Over the last decade, three main factors have
determined FDI flows into Russia. First, the energy sector (oil and gas) plays a predominant role in
the Russian economy and dominates exports. It has become a major focus of investment flows,
including investment in associated activities dependent on energy extraction. The high concentration
of FDI in regions rich in natural resources is evidence of the significance of the energy sector for
Second, the high degree of uncertainty induced by a volatile exchange
rate has discouraged foreign investment, while the ruble has been heavily affected by the changing
oil price. The gradual evolution in the policy of Russia's central bank from exchange rate
management to inflation targeting has helped macroeconomic stability in the medium term.
Third, FDI into Russia is affected by the wider trade and investment context, which in turn are
affected by institutional structures, or the lack thereof. Sanctions have been a major obstacle to
investment in recent years.
The EU's pledge to decarbonise places Russia in a difficult
situation because oil and gas have long been at the heart of its economy, especially when it comes
to external relations. Furthermore, the literature on the growth impacts of FDI highlights many of
the benefits from technology transfers, which are often lacking when FDI is focused on fossil-fuel
extraction. The Russian economy needs more investment in higher-value added activities, which the EU
is in a position to provide.