Russia Data Talk: According to preliminary Balance of Payments data, the Russian private sector’s net capital outflow reached USD 84.2 billion in 2011, versus USD 33.6 billion in 2010. Net capital outflows considerably exceeded official forecasts made in the middle of 2011. At that time Central Bank officials expected net capital outflows of USD 30–35 billion, but surprisingly large outflows of USD 37.8 billion for the last quarter of 2011 made those expectations unrealistic. Total net capital outflow for 2011 has become the highest figure for non-crisis years; only 2008′s net capital outflow was higher (USD 133.7 billion) due to the smooth depreciation of Russian currency.
Net Capital Inflow/Outflow and Gross Domestic Product
Chart provided by: CEIC
The main reason for capital outflows is an unfriendly investment climate along with potential political risks, leaving investors afraid of starting projects in Russia. The capital outflow is likely to be the dominant trend for 2012: Central Bank officials forecast zero capital balance, but most independent analysts predict USD 10-15 billion of capital outflow.
According to the latest data on economic growth, Russia’s 2011 real GDP rose 4.3% compared to the previous year. The same growth rate was recorded in 2010, again despite the strong capital outflow. The reason for this idiosyncrasy (both strong GDP growth and strong capital outflows for the last two years) is that the Russian economy is based on raw materials and depends on world prices for fuel and energy goods, in particular crude oil prices. As long as the global market’s crude oil price is high, exports of fuel and energy goods will grow, increasing Russia’s total GDP.
Foreign investors do not see serious reasons for the Russian economy to grow in sectors other than raw materials and do not want to rely on unpredictable crude oil prices. Investors believe that investment risks in Russia are higher than abroad. Furthermore, local businessmen also prefer to invest outside of Russia and generally choose to provide loans to local companies and financial institutions via foreign entities.
Additionally, political and bureaucracy risks are non-economic factors that are important drivers of the capital outflow. Investors do not intend to launch new projects before the presidential polls and the model of the next political cycle are resolved. Although Russian observers believe that Prime Minister Vladimir Putin will continue to rule the country, recent unexpected upheavals in the Middle East and Africa that toppled seemingly stable regimes have made some investors wary of the Russian poll results.
By E. Shiyakov – CEIC Analyst