High Stakes for the Ukrainian Ceasefire: Ukraine Crisis Diminishes Investor Confidence in Russia but Investors Hopeful for the Future
WASHINGTON, Feb. 19, 2015 /PRNewswire/ -- While it is clear that the Ukraine conflict has compelled investors to dramatically reduce foreign direct investment into Russia, early results from the 2015 A.T. Kearney Foreign Direct Investment (FDI) Confidence Index suggest that global business leaders would be keen to rapidly reengage in the Russian market if geopolitical tensions with the United States and Europe eased. Full Index results will be released in June. Preliminary analysis of the survey response data suggests that although geopolitical tensions with Russia are still very much on investors' minds this year, many businesses are ready to react quickly with new investments if tensions ease.
Last year, for the first time in over a decade, Russia did not rank among the top 25 most likely FDI destinations in the 2014 A.T. Kearney Foreign Direct Investment Confidence Index, a survey of global business executives, signaling that there would likely be a drop in the level of FDI flowing into Russia in 2014. Estimates of FDI flows in 2014 recently released by the UN Conference on Trade and Development (UNCTAD) confirmed that FDI into Russia did indeed decline dramatically last year—by about 70 percent to just $19 billion. UNCTAD attributes the decline partly to the Ukraine conflict, Western sanctions on Russia, and resulting global investor concerns.
However, the preliminary 2015 results indicate that over 50 percent of global business executives recently surveyed by A.T. Kearney would significantly or moderately increase their FDI into Russia this year if the conflict ended, sanctions were lifted, and geopolitical tensions were reduced (see figure 1). Leaders in companies headquartered in all three major regions (the Americas, Europe, and Asia) held this view, as did a plurality of firms in almost all sectors. Firms in healthcare and pharmaceutical (65 percent), light industry (61 percent), and financial services (58 percent) were among the most interested in increasing investment under improved conditions.
According to the IMF, the Russian economy grew just 0.6 percent in 2014, and is projected to contract by at least 3.0 percent in 2015. In addition, the rouble has lost about 44 percent of its value against the U.S. dollar and 36 percent of its value against the euro since the end of August. Despite those figures, preliminary survey results in the FDI Confidence Index also indicate that the damage done to the Russian economy by events of the past year have thus far not permanently altered how global business executives view the Russian market. Globally, there is a 50-50 split among investors who still view Russia as a "very viable" or "moderately viable" operating environment in the medium term (three to five years) versus those who view Russia as only "minimally viable" or "not viable at all."
Business executives from the Americas are the most negative about the viability of the Russian operating environment, no doubt influenced by stringent U.S. government-imposed sanctions on Russia as a result of the Ukraine conflict. On the other hand, investors headquartered in Asia are the most bullish on investing in Russia in the medium term. This may be the result of Russia's "Look East" Policy, enacted as its relations with Europe deteriorated. European business executives fell between these two extremes.
One thing is crystal clear: absent an easing of tensions between Russia and the West, low FDI into Russia will continue.
The A.T. Kearney FDI Confidence Index has been conducted by A.T. Kearney's Global Business Policy Council (GBPC) since 1998. The mission of the GBPC is to help business, government, and other leaders anticipate and plan for the future by analyzing critical over-the-horizon political, economic, and social dynamics. The FDI Confidence Index is a proprietary tool to regularly monitor and assess changes in global business executives' investment attitudes and intentions in order to provide a forward-looking assessment of likely FDI flows. Over the 17-year history of the Index, there is a strong correlation between rankings and global FDI flows. Since its inception, the 10 most attractive FDI destinations have consistently received 50 percent or more of global FDI inflows roughly one year after the survey. Over the same period, on average, the top five countries have captured 35 percent of global FDI inflows. The results for the 2015 A.T. Kearney FDI Confidence Index will be released in June of this year.
About A.T. Kearney
A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues.
About the Global Business Policy Council
A.T. Kearney's Global Business Policy Council (GBPC), established in 1992, is dedicated to helping business and government leaders worldwide anticipate and plan for the future. Through strategic advisory services, regular publications, and world-class global meetings, the Council is committed to engaging in thoughtful discussion and analysis of the trends that shape business and government around the globe.
Contact: Abby Klanecky
A.T. Kearney
+ 312 223 6019
[email protected]
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SOURCE A.T. Kearney
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