t.me/fsk_today

Pursuing a coordinated policy in the financial sector, the EAEU member states are focusing on expanding the practice of using their national currencies in settlements in foreign trade transactions. At the same time, they leave the solution of the main issue – the introduction of a single currency – as the main topic of the next, deeper stage of integration – the formation of a single financial market and the creation of a monetary union. Financial experts of the EAEU countries believe that the current level of economic integration does not yet provide the necessary objective economic prerequisites for the introduction of a single currency in the Union space. Today, it is important to make efforts to overcome the existing barriers in the domestic markets that the business community faces.

Another direction of the coordinated monetary policy of the EAEU member states is the attraction of foreign direct investment (FDI) for the implementation of integration development projects. The law of the EAEU contains rules on the promotion and protection of mutual investments, when the member states of the Union provide on their territory a fair and equitable treatment for investments and activities carried out by investors of other member states. These regimes and protective measures apply to all forms of investment without exception. On December 12, 2008 in Moscow it was signed Agreement on the Promotion and Mutual Protection of Investments in the EAEU Member States. In January 2019, the EEC, together with the Information Agency INFOLine, prepared Overview of the largest investment projects of the EAEU member states for the period 2018-2022, which presents 9580 investment projects in 5 countries of the Union in innovative industrial, industrial, civil, transport and energy construction with a total investment of 3144.1 billion US dollars. The review allows you to identify areas for the development of cooperative cooperation in industry, mutual attraction of partners as investors, suppliers of equipment, raw materials and materials, contractors for the performance of work, the provision of services in the implementation of investment projects.

According to the Eurasian Economic Commission (EEC), as of the beginning of 2021, the total volume of direct investments received by Armenia was estimated at USD 5,217.7 million (USD 3,287.9 ​​million – equity and 1 929.8 million dollars – debt instruments), including from the EAEU countries – 1,686.7 million dollars (32.3%). Belarus received $14,110.3 million in FDI ($11,855.6 million in equity and $2,254.6 million in debt instruments), including $4,268.2 million from the EAEU dollars (30.2%). In Kazakhstan, the volume of FDI in the republic amounted to 167,117.7 million dollars (64,949.2 million dollars – equity and 102,168.5 million dollars – debt instruments), receipts from the EAEU – 5,341.8 million dollars (3.1%). In Russia – $539,746.6 million ($396,962.4 million – equity and $142,784.2 million – debt instruments), including from the EAEU – $4,806.8 million. dollars (0.8%).

In the sectoral context, these investments were distributed as follows: mining of metal ores – 19.8%, transport – 14.0%, financial services – 11.4%, oil and gas production – 9.5%, chemical industry – 7.7% and retail trade – 7.1%. A new trend is emerging – the growth of mutual FDI of the EAEU countries in the production of vehicles, machinery and electrical equipment. Over the past three years, the volume of such FDI has increased by 1.6 times. However, the absolute volumes are still small. Projects up to 300 million US dollars account for 90% of all projects and cover 38 sectors of mutual FDI of the EAEU countries. Eurasian investors are becoming more interested in the EAEU new field‑projects (projects created from scratch) than the acquisition of shares. The accumulated volume of such FDI has grown over the past four years by 1.6 times, their annual growth is more than 10%. Investors’ interest in science-intensive industries and projects with low capital intensity is growing. This contributes to the processes of modernization and diversification of the economies of the EAEU countries.

45% of mutual FDI in the EAEU was provided by 7 companies, the accumulated investments of which amounted to more than 11.3 billion US dollars at the beginning of 2021. Among these companies are the Russian Lukoil, Gazprom, Atomenergoprom, Sberbank and Polymetal, the Kazakh KAZ Minerals and the Belarusian Yuros Oil.

Russia is the only net exporter of mutual FDI in the post-Soviet space. At the end of 2020, Russian investors accounted for about 80% of all exported mutual FDI of the EAEU and all mutual post-Soviet FDI. Accordingly, the volume of accumulated FDI from Russia in the EAEU countries is 20,311 million dollars out of 25,358 million dollars in the whole of the EAEU (in Kazakhstan, 11,175 million dollars of Russian direct investments have been accumulated, in Belarus – 5,143 million dollars). ., in Armenia – 3,047 million dollars and in Kyrgyzstan – 946 million dollars).

In the services sector, the banking sector occupies the first place in mutual FDI, and investors from several countries (especially Russia and Kazakhstan) are active in it at once, and almost all the republics of the post-Soviet states are recipients of such FDI. Direct investments in the telecommunications sector are still significant, but their share in the sectoral structure of accumulated mutual FDI has been declining in recent years.

What, according to experts, are the medium-term prospects for investment flows in the EAEU member states?

• In the coming years, the structure of investment flows will be determined by the integration processes in the region, as well as the deepening of bilateral relations between countries.

• The sectoral structure of mutual FDI will gradually become more diversified: retail trade, financial services, automotive, machinery and electrical equipment will be developed.

• Mutual FDI in green economy projects will increase. Over the past two years, the volume of mutual FDI in such projects has grown by 56%. Kazakhstan will strengthen its leadership in attracting direct investment in renewable energy.

• The outstripping growth in the number of greenfield projects that ensure the creation of enterprises from scratch will continue. Investors are increasingly interested in expanding into new markets with their technologies and resources. This will be accompanied by technology transfer and the modernization of the economies of FDI recipient countries.

• Projects with small investments ($1–5 million) covering a wide range of industries will show strong growth. This will be facilitated by national export support programs, the development of digital technologies and the integration of countries’ markets.

• Uzbekistan will become one of the largest recipients of FDI not only from Russia, but also from other EAEU member countries. It is also possible to increase the activity of companies – investors of Uzbekistan in Russia and neighboring republics of Central Asia.

Collage: eurasianeconomic.org

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