TOP 7 myths about foreign investment in Russia

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

The topic of foreign investment is one of the main topics in the media.

When such investments are poured into the country (as was the case, for example, in the period before 2008), then our journalists (and at the same time with them many "professional" economists) rejoice like children and expect in the shortest possible time the construction of a "light capitalist of the future ".

When the flow of foreign investment dries up and / or investors leave the country, they feel sad and start chanting mantras on the topic: “we need to improve the investment climate”, “we need to create favorable conditions for foreign investors,” “we need to attract foreign capital,” etc. etc.

In a word: "abroad will help us", and without it we will vegetate on the sidelines of world progress. It seems that in almost two decades of the triumph of "freedom of speech" the media have done their dirty deed. But I, to the best of my ability, try to explain the meaning of the clichés and how things really are with foreign investment. In total, there are about a dozen such most significant cliches or myths. I want to reveal the meaning of these myths to curious Internet users.

The first myth

This myth can be formulated something like this: "Foreign investment contributes to solving the structural problems of our economy." It means that investments go, first of all, into the real sector of the economy and contribute to the development of the material and technical base of the manufacturing industry (reconstruction of existing enterprises, expansion of production capacities, introduction of new technologies in order to increase production efficiency, creation of science-intensive industries, etc.)).

And, over time, this will allow us to turn from a resource-based country into an industrial power exporting machinery and equipment, and other science-intensive products.

Alas, wishful thinking is passed off as real. Yes, with the help of foreign investments within ten years, you can carry out a full-fledged industrialization!

However, I must disappoint our readers. Almost 90 percent of all foreign loans were issued for investments in the so-called "financial assets", i.e. in transactions with securities. And for investments in fixed assets (physical assets) only about 10 percent.

The caustic reader will say: maybe those very financial investments are long-term investments in stocks and bonds of enterprises and, ultimately, are intended for our "capitalist industrialization"? Once again, I must sadden readers: almost all loans (about 98 percent) are intended for "short-term financial investments."

It is called that in the official language. And in the "everyday" language, these are banal financial speculations that not only do not help the real sector of the economy, but, on the contrary, hinder its development, because cause periodic ups and downs in the market quotations of these enterprises, introducing complete disorganization in production and leading even profitable enterprises to bankruptcy.

To give an unprepared reader a clearer idea of what "financial investments" are, I will give an example: in 1997-1998. in Russia there was a boom in the securities market called GKO (Ministry of Finance).

This boom ended badly - with a crisis. But foreign investors very well then warmed their hands on speculations with GKOs, withdrawing tens of billions of our hard-earned money from the country (the repayment of GKOs was carried out from the state budget).

The second myth

“Foreign investors invest in fixed assets and, thereby, contribute to the development of production, technical progress, product renewal, etc. etc..

If we turn to statistics, what is the real scale of foreign investment in fixed assets (i.e.buildings, structures, machinery, equipment, vehicles and other property characterized by long periods of use). It seems that a lot is also obtained (although an order of magnitude less than investments in financial speculation).

But the fact is that the overwhelming majority of the so-called "investments in fixed assets" do not create this capital (fixed assets), but only lead to the transition of objects already created earlier (during the Soviet period of history) from one source to another.

Enterprises have turned into an object of speculative operations, and their new owners are not thinking about improving production, but about how to increase (using financial technologies) market quotations of the purchased enterprise and resell it more profitably.

Previously, they speculated in wheat, oil, gold and other goods, now they speculate in large enterprises. Our enterprises today are not ruled by production workers, but by financial geniuses.

One consolation: this happens all over the world. According to expert estimates, in the last decade, only 1 out of 5 dollars of direct investments (investments in fixed assets that give the investor control over the enterprise) was directed to the creation of new objects, and 4 dollars were used to buy existing ones.

Thus, foreign investment in fixed assets does not mean economic development of the country, but the purchase of its enterprises and the establishment of control over the economy by transnational corporations. And "professional" economists create a "noise screen" that allows covering up the investment intervention of foreign capital in the country.

The third myth

"Foreign investment is money that comes from abroad." Sometimes foreign investment is indeed the movement of money from one country to another with the aim of investing in financial or non-financial assets in the latter. But not always and not in all countries.

Yes, at some point in time, money does indeed enter the country, crossing its border (sometimes virtual, since today international settlements and payments are the transmission of an electronic signal). And then the foreign investor can already exist in the host country quite autonomously, expanding its operations at the expense of the profit received in the host country. He can make new investments by reinvesting profits.

Now let's turn to the statistics data. - investments in the fixed capital of organizations with the participation of foreign capital by more than 60% are provided at the expense of profits obtained domestically, and only 40% due to the inflow of new capital into our country from abroad.

In other words, foreign investors are strengthening in our country through the exploitation of the natural and human resources of our own country. We can also say: with our wealth and our labor, we help foreigners to take even deeper roots in our economy. And our statistics take into account internal sources of financing of enterprises with foreign capital as “foreign investments”. On paper, it turns out that "abroad helps us", but in reality the opposite is true: we help to enrich themselves abroad at the expense of our people:

our ancestors (past labor embodied in fixed assets created during the years of industrialization), the current generation (living labor), our children and grandchildren (natural resources and debt on today's loans).

The fourth myth

"The presence of foreign capital in our country is small and, therefore, does not pose any threat to the economy and security in general." This myth is needed in order to provide an ideological cover for the ongoing investment aggression, which is leading to the rapid strengthening of the position of foreign capital in the country.

The share of enterprises with foreign capital (those where foreigners own control) in the total value of the total authorized capital of all sectors of the economy is 25%. I don’t know about you, but this figure impresses me.

Although it is clear that this is the "average temperature in the hospital." Let's take a look at selected sectors and industries. This share of foreigners ("non-residents") in mining is 59%! We say that we are a raw material country. Maybe, but the extraction of raw materials and minerals is no longer in our hands. Further.

For all branches of the manufacturing industry, the indicator we are considering was 41%! And what is hidden behind this average figure? In the food industry, the share of foreigners in the authorized capital was 60%, in the textile and clothing industry - 54%, in the wholesale and retail trade - 67%. So the situation is critical and even catastrophic.

In almost many industries, we no longer own anything. I think that the real situation is much worse than even the one presented by statistics.

Because many so-called "domestic" companies are actually run by offshore firms, which may be backed by multinational corporations and banks. For some reason, neither the government nor the parliament discusses the data I have provided. Moreover, these state authorities constantly continue to emanate various kinds of initiatives regarding “attracting foreign investors” to the country.

Loans and borrowings today also belong to the category of "investments". I will not dwell on the threat of the growing threat of external debt generated by Western loans and credits, since everything seems to be clear here.

The fifth myth

"Foreign investors need to create various privileges and benefits so that they have conditions equal to those of domestic investors." In fact, many countries of the world do not hesitate to provide preferences to their own, domestic investors. But, oh well.

Our "highly moral" authorities pretend that they care about "universal and complete equality" everywhere and in everything. But in this case, they need to take care of putting on an equal footing the domestic investor, who is still on the rights of an unloved child. There are many reasons for this inequality (not in favor of the domestic investor).

For example, a domestic investor cannot use cheap financial resources that a Western investor can obtain from many different sources.

But perhaps the most important preference for foreign investors in our economic space is the undervalued exchange rate of the local currency against the dollar and other reserve currencies. This means that a foreign investor can acquire our assets on very favorable terms. I don't want to go further into the intricacies of the exchange rate. I think the reader has already understood that our government for conscientious domestic investors is like an evil stepmother.

Sixth myth

"We need foreign investment because the country does not have enough of its own resources."

Those who have mastered at least the basics of economics know that the gross social product (gross domestic product) produced in the country, from the point of view of its use, is divided into two large parts:

a) current consumption (what is eaten, drunk, worn out, consumed during a given year);

b) the remainder, which is called savings and which is intended for use in the future.

The second part of the GDP is the source of investment aimed at creating new, expanding and improving existing industries. Some countries almost completely "eat up" their created GDP and they have little left for investment (or investments are made through external borrowing).

And in some countries, a very significant part of GDP is saved, which gives them the opportunity to make large-scale investments.

But if we turn to the same statistics, we will see that in reality about half of the saved part is spent on investments in fixed assets. And where did the other half disappear to? It went to finance the economies of other countries, almost exclusively economically developed countries. What does it look like in real life?

The central bank, managing foreign exchange reserves, places them in the West, lending at a low interest rate (and often - taking into account inflation and exchange rate changes - at a negative interest rate) to the economies of other countries.

Thus, half of the investment potential is used to “help” the West, which does not restrict “loved ones” in consumption. In fact, this "aid" can be viewed as a tribute that our country is forced to pay to the masters of the planet, primarily America. By the way, part of this our "help" is returned to us "from over the hill" in the form of predatory loans. With our own hands we are driving ourselves into debt bondage!

Using this myth as an example, we are once again convinced that in a real economic situation everything is exactly “exactly the opposite” in comparison with what the “professional” economists and “domestic” media suggest to us.

The seventh myth

"Foreign investment is a flow of financial resources from other countries to our country." Many myths are based on the fact that half of the truth is said, and the other half is hushed up.

This is clearly seen in the example of this myth. Yes, foreign investment is the movement of financial resources “from there” to the direction “here”. But we have already noted above (myth three) that a significant part of foreign investment “feeds” on internal rather than external resources (reinvestment of income of enterprises with the participation of foreign capital).

In addition, our mythmakers always carefully bypass such an unpleasant issue as the transfer of income by foreign investors abroad.

These incomes consist of interest on loans, dividends, rent and franchise payments, etc. So, the total amount of investment income withdrawn by foreigners from our country amounted to a gigantic amount, exceeding the value of all gold and foreign exchange reserves today.

Thus, foreign investment is like a pump thrown by Western corporations into our economy. Western investors "hurried up", actively participated in the purchase of our assets for a pittance, and launched the "financial pump", which regularly bleeds our country and prolongs the life of the West.

At this point, I temporarily put an end to the enumeration and disclosure of myths related to the topic of foreign investment. There are many other myths, but they all boil down to the phrase of one of the heroes of Ilf and Petrov: "Abroad will help us."

I tried not to go into many subtleties that are interesting only to professional economists and financiers. The problems we have considered, of course, also have a political, social, legal and spiritual and moral dimension. For example, it is necessary to understand why our people today voluntarily pay for that "rope" (the purchase of assets at the expense of our own funds), on which tomorrow the same "foreign investors" will convince them to hang themselves (and voluntarily).

Statistics and economic categories cannot explain this. The reasons lie in the spiritual realm.