The country’s investment and technological state, because of its importance and relevance for its socio-economic and technological development, as well as from the standpoint of national security, are an integral part of its national strategy. In the context of geopolitical changes taking place on the world stage, increased competition and confrontation, deterioration of political and economic relations with Western countries due to the annexation of Crimea to the Russian Federation and the launch of a special military operation, Russia faces an unprecedented number of sanctions against it. These sanctions undoubtedly have a negative impact on the technological component of the Russian Federation, change the geographical appearance of foreign direct investment (FDI) entering the country, increase the expatriation and withdrawal of foreign capital from the Russian Federation, reduce the investment attractiveness of the state, etc. In fairness, it is worth noting that such negative consequences of sanctions can be, in principle, short-term, in the long term stimulating and strengthening the Russian economy, increasing its competitiveness.
In order to successfully counteract and level the negative trends of today, there is a need to transform the investment and technological program of actions of the Russian Federation, diversify the geographical and sectoral structures of the inflow and outflow of foreign direct investment, strengthen the technological sovereignty of the country, introduce new innovative tools and levers of investment and technological attractiveness and development. The results of the study are based on the materials of the Central Bank of the Russian Federation, reports and reports of the UN Conference on Trade and Development (UNCTAD), the World Intellectual Property Organization (WIPO), the Eurasian Development Bank (EDB) and scientific expert articles by Russian and foreign scientists, etc.
Main part
Under the current sanctions, the vector of investment and technological interaction of the Russian Federation with foreign countries, similar to foreign trade relations of the Russian Federation, has dramatically transformed: the withdrawal of many foreign companies from “unfriendly” countries from the Russian economy, the outflow of foreign capital has pushed the Russian Federation to search for new investors, strengthen investment and technological cooperation and rapprochement with partners from Asian, African and Latin American countries. Under technological sovereignty, one of the most respected research institutions, the Fraunhofer Institute, defines as “the ability of a state or federation of states to possess technologies that they consider critical to their well-being and competitiveness, as well as the ability to develop or obtain from the economies of other countries without unilateral structural dependence.” Of course, the primary issue is the identification of such critical technologies in the context of their prospects, national and economic security of the country. The complexity of analyzing the investment and technological interaction of the Russian Federation with foreign countries is currently complicated by the fact that the Central Bank of the Russian Federation (CBR) from 2022 does not publish detailed statistical reports on foreign direct investment in the Russian Federation, disaggregated by country of origin and industry.
However, in the past, the CBR’s external sector statistics have not always been able to clearly identify the country of origin of foreign direct investment, such as incoming foreign direct investment from offshore jurisdictions. However, based on currently available information, a number of investment and technology trends can be traced and identified. The identification of investment and technological trends is necessary to understand the clarity and clarity of the investment and technological picture, fixing the starting point for the development or improvement of investment and technological strategy. First, and not surprisingly, there has been a sharp decline in the inflow of foreign direct investment, especially from “unfriendly states.” Since the start of a special military operation, according to the Central Bank of the Russian Federation, the volume of foreign direct investment in the Russian Federation decreased by one third – from 610 billion US dollars at the end of 2021 to 402 billion US dollars as of March 2023. According to statistics from the Report of the United Nations Conference on Trade and Development (UNCTAD), the inflow of foreign investment to Russia decreased from $39 billion in 2021 to $19 billion in 2022.
Despite intensified measures taken by the Russian Federation to reduce the opportunities and prevent foreign investors from leaving the Russian market, there has been a significant decline in foreign capital in the Russian economy. It is interesting to note that up to 70% of all foreign direct investment in the Russian Federation until recently is Russian capital passing through third countries, including to optimize taxation. According to the data of 2022, based on the materials of the Central Bank of the Russian Federation, accumulated foreign direct investment in the Russian Federation falls on Cyprus (29.9%), Bermuda (10.2%), Britain (8.8%), the Netherlands (6%), Ireland (5.6%), Luxembourg (5%), Germany (4.2%), etc. The accumulated foreign direct investment from the Russian Federation is distributed accordingly: Cyprus (46.2%), Austria (5.6%), the Netherlands (5.2%), Switzerland (5%), Luxembourg (4.7%), Britain (4.7%), etc. It is obvious that mainly foreign direct investment comes from offshore and comes to the same jurisdictions. Thus, the offshore origin of foreign direct investment coming to Russia is confirmed by statistical data.
Secondly, there is a deterioration in investment and innovation ratings, investment and innovation attractiveness of the Russian Federation, an increase in its investment risks, largely due to the constantly imposed sanctions (recently, the European Union introduced another 13th package of sanctions against the Russian Federation and the 14th sanctions package is already in full preparation), as well as counter-sanctions by Russia. The Ministry of Finance of the Russian Federation published 10 conditions for the exit of foreigners from Russian business, which led to an even greater complexity of the exit mechanism, but this was a forced measure. Tighter and more complicated conditions for foreign investors to leave the Russian economy led to the fact that by mid-2023 Russia was in the second five most high-risk countries for investors, which further reduced the inflow of foreign direct investment into the country. In accordance with the data of 2023 in the global innovation ranking, the place of the Russian Federation fell from 47th to 51st place.
These ratings highlight the challenges in Russia’s investment and technological state and the importance of changes in this area, but it is worth amending that for investors from “friendly” countries, the Russian government is ready to make multiple concessions and preferences in providing support and preferences, such as the intergovernmental Russian-Chinese Investment Cooperation Commission established in 2014, which is doing an enormous job of creating attractive conditions for Chinese investors. Similar commissions establish and stimulate investment and technological cooperation between the Russian Federation and other “friendly” states; at the end of 2023, the approval of two draft laws on the creation of international priority development territories (ITARs) in the Far East with the aim of implementing joint investment projects with foreign partners is a significant event. It is assumed that international territories of advanced development will attract foreign investors and produce goods with higher added value, and thereby implement the policy of technological sovereignty in practice. International territories of advanced development are an additional rather powerful tool along with such state initiatives as priority development territories (TOP), special economic zones (SEZ), free economic zones (FEZ), free ports, etc. Thirdly, under the conditions of sanctions, key investors of the Russian Federation are changing, partners from “unfriendly” states are being replaced by investors from “friendly” states. One can note the parallelity of the processes taking place in foreign trade and investment and technological cooperation of the Russian Federation in terms of scale and direction. Thus, in 2022, the volume of foreign direct investment from Central Asian states into the economy of the Russian Federation increased 4 times compared to the previous year and amounted to more than 4 billion US dollars. Chinese companies are among the largest real investors in the Russian economy; since the beginning of 2022, foreign direct investment from China to the Russian Federation has increased by 4% and 58% since the beginning of 2021.
The increase in the intensity of foreign trade and investment-technological relations between China and the Russian Federation has led to the development of a Russian-Chinese investment index of the attractiveness of Russian regions for entrepreneurs from the PRC. Important investors for the Russian Federation are also the CIS states (EAEU-Eurasian Economic Union). In particular, as of the first quarter of 2024, the most popular in the Russian Federation for China are the Amur Region, Moscow, the Jewish Autonomous Region, St. Petersburg and the Leningrad Region, the Moscow Region, Tatarstan, the Magadan and Sakhalin Regions, the Primorsky Territory and the Novosibirsk Region. The largest joint investment project in the region between Russian company SIBUR and Chinese company Sinopec is the construction of the Amur Gas Chemical Complex. Summing up our reflections on the geographical structure of foreign capital in Russia, we can say that the key investors in the Russian economy today are mainly partners from BRICS and the EAEU, but interest from African and Latin American partners is also growing. Despite the change in the geographical profile of foreign investors, the sectoral structure of foreign direct investment in Russia continues to be irrational.
More than a quarter of all foreign direct investment falls on the extractive industry. Among the high-tech industries, it is possible to single out only the automotive industry, but the trends of 2022-23 in this area are rather negative, since most foreign manufacturers either left the country (Nissan, Toyota, etc.) or froze their production (Hyundai, BMW, etc.). China, as an important strategic partner of the Russian Federation, is rather cautious about technology transfer, preferring production facilities to be placed more in the territory of its state. This state of affairs calls for an urgent need to change sectoral priorities and diversify production while attracting foreign direct investment with a focus on technological industries and achieving technological sovereignty. However, public sources and resources are often not enough to achieve technological sovereignty – one has to turn to non-state resources, including foreign direct investment (FDI). To a certain extent, attracting foreign investment in the country’s economy leads to its technological dependence, but, on the other hand, contributes to the creation of new technologies at the expense of foreign capital, cooperation of foreign investors with national companies of the country.
In order to achieve success in high technology and technological sovereignty, China not only increases subsidies for national science, but also eases the conditions for attracting foreign investment in priority areas of the economy, namely quantum computing, artificial intelligence, medicine and biotechnology, aerospace. The experience of China and other countries can be used in the economy of the Russian Federation to attract foreign direct investment in order to ensure the technological sovereignty of the state. On the world market, the Russian Federation acts not only as a recipient of investments, but also actively tries to invest abroad in such jurisdictions as China, Iran, Vietnam, India, etc. Among the key countries in which Russia is interested, Iran can be noted. In 2022, the Russian Federation invested in Iran 2.76 billion US dollars, becoming a leader among all other investors in the Iranian economy. The interest of the Russian Federation in Iran is explained by military-strategic goals, similarity of the situation (both countries are under sanctions), the participation of states in BRICS. Also attractive for Russian investors are the CIS countries, in particular Kazakhstan, Uzbekistan and Belarus (located in descending order of volumes of foreign direct investment of the Russian Federation). According to the Eurasian Development Bank (EDB), the Russian Federation is attracted in Kazakhstan and Belarus by logistics projects, oil and gas sector, financial services, etc. Kazakhstan and Belarus are interested in the production of machinery and equipment, oil and gas production in the Concept of technological development of the Russian Federation until 2030, approved in May 2023. In the context of sanctions pressure, the need to strengthen the technological sovereignty (independence) of the state was noted, which implies the growth of import substitution (or a new term used in the scientific literature — import independence), attracting new investors from «friendly» states, implementing joint investment and technological projects with partners from «friendly» states.
In particular, it is assumed that from 2025 new national projects of technological sovereignty in key areas of development and national goals will be launched in the Russian Federation (the validity period of most existing national projects of the Russian Federation ends on December 31, 2024). The preparation of new national projects in accordance with state priorities — preserving the population of the country, environmental development and achieving technological leadership — is currently actively and dynamically underway. Thus, in the process of attracting foreign direct investment and equity investments in foreign jurisdictions, it is necessary to act taking into account the achievement of technological sovereignty. In modern conditions, this factor becomes the determining factor in investment and technological policy and in the legislation of any state, including Russia.
Findings
Thus, the sanctions have led to cardinal changes in the investment and technological cooperation of the Russian Federation with foreign investors, namely, a significant change in the geographical structure of Russia’s investment partners, an understanding of the importance of including the agenda of technological sovereignty in the investment and technological strategy of the state. Foreign direct investment currently goes not to geographically close countries, but geopolitically to countries that share the same values, benchmarks and ideas with investors.
In the process of regulating foreign direct investment, states increasingly prioritize ensuring technological sovereignty. It is very important for the Russian Federation to integrate into new value chains, look for technological points of contact with partners-investors from “friendly” states, implement joint investment and technological projects taking into account the intersection of mutual interests. Investment and technological cooperation between countries should be assessed not so much in terms of scale and scale, but, first of all, from the standpoint of quality, efficiency and achievement of the set benchmarks.
In order to achieve Russia’s technological sovereignty, it is necessary: 1. to single out among investors from “friendly” states the most promising and technologically strong partners; 2. to submit according to the Concept of Technological Development of the Russian Federation until 2030. Amendments to the by-laws, taking into account ensuring technological sovereignty, to clarify the list of priority technological sectors of the Russian Federation, the development of which is possible, including with the attraction of foreign direct investment; 3. to develop new tools to attract and support foreign investors, since the reorientation from partners from “unfriendly” states to investors from Asia, the Middle East and Africa requires a revision of approaches and concepts to attract; 4. to develop roadmaps for joint technological projects with investors from friendly countries, taking into account the mutual benefit of the parties, the complementarity of resources and the synergistic effect, and to start implementing the planned plans.