Russia's flagship economic forum offers scant hope of foreign investment revival

ST PETERSBURG, Russia (Reuters) -Foreign direct investment into Russia has fallen sharply, U.N. data published on Thursday showed, and Russia's premier economic forum in St Petersburg this week is offering scant hope of a revival, with Western investors largely absent.

Russia is hosting the St Petersburg International Economic Forum for the fourth time since invading Ukraine in February 2022, an offensive that precipitated sweeping Western sanctions on Moscow and a widespread corporate exodus from the country.

    Soaring defence spending has propped up Russia's $2 trillion economy since then and Moscow, turning its back on the West, has sought partnerships with so-called "friendly" countries like China, India, Turkey and nations across the Middle East.

But for all the talk of new strategic partnerships, foreign holdings in Russia have almost halved to $596 billion since the invasion, according to central bank data, and FDI inflows fell by 62.8% year on year in 2024 to $3.35 billion, UN Trade and Development data showed on Thursday.

Sergei Aleksashenko, a former deputy governor of Russia's central bank now living abroad, said few serious businesses would consider Russia as an investment destination even if the war were to end tomorrow.

"Everyone can clearly see the situation with property rights is getting worse every day," Aleksashenko told Reuters.

    The Kremlin has seized about a dozen foreign-owned businesses in the last three years and quickened the pace of domestic asset seizures, with prosecutors claiming Moscow's Domodedovo Airport and grain trade Rodnie Polya.

"Stopping the war itself does not significantly reduce the level of political risks," Aleksashenko said, pointing to market risks as well.

President Vladimir Putin has said the state should only seize assets where Russia's national security is jeopardised.

GOVERNMENT, NOT PUBLIC, RELATIONS

"The real question is: where are the investors?" said one Russian participant of the forum who spoke on condition of anonymity.

The West has shunned Russia since 2022, and though sanctions make investing in Russia all but impossible, U.S. President Donald Trump's softer stance towards Moscow has led some investors to keep an eye out for opportunities.

The forum in St Petersburg, a city founded by the tsars as a window to Europe, for years had a Western-looking feel, but it is now returning to its original role as an event primarily for Russian businesses to network with politicians.

"The reason the West came to the forum was because Russia was sizeable, growing and profitable," Denis Denisov, managing partner at financial communications firm EM, told Reuters. "You don't find these three components very often."

Now, said Denisov, attending his 18th St Petersburg forum, for most participants the gathering is an opportunity to develop government relations and is less about PR.

"The American Chamber of Commerce (AmCham) has been pushing hard for the Russia-USA panel, there are loads of European businesses still operating in Russia," Denisov said. "They're here, they're lobbying, just quietly."

Speaking after that panel, AmCham head Robert Agee said there needed to be some sort of end to the conflict before U.S. companies would consider coming back to Russia.

Major multinationals PepsiCo, Nestle and Mondelez are among those still operating in Russia, although they have scaled back their business there.

'PRAGMATISM AND OPPORTUNISM'

Putin met Indonesian President Prabowo Subianto on Thursday, as Moscow looks to strengthen ties with Jakarta, while Russian officials are turning to Brazilian and Chinese companies to plug gaps left by departing Western firms. But UNCTAD's FDI data shows that actual investment in Russia is waning.

But even with Russia's economy on the brink of recession, according to Economy Minister Maxim Reshetnikov, there is domestic money to spend after two years of elevated defence spending fuelled growth.

Russian funds have great options, such as collaborating with wealthy individuals that want to invest, rather than keep funds on deposit, said one Russian investor at the forum who declined to be named. People are also jostling for position before the war ends, the investor added.

The same is true of Western investors who feel that the wind is gradually changing, said Jean-Jacques Coppee, founding partner of CoppeeLaw & Associates, who is due to speak on the Russia-France panel on Friday.

Sanctions have made cross-border payments a "nightmare", Coppee told Reuters, but should opportunities arise, investors will take them, even if others in the West object on moral grounds to engaging with Russia.

"The rule is pragmatism," he said. "Pragmatism and opportunism."

(Reporting by Reuters in St Petersburg and Alexander Marrow and Darya Korsunskaya in London; Editing by Toby Chopra)