Eurasian Integration Yearbook 2012

Alexey Kuznetsov. “Monitoring Mutual Investmentsin CIS Countries”The Economics of the Post-Sovietand Eurasian Integrationlion’s share of Azerbaijan’s FDI in the CIS flows into Georgia. The other mainrecipients of Azerbaijan’s FDI are Russia, Kazakhstan and Ukraine. For Belarus,the main destination of export capital is Russia, and neighbouring Ukraine alsoreceives significant volumes of FDI.The above data confirms the theoretical conclusion that the overseas expansionof national businesses slowly moves beyond the familiar cultural and businessenvironment of neighbouring countries (Kuznetsov, 2008a). The low percentagefigure for Armenia partly fits this logic, since an “occasional” investment projectimplemented outside the neighbouring countries may be of great significancein the context of the country’s small FDI volumes.However, much more serious misrepresentations occur in connection withtransshipping FDI via third countries such as Cyprus, the Netherlands, BritishVirgin Islands, etc. (in some cases such jurisdictions are used for round-trippingFDI, e.g., Russia – Cyprus – Russia). This issue has been addressed in otherresearch papers (Pelto, Vahtra, Liuhto, 2003; Heifetz, 2009), and MMI CISprovides a wider empirical base for further studies. In particular, one of the largeprojects included in the MMI CIS database (with authorised capital of about$577 million) is the 100% control of Russian Alfa Bank over Alfa Bank Ukraineexercised via ABH Ukraine Ltd. of Cyprus. Another example from the series isAtomredmetzoloto (a structural branch of Rosatom) which controls uraniummining and enrichment assets in Kazakhstan with a value exceeding $1 billionvia Uranium One Inc. of Canada.Other CIS countries also use third-country jurisdictions. This phenomenoncan be seen most clearly in the official Ukrainian FDI statistics, which requiresspecial arrangements for monitoring mutual investment in the CIS. Over 90% ofUkraine’s accumulated FDI is formally concentrated in Cyprus (see Table 8.3).Recipient countryAccumulated direct investmentas at late 2010Accumulated direct investmentas at late 2011$ million % $ million %Total 6,871.1 100 6,898 100Cyprus 6,342.5 92.3 6,342.1 91.9Russia 194.3 2.8 236.5 3.4Latvia 87.9 1.3 80.4 1.2Poland 49.1 0.7 48.2 0.7Georgia 31.1 0.5 32.7 0.5British Virgin Islands 25.8 0.4 25.8 0.4Kazakhstan 25.2 0.4 24.5 0.4Others 115.2 1.6 107.8 1.5Table 8.3.The geographyof Ukrainiandirect investmentaccumulated abroad(share capital)Source: Ukrstat,2011Eurasian Development Bank133