Russian FDI numbers debunked

In a recent article in gazeta.ru, Vladimir Milov takes a hard look (in Russian) at the amount of foreign direct investment (FDI) going into Russia (Hat tip: JRL). The official numbers coming from Rosstat indicate that about $28 billion entered Russia in 2007. This number is respectable when compared to many other markets, as outlined in this post on Russia vs. China. However, Milov discounts about $18 billion of this. He attributes about $13 billion of it to Royal Dutch Shell, which was forced to hand over its share in Sakhalin-2 to Gazprom. The rest of the $18 billion Milov attributes to Russian money coming from Cyprus—perhaps akin to money going into China from Hong Kong. He concludes that only $9.5 billion of 'real' FDI came into Russia in 2007. This certainly knocks Russia down a peg in global rankings of FDI recipients. 

What does this all mean? Milov draws the following conclusion:

In reality, foreign investors do not like Russia. The reason is the poor investment climate and the state's expansion into the economy, which has closed off vital sectors to foreign investors...Moreover, the fact that Russian businessmen prefer to invest funds at home in the name of offshore companies speaks of the fundamentally low level of confidence in Russian institutions, and primarily in guarantees of property rights.

All of this leaves a big question mark at the end of Russia's years of high growth (and, now, growing inflation). Clearly, Putin as Russian President managed to bring a semblance of order to Russia through top-down fiat, funded through state-run energy companies. The clear trade-off has been the so-called legal nihilism condemned by President Medvedev. I doubt that condemnation alone will convince foreign (or Russian) investors to put their money in Russia though. According to Milov, only $3.8 billion of FDI materialized in Russia in the first quarter of 2008.