Global Players from Emerging Markets: Strengthening ... - Unctad

114 Outward Foreign Direct Investment by Enterprises from the Russian Federation
from ConocoPhillips for $266 million, which
provided it with better control of value chain.
In addition, the acquisition of the secondlargest
Finnish petroleum retail chain provided
Lukoil with strategic accessed to the Finnish
market with introduction of its own petroleum
products.
• Expanding access to natural resources. RusAl
has been able to improve its competitiveness
by acquiring strategic companies abroad to
access raw material. OFDI has helped Norilsk
Nickel increase the company’s competitiveness
by strengthening its global access to natural
resources in Australia and elsewhere, and
increases its overall raw material stock. In the
case of Lukoil, foreign ventures had extended
the company’s hydrocarbon resource base
and contributed to cover the depletions of its
domestic resources.
E. OFDI policies
The Russian Federation does not have a specific
policy promoting OFDI. Despite the absence of a
policy, Russian enterprises are active investors among
emerging economies. The low level of real sector
investments in the Russian economy and massive
capital outflows are among the main challenges faced
by the Russian Government. These factors partly
explained the absence of specific policy supporting
OFDI.
The new regulatory framework on capital
exchange, enacted in 2003, is expected to ease OFDI
by increasing transparency and legitimizing capital
movements. This new regulation, known as the
Currency Law, regulates cross-border currency and
capital transactions, including direct investments
(Ernst and Young 2005). Under this new regulation,
capital exchange control is relaxed. While not directly
targeting OFDI, the improved exchange control
environment is expected to have a positive impact on
Russian investment abroad in the future.
F. Conclusion
The Russian Federation is an emerging
outward investor, with significant recent OFDI
flows. While most of the OFDI is dominated by
large Russian enterprises, particularly resourcebased
and transportation companies, OFDI by SMEs
and manufacturing and telecommunication firms is
increasingly visible. The cases of internationalizing
Russian firms presented in this paper confirm that
OFDI has helped increase enterprise competitiveness
through strengthening their global market position,
expand their natural resources base, gain better
control over the value chain, increase global sales and
the acquisition of strategic assets abroad.
The future prospects for OFDI from the
Russian Federation are promising despite the lack of
specific policies promoting it. The recent relaxation
of exchange control is expected to contribute to this
trend as will the increasing competition from within
and outside the country.
OFDI by Russian enterprises is essential
for both the individual enterprises and the Russian
economy as a whole. It is imperative that Russian
enterprises become more internationalized with
a view to increasing their ability to compete in the
global market. Competition at home through imports,
inward FDI and non-equity forms of participation
is likely to increase once the Russian Federation
becomes a member of the World Trade Organization.
To better integrate into the world economy, Russian
enterprises should be encouraged to invest abroad.
The Government could consider improving
the regulatory framework and offering institutional
support to facilitate OFDI by Russian enterprises.
A number of specific policy options could also be
considered, if OFDI is deemed important and it
is viewed as a way to strengthen the economy and
enhance enterprise competitiveness. For example,
any administrative OFDI requirement such as OFDI
approval should be easy to comply with. Support
measures such as outward investment missions to
target host countries could include SMEs. Provision of
information on markets and investment opportunities
in target host countries by the Russian Government
could also help.
Transparency for OFDI could also be
encouraged through regularization and legalization
of existing overseas investment activities and assets.
Consideration could be given to the establishment of
public-private sector forums to provide a platform for
the exchange of views and experiences of Russian
enterprises with regard to internationalization through
OFDI. To the extent possible, the Government could
consider providing investment guarantees and
financing support. The latter is particularly important
for SMEs, which often face limited access to finance
and are more concerned about operating risks.
Due consideration should be given to
improving the national statistical system to collect
data on OFDI by Russian enterprises, particularly
with respect to SMEs. Improvement and availability
of comprehensive statistics will help increase the
understanding of OFDI by SMEs, including how
enterprises can benefit from investing abroad,
and formulation of appropriate policies to further