Will foreign countries help us? Foreign investment myths

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 our media. When such investments are flooded into Russia (as was the case, for example, in the period 2007-2008), then our journalists (and along with them many "professional" economists) rejoice like children and expect the construction of a "bright capitalist future ".

Valentin Katasonov. Professor of the Department of International Finance at MGIMO, Doctor of Economics, Corresponding Member of the Academy of Economic Sciences and Entrepreneurship

When the flow of foreign investment dries up and / or investors leave Russia, they feel sad and start chanting mantras on the topic: “we need to improve the investment climate in Russia”, “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 over almost two decades of the triumph of "freedom of speech" in Russia, the media have done their dirty deed: even my most "advanced" students start talking in class about foreign investment, using the clichés of the famous "professional" economist Yasin. I, to the best of my ability, try to explain to them the meaning of these clichés and explain how things really are with foreign investment in Russia. In total, there are about a dozen such most significant cliches or myths. I want to increase the efficiency. their teaching work and reveal the meaning of these myths not only to their students, but also to curious Internet users.

The first myth

This myth can be formulated something like this: "Foreign investment contributes to the solution of the structural problems of the Russian 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 Russia 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. Let's resort to such a source as Rosstat. According to him, loans from foreign banks to Russian organizations for various investments in 2008 amounted to a really very impressive figure: 2.563.8 billion rubles. If you round up, then this is 2.5 trillion rubles! And if you convert it into dollars at the rate of 1 US dollar = 30 rubles, you get an impressive amount of 85.5 billion dollars! Yes, with the help of such foreign investments, a full-fledged industrialization can be carried out within ten years! Cleaner than Stalin's. However, I must disappoint our readers. Almost 93 percent of all these loans were issued for investments in so-called "financial assets", i.e. in transactions with securities. And for investments in fixed assets (physical assets) only about 7 percent.

The caustic reader will say: maybe those very financial investments are long-term investments in stocks and bonds of Russian 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." This is in the official language of Rosstat. 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, becausecause 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, let me remind you: 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 the same Rosstat or the Bank of Russia, then these organizations will satisfy our curiosity about the real scale of foreign investments in fixed assets (i.e. buildings, structures, machinery, equipment, vehicles and other property that is characterized by long periods 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. Russian enterprises have become 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. Russian 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. Approximately the same layout is observed for foreign direct investment in Russia. Thus, foreign investment in fixed assets does not mean the economic development of Russia, but the purchase of its enterprises and the establishment of control over the Russian economy by transnational corporations. And "professional" economists such as Mr. Yasin are creating a "noise curtain" that makes it possible to cover up the investment intervention of Western capital in Russia.

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 Rosstat data. According to this organization, in 2000, more than 60% of investments in fixed assets of organizations with foreign capital were provided at the expense of profits received in Russia, and only 40% due to the inflow of new capital into our country from abroad. In 2005, this proportion became equal to 80: 20, and in 2008 - 75: 25. In other words, foreign investors are strengthening in Russia due to the exploitation of the natural and human resources of our country. It can also be said: with our wealth and our labor, we help foreigners to take even deeper roots in the Russian 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), - of the current generation (living labor), - our children and grandchildren (natural resources and debts 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 Russian economy and the security of Russia as a whole." This myth is needed in order to provide an ideological cover for the ongoing investment aggression of the West, which is leading to the rapid strengthening of the position of foreign capital in Russia. Again, let's turn to Rosstat. Several years ago, he began to publish statistics on the authorized capital of the main sectors and industries of the Russian economy, including by type of ownership. For some reason, these numbers are extremely rare in the media, so I will cite some of them. In 2009, the share of enterprises with foreign capital (those where foreigners own control) in the total total authorized capital of all sectors of the Russian economy was 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 in 2009 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 production of coke and petroleum products - 50%, 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 Rosstat statistics. Because many so-called "Russian" companies are in fact run by offshore firms, which may be backed by multinational corporations and banks. For some reason, neither the government nor the State Duma discusses the Rosstat data I cited. 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 Russian 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 in Russia as an unloved child. There are many reasons for this inequality (not in favor of the domestic investor). For example, a Russian investor cannot use cheap financial resources that a Western investor can obtain from many different sources. For example, in development banks (in our country, such a bank was created several years ago on the basis of the well-known VEB, but it clearly does not favor Russian investors). The Bank of Russia actually organized a "credit blockade" against Russian enterprises (this topic is extensive, I will not develop it here). But perhaps the most important preference for foreign investors in our economic space is the undervalued ruble against the dollar and other reserve currencies. And it is underestimated at least twice in relation to the US dollar (when compared in terms of purchasing power parity). This means that a foreign investor can acquire Russian assets on very favorable terms (in fact, two times cheaper, since he exchanges foreign currency for rubles, which are necessary for buying at a preferential, low rate). I don't want to go further into the intricacies of the exchange rate. I think the reader has already understood that the Russian government for bona fide 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, in terms of its use, is divided into two large parts: a) current consumption (what is eaten, drunk, worn out, consumed in 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. In Russia, the saved part of GDP is 30-35%. Compared to most countries (especially against the background of Western countries), this is a very solid part. But if we turn to the same Rosstat, 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 of Russia, managing huge foreign exchange reserves (obtained from the export of oil and other raw materials; today it is about $ 500 billion), allocates them in the West, lending at low interest rates (and often - taking into account inflation and exchange rate changes - under negative percentage) of the economies of other countries. Thus, half of Russia's investment potential is used to "help" the West, which does not limit its "loved one" in consumption. In fact, this "aid" can be viewed as a tribute that our country, which lost the Cold War, is forced to pay to the winners, above all 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 “Russian” media suggest to us.

The seventh myth

"Foreign investment is a flow of financial resources from other countries to Russia." 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 Russian myth-makers always carefully avoid such an unpleasant issue as the transfer of income received in Russia by foreign investors abroad. These incomes consist of interest on loans, dividends, rent and franchise payments, etc. So, according to the data of the Bank of Russia, for the period 1995-2010. the total investment income, withdrawn by foreigners from our country, amounted to 513 billion dollars (an average of 32 billion dollars per year). A gigantic amount, exceeding the amount of all gold and foreign exchange reserves of the Russian Federation today. Also for comparison: accumulated foreign direct investment in Russia as of 01.01. 2010 (the latest available data from the Bank of Russia) amounted to $ 382 billion.

Thus, foreign investment is like a pump thrown by Western corporations into the Russian economy. In the 1990s. Western investors "hurried in advance", actively participated in Russian privatization (buying up assets for a pittance) and launched a "financial pump" that regularly expels Russia and prolongs the life of the West. For example, investments in fixed assets of organizations with foreign capital in Russia in 2008 amounted to 1.176 billion rubles, and the bulk was provided through reinvestments; the funds transferred from abroad accounted for only 304 billion rubles. With the exchange rate of the ruble against the dollar 30: 1, it turns out that from abroad came funds for investments in fixed assets of about 10 billion US dollars. And the total investment income of non-residents (foreigners) in the Russian Federation, according to the Bank of Russia, in the same 2008 amounted to 88.7 billion dollars. Here is a clear statistical illustration of the action of foreign investment as a "financial pump"

At this point, I temporarily put an end to the enumeration and disclosure of myths related to the topic of foreign investment in Russia. 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 Russian 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. I invite everyone to a broad (not only economic) discussion and am ready to answer questions.