Transcript Investment & Climate Change

Modelling Russian outward FDI
’Emerging Multinationals’: Outward Foreign Direct
Investment from Emerging and Developing Economies
10 October 2008, Copenhagen Business School
Kalman Kalotay
UNCTAD
Astrit Sulstarova
UNCTAD
CONTENTS
I. Dynamics of outward FDI from Russia
II. How FDI theorems explain Russian
outward FDI
III. Hypotheses
IV. Econometric results
V. Conclusions
Dynamics of Russian outward investment




Early 1990s: Russia was a major informal capital
exporter
Since 1999: quick rise of registered outward FDI stock,
surpassing other BRICS (next slide)
OFDI from Russia is partly driven by cross-border
mergers and acquisitions (M&As)
Largest Russian transnational corporations (TNCs)
have strong oligopolistic /monopolistic advantages
Dynamics of outward FDI stock from Russia
Figure 1. Outward FDI stock of the BRICS countries, 1993–2006
(Billions of US dollars)
180'000
160'000
140'000
120'000
100'000
80'000
60'000
40'000
20'000
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
South Africa
Brazil
China
India
Russian Federation
Source: UNCTAD, World Investment Report 2007: Transnational Corporations, Extractive Industries and
Development .
Note : 'BRICS' denotes Brazil, the Russian Federation, India, China and South Africa.
Features of cross-border M&A purchases by
Russian TNCs
 Russian TNCs have targeted mostly developedcountry firms (next slide)
 The UK has been the largest target, followed by
Canada
 The share of CIS limited; highest (28%) in 2001-2004
Sectoral distribution (subsequent slide):
 The bulk (60%) of acquisitions in the primary sector
 Manufacturing was the main target sector in the
early 1990s but fell behind
Cross-border M&A purchases by Russian TNCs
(by host country/region)
Country / region
World
Developed economies
Europe
European Union
Austria
Italy
Luxembourg
Sweden
United Kingdom
North America
Canada
United States
Developing economies
Turkey
China
South-East Europe and the CIS
Russian Federation
Ukraine
1992-1996
511
511
311
311
-
1997-2000
2 211
2 151
1 749
1 749
211
170
170
61
47
13
2001-2004
5 498
3 962
2 766
2 566
4
2 273
1 195
68
1 127
1 536
990
199
2005-2008
56 794
44 287
30 575
30 160
1 662
1 280
1 660
4 652
19 016
13 247
7 937
5 310
3 210
2 006
786
9 297
5 614
2 769
Cross-border M&A purchases by Russian TNCs
(by host sector/industry)
Industry
1992-1996
Total industry
511
Primary
45
Mining, quarrying and petroleum
45
Mining and quarrying
Petroleum
45
Secondary
451
Oil and Gas; Petroleum Refining
Machinery
6
Motor vehicles and other transport equipment
442
Services
15
Electric, Gas, and Water Distribution
Construction Firms
Transport, storage and communications
15
Finance
-
1997-2000
1 700
1 098
1 098
1 098
146
7
15
456
177
13
23
2001-2004
5 498
2 980
2 976
- 1 546
1 430
661
161
17
1 857
60
100
1 106
30
2005-2008
56 794
33 485
33 485
15 742
17 743
13 430
589
7 575
1 537
8 935
1 042
1 637
3 880
1 773
The universe of Russian TNCs
 Capital exports are driven by large industrial
conglomerates concentrated in
 natural-resource-based industries (Gazprom,
Lukoil)
 metal processing (Severstal, UC Rusal, Norilsk
Nickel and Evraz)
 telecommunications (Sistema, Mobile
TeleSystems and VimpelCom)
The 20 largest Russian TNCs
State
ownership
50.01%
50.01%
Major foreign
shareholder
E.ON (6.5%)
Petronas (5%), BP
(4%), CNPC (2%)
Report on
outward
investment
Yes
Yes
Market
value ($
EBITDA,
million)
2006 (%)
334'726
44.4
98'139
21.9
Sales,
Growth of
2006 ($ sales, 2007
million)
(%)
79'122
10.0
33'099
48.7
Gazprom
Rosneft
Industry
Oil & gas
Oil & gas
Sberbank
Lukoil
Banks
Oil & gas
60.25%
-
ConocoPhillips (20%)
Not
Yes
95'132
73'302
67.8 a
18.1
9'863
68'109
44.1
20.4
UES
Norilsk Nickel
Surgutneftegas
VimpelCom
Electricity
Mining
Oil & gas
Telecom
Telecom
Banks
Oil & gas
Oil & gas
Iron & steel
Iron & steel
52.70%
50.01%
50.01%
-
Telenor (26.6%)
EADS (5%)
BP (50%)
-
Yes
Yes
Not
Yes
Yes
Yes
Yes
Yes
Yes
Not
56'064
50'554
49'860
40'389
38'192
34'629
34'371
30'382
27'684
22'894
16.1
65.9
38.9
50.4
53.3
40.1 a
33.5
25.6
31.6
43.0
32'780
11'550
18'401
4'868
6'384
3'252
22'166
20'172
8'292
6'046
13.6
39.0
14.1
47.3
29.3
30.9
9.0
2.0
54.5
27.6
Iron & steel
Oil & gas
Holding
Iron & steel
-
-
-
-
Yes
Yes
Yes
Not
22'673
22'226
19'059
14'423
24.0
46.7
37.0
31.2
12'423
1'782
10'863
6'424
22.7
34.7
22.9
27.6
Oil & gas
-
-
Yes
Yes
13'152
12'963
15.7
21.0
11'702
4'398
8.5
43.7
Firm
Mobile TeleSystemsb
VTB Bank
TNK-BP
Gazpromneftc
Evraz
Novolipetsk Iron &
Steel
Severstal
Novatek
Sistemab
Magnitogorsk Iron &
Steel
Tatneft
Mechel
Iron & steel
How the OLI paradigm can explain Russian
outward FDI
Paper focuses on OLI. Main hypotheses:
 The internalization (I) aspect of TNCs strategies can
explain the behaviour of Russian firms.
 Ownership (O) advantages are less straightforward
although
 Oa advantages consisting of property rights and
intangible assets and advantages of common governance
 Ot advantages consisting of organization and
management
 Home country advantages (H) play a key role in
determining outward FDI
Formal hypotheses for modelling
Hypothesis
Table 4. Hypotheses about the determinants of Russian outward FDI
Theoretical
Variable
Expected sign justification
Home country GDP
Home country exports LEXP
+
Home factor
Ownership
advantages
Policy change
POL
+
State ownership
Host country
LGDP
LNR: the ratio of ore and metal exports to
merchandise export of host country
+
+
Market seeking
Resource
seeking
LSER: the ratio of services to total GDP
LDIS: geographical distance between
Geographical distance countries
CIS region
CIS country
Exchange rate
LFX
Patent
LPAT: number of patents in each country
+
Market seeking
+
+
+
Spatial costs
Cultural affinity
Wealth effect
Asset seeking
Natural sources
Downstream market
Source: the authors.
LGDPcap
+
Econometric results 1
(determinants of outward FDI worldwide)
GDP per capita
Exports
Constant
No. Of Obs.
Adj. R2
0.650489
(0.08)***
0.963744
(0.05)***
-2.250541
(0.46)***
1030
0.59
Note: Standard errors are in paranthesis, 72 countries are included in the estimation
***, ** and * indicate that the coefficient is significant at 1, 5 and 10% respectively
 GDP per capita is a key determinant of outward FDI (1% rise in GDP per
capita will cause a 0.65% increase of outward FDI stock)
 Exports (entry of national firms through arm’s length transactions) is
important determinants of outward FDI (a 1% growth in exports will result
in a 0.96% increase in the FDI outward stock)
Econometric results 2
(determinants of outward FDI from Russia)
GDP per capita
Exports
Policy changes
No. Of Obs.
Adj. R2
0.959499
(0.18)***
0.179202
(0.06)***
1.792514
(0.18)***
1030
0.59
Note: Standard errors are in paranthesis,
***, ** and * indicate that the coefficient is significant at 1, 5 and 10% respectively
 GDP
per capita has more impact on outward FDI than
exports (1% rise in GDP per capita will increase outward FDI
stock by 0.95%, compared to only 0.17% in the case of exports)
Policy change (1999) is also significant
Econometric results 3
(locational determinants of outward FDI)
 Most of the econometric results confirmed our
preliminary hypotheses
 Home country market size (measured by GDP per
capita) is the variable with the highest significant
coefficient
 Three main host-country variables (absolute size of the
economy, natural resources endowments and services)
are significant with the expected sign
 In contrast, asset-seeking motives, distance and
exchange rate were not significant
Econometric results 3
(table)
Host country GDP
Russia GDP
Host country Natural Resources
Host country services
Distance from Russia
CIS member country
Exchange rate
Patent
No. Of Obs.
Adj. R2
All countries
Developed countries
0.408555
(0.23)*
1.533358
(0.42)***
0.427708
(0.20)**
1.354602
(1.26)*
-0.492531
(0.21)
1.588377
(0.88)*
0.129656
(0.11)
-0.074213
(0.17)***
0.26606
(0.11)*
0.656674
(0.21)***
0.227579
(0.1)**
-0.843995
(0.94)
0.022105
-0.22
594
0.22
391
0.19
Note: Standard errors are in paranthesis,
***, ** and * indicate that the coefficient is significant at 1, 5 and 10% respectively
-0.023753
(0.06)
-0.10446
(0.09)
Conclusions
 Among the first attempts to model formally Russian
outward FDI
 In terms of main variables explaining Russian
OFDI,
 home-country market size has been found as a
particularly important factor
 market size of the host countries and equally
 host-country natural resources
have been found to be important drivers of Russian
OFDI
Thank you
Kalman Kalotay
UNCTAD
[email protected]
Astrit Sulstarova
UNCTAD
[email protected]