Outflow of Russian capital continues to grow
The volume of capital flowing out of Russia continues to grow, despite the improvement of the situation in the country’s national economy. It is expected that this year it will increase up to US$130 billion, which is significantly higher the earlier predictions of the Russian Ministry of Economy and Development of US$90 billion.
Due to the current economic crisis in Russia and devaluation of the ruble caused by western sanctions, the Russian elite no longer want to spend their funds within the country. They prefer to invest it in the purchase of luxury homes in western countries, yachts and other objects of the luxury life. Yet a significant part of Russian business prefers to invest funds in the establishment of their own businesses in western countries. This is reflected by statistics. The number of wealthy Russians investing in the US in 2014 has almost doubled. Also in 2014 the number of Russian submissions for UK investor visas had increased by almost 65%, compared to 2013.
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The recent economic turmoil and panic, caused by rapid devaluation of the ruble in December and January resulted in the fact that many Russian businessman lost their belief in national banks, which forced them to withdraw their money and assets out of the country. At the same time, in addition to general instability of the Russian economy, among the major reasons for the outflow of capital from the country are the existing inefficient models of the Russian economy, a lack of market competition, and a low level of investors’ trust (both domestic and foreign). The distrust of the government is also related to it’s inability to implement its earlier announced plans for the de-offshorization of the national economy, which means that the majority of large Russian companies are still registered abroad, paying taxes in foreign countries.
The existence of large state-owned corporations prevents rapid development of the Russian economy, causing its stagnation. The situation is aggravated by the fact that the majority of such corporations usually act as monopolies, which negatively affects the overall level of competition in the market and contributes to the further growth of corruption, which currently continues to be one of the most pressing problems for the Russian economy. According to representatives of some multinaitonal companies operating in Russia, doing business in the country is still impossible without giving huge bribes, the amount of which has significantly increased in recent years.
The Russian government currently experiences serious difficulties with the implementation of its most important goals for the increase of labour productivity. At present it takes place only through the cutting of wages and personal incomes of workers from the majority segments of Russian industrial production. The current lack of market competition is not associated with the need to introduce innovative technologies in Russian industrial production. But they also plan to implement measures aimed at the increasing of labour productivity with the use of civilized market tools.
A shortage of capital in the country is also reflected by the number of bankruptcies in Russia, which has significantly increased since the beginning of the current year. Total number of bankruptcies of legal entities in Russia in the first quarter of 2015 is comparable to the volumes observed during the global recession in 2008-2009. The majority of bankruptcies were observed in agriculture, wholesale and retail trade.
It is expected that the outflow of capital from Russia will continue to grow, despite the recently adopted federal law about amnesty of capital (which is officially known as On the voluntary declaration of property and accounts (deposits), which means the legalization of capital that was withdrawn from Russia in the past. However, despite the legalization of capital, the new law has already sparked criticism from representatives of Russian business, due to the introduction of an obligation to inform Russian tax authorities about the existence of foreign assets.
Since 2000 the outflow of capital from Russia has reached US$2 trillion. In 2014, the outflow increased by a factor of 2.5, – up to US$151.5 billion, compared to US$61 billion in 2013. This became an absolute anti-record in the history of Russia. At the same time the outflow of capital in 2014 amounted to an astronomic US$77.4 billion, amid the fears of possible default.
Eugene Gerden is an international free-lance writer, based in St. Petersburg, who specializes on writing in the field of mining, metals and rare earth metals. ... <Read more about Eugene Gerden>