7 Foreign Investment Myths
The topic of foreign investment is one of the main points in our media. When such investments shaft felled in Russia (as it was, for example, during 2007-2008 years.), Then our journalists (and along with them, and many of the "professional" economists) as the children enjoy and expect as soon as possible the construction of "light capitalist future. " When the flow of foreign investment dries up and / or investors are from Russia, they are sad and begin to sing the mantra on the subject: "it is necessary to improve the investment climate in Russia", "it is necessary to create favorable conditions for foreign investors", "it is necessary to attract foreign capital", etc. . etc. In a word: "foreigners will help us," and without it we will be living on the sidelines of world progress. It seems that in almost two decades of the celebrations of “freedom of speech” in Russia, the media have done their dirty deed: my even the most “advanced” students begin to talk about foreign investment in the classroom using the stamps of the famous “professional” economist Yassin. As far as I can, I try to explain to them the meaning of these stamps and explain how things really are with foreign investments in Russia. In total, the most significant of these stamps or myths recruited a dozen. 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 users of the Internet.Myth one
This myth can be formulated like this: "Foreign investment contributes to solving the structural problems of the Russian economy." It is understood that the investments are primarily in real sector of the economy and contribute to the development of material and technical base of manufacturing industry (reconstruction of existing enterprises, expansion of production capacity, the introduction of new technologies to improve the efficiency of production, the creation of science-intensive industries, etc. ). And, over time, this will allow Russia to turn from a raw material country into an industrial power exporting machinery and equipment, other high-tech products.
Alas, the wish is given for real. Let us resort to such a source as Rosstat. According to him, the loans of foreign banks to Russian organizations for making various investments in 2008 were really a very impressive number: 2.563,8 billion rubles. If you round it up, it's 2,5 trillion rubles! And if you recalculate for dollars at the rate of 1 US dollars = 30 rubles, then you get an impressive amount of 85,5 billion dollars! Yes, with the help of such foreign investments within ten years it is possible to carry out full-fledged industrialization! Cleaner Stalin. However, I must disappoint our readers. Almost 93 percent of all these loans were issued for investment in the so-called "financial assets", i.e. in securities transactions. And on investment in fixed assets (physical assets), only about 7 percent.
A corrosive 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, it should disappoint readers: almost all loans (approximately 98 percent) are intended for "short-term financial investments." This is the official language of Rosstat. And in the “everyday” language these are banal financial speculations, which not only do not help the real sector of the economy, but, on the contrary, hinder its development, since cause periodic ups and downs in the market quotations of these enterprises, introducing complete disruption to production and leading even profitable enterprises to bankruptcy. So that an unprepared reader has a clearer idea of what "financial investment" is, I remind you: in 1997-1998. in Russia there was a boom in the securities market called GKO (Ministry of Finance Obligations). This boom ended miserably - a crisis. But foreign investors very well then heated their hands on speculations with T-bills, having withdrawn tens of billions of our hard-earned money from the country (T-bills were repaid from the state budget).
Second myth
"Foreign investors are investing in fixed assets and, thereby, contribute to the development of production, technical progress, product updates, etc., etc." If we turn to the same Rosstat or the Bank of Russia, then these organizations will satisfy our curiosity as to what the real extent of foreign investment in fixed assets (ie, buildings, structures, machinery, equipment, vehicles and other property, which is characterized by long lead times use). It seems to be also a lot (although an order of magnitude less than investing in financial speculation). But the fact is that the overwhelming majority of the so-called "investments in fixed capital" do not create this capital (fixed assets), but only lead to the transfer of previously created (in the Soviet period stories) objects from one hand 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) the market quotes of the purchased company and more profitable to resell it. Previously, speculated with wheat, oil, gold and other goods, now they speculate with large enterprises. Russian enterprises today are being "driven" not by production workers, but by "financial geniuses."
One consolation: this happens all over the world. According to expert estimates, in the past decade only 1 from 5 dollars of direct investment (investment in fixed assets, which give the investor control over the enterprise) was directed to the creation of new facilities, and 4 dollar used to buy existing ones. Approximately this 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. Yassin, create a “noise curtain” that allows covering 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 a movement of money from one country to another in order to invest in financial or non-financial assets in the latter. But not always and not in all countries. Yes, at some point in time, money really comes into the country, crossing its border (sometimes virtual, since today international payments and payments are an electronic signal transmission). And then the foreign investor may already exist in the host country rather autonomously, expanding its operations at the expense of the profits received in the host country. He can make new investments by reinvesting profits.
And now we turn to the data of Rosstat. According to the organization, in 2000, investment in fixed capital of organizations with foreign capital of more than 60% were provided at the expense of profits obtained in Russia, and only 40% due to the influx 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 by exploiting the natural and human resources of our country. We can also say: we, with our wealth and our work, help foreigners to take root even deeper in the Russian economy. And our statistics considers domestic sources of financing of enterprises with the participation of foreign capital as "foreign investments". On paper, it turns out that “foreign countries help us,” but in fact, the opposite is true: we help to enrich foreign countries at the expense of our people:
- our ancestors (past work, embodied in fixed assets created in the years of industrialization),
- the current generation (living labor),
- our children and grandchildren (natural resources and debts on today's loans).
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 leads to the rapid strengthening of the position of foreign capital in Russia. Again, we turn to Rosstat. A few years ago, he began to publish statistical data on the authorized capital of the main sectors and sectors of the Russian economy, including in the context of ownership forms. For some reason, these figures 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 control) in the total aggregate share capital of all sectors of the Russian economy was equal to 25%. I do not know about you, but this figure impresses me. Although it is clear that this is the "average temperature of the hospital." Look at the individual sectors and industries. This share of foreigners ("non-residents") in mining is 59%! We say that we are a raw material country. Maybe, but extraction of raw materials, minerals no longer in our hands. Further. For all branches of the manufacturing industry, the indicator we considered in 2009 was 41%! And what is behind this average figure? In the food industry to measure the proportion of foreign authorized capitals was equal 60%, in the textile and clothing - 54%, in production of coke and petroleum products - 50%, in wholesale and retail - 67%. So the situation is critical and even catastrophic. Practically in many industries we already have very little. I think that the real situation is much worse than even that presented statistics from Rosstat. Because many so-called “Russian” companies are actually managed by offshore firms, which may be backed by transnational corporations and banks. For some reason, neither the government, nor the State Duma, the data of Rosstat I presented are not discussed. Moreover, all kinds of initiatives about “attracting foreign investors” to the country continue to come from these government bodies.
Loans and loans today also belong to the category of "investments". I’m not going to talk about the threat of the growing threat of foreign debt formed by Western loans and borrowings, because everything seems to be understandable here.
Fifth myth
"Foreign investors need to create various privileges and privileges 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 to put in equal conditions the domestic investor, who is still in Russia as an unloved child. The reasons for this inequality (not in favor of the domestic investor) a lot. For example, a Russian investor cannot use cheap financial resources that a western investor can get from many different sources. For example, in development banks (such a bank was established 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 undervaluation of the ruble against the dollar and other reserve currencies. And it is underestimated, at least, twice in relation to the US dollar (if we compare at purchasing power parity). This means that a foreign investor can acquire Russian assets on very favorable terms (in fact, two times cheaper, since he changes foreign currency into rubles, which are necessary for buying at a preferential, undervalued rate). I do not want to further delve into the intricacies of the exchange rate. I think the reader, and so understood, that the Russian authorities for bona fide domestic investors - that wicked stepmother.
Myth Six
"We need foreign investment because the country lacks its own resources." Those who have mastered at least the basics of economics, knows that produced the country's gross national product (GDP) in terms of its use is divided into two parts: a) current consumption (what is eaten, drunk, worn, consumed during this year); b) the remaining part, which is called saving and which is intended for use in the future. The second part of the GDP is the source of investments directed to the creation of new, expansion and improvement of existing industries. Some countries almost completely “eat up” their created GDP, and there is little left for them to invest (or they are invested by external borrowing). And in some countries a very large part of GDP is saved, which gives them the opportunity to make large-scale investments. In Russia, to save a part of GDP is 30-35%. Compared to most countries (especially against the background of the western countries) it is a very solid part. But if we turn to all the same Rosstat, we will see that about half of the saved part is actually spent on investments in fixed assets. And where did the second half disappear? She went to finance the economies of other countries, almost exclusively economically developed countries. How does it look in real life? The Central Bank of Russia, managing huge foreign exchange reserves (derived from the export of oil and other raw materials; today it is about 500 billion dollars), places them in the West, providing low-interest lending (and often, taking into account inflation and exchange rate changes, under negative percentage) of economies of other countries. Thus, half of Russia's investment potential is used to "help" the West, which does not limit "one’s beloved" in consumption. In fact, this "help" can be viewed as a tribute that our country, which lost the Cold War, has to pay the winners, first of all America. By the way, part of this our "help" comes back to us "from abroad" in the form of predatory loans. With my own hands, we drive ourselves into debt bondage!
Using the example of this myth, we once again see that in a real economic situation, everything is exactly the opposite of what professional “economists” and “Russian” media instill in us.
Seventh myth
"Foreign investment is the flow of financial resources from other countries to Russia." Many myths are built on the fact that half 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" in the direction of "here." But we have already noted above (the third myth) that a significant part of foreign investment "feeds" at the expense of internal rather than external resources (reinvestment of enterprises with foreign capital). In addition, our Russian myth-makers always carefully avoid such an unpleasant question as the transfer by foreign investors of income received in Russia abroad. These revenues consist of interest on loans, dividends, rental and franchise payments, etc. So, according to the Bank of Russia for the period of 1995-2010 years. total investment income derived from the foreigners in our country, was 513 billion. USD. (on average per year is obtained 32 billion dollars..) Giant value exceeds the value of all the gold and currency reserves of the Russian Federation today. Also for comparison, accumulated in the Russian foreign direct investment in the 01.01. 2010 (the latest available data from the Bank of Russia) amounted to 382 billion dollars.
Thus, foreign investment is like a pump abandoned by Western corporations in the Russian economy. In 1990-s. Western investors have jumped to their feet, actively participated in Russian privatization (buying up assets for a pittance) and launched a “financial pump” that regularly bled Russia and prolongs the life of the West. For example, investments in fixed assets of organizations with foreign participation in Russia in 2008 amounted to 1.176 billion rubles, the bulk of which was provided through reinvestment; 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. And the aggregate investment income of non-residents (foreigners) in the Russian Federation, according to the Bank of Russia, in the same year 2008 amounted to 88,7 billion dollars. Here is a vivid statistical illustration of how foreign investment acts as a "financial pump"
At this point, I temporarily put an end to the listing and disclosure of myths relating 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: "Foreigners will help us." I tried not to go into many subtleties that are interesting only to professional economists and financiers. The problems we have examined, of course, also have a political, social, legal, and spiritual-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 him to hang himself (and voluntarily). With the help of statistics and economic categories this can not be explained. The reasons lie in the spiritual realm. I invite everyone to a wide (not only economic) discussion and is ready to answer questions.
- Valentin Yurevich Katasonov. Head of the Department of International Monetary and Credit Relations MGIMO
- http://ruskline.ru/analitika/2011/06/03/sem_mifov_ob_inostrannyh_investiciyah_ili_zagranica_nam_pomozhet/
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