Kari Liuhto: “Half of all Russian foreign investments landed in offshores”

12 February 2020, 11:05

Is it true that there is a Russian economic war against Europe and Ukraine in particular?


  • If by war we mean some attempts by Russia to influence certain things, which are important for our strategic infrastructure – I think it has been there already for quite a while. If we are following the Russian investment approach so far there have been concentrated quite a lot with the energy infrastructure. The second sector is the telecommunication, but not in the Western part of Europe, mainly in the East, because the assets there are much cheaper and we have less control over them. The third sector is banks because by owning the banks you can do lots of various operations. So, it exists. Kremlin does its foreign policy in various means and it is not only the state-owned companies. State-owned companies, like Rosneft or Rosatom, they are in the direct chain of the command. And private companies are operating in certain fields and the Russian authorities can push them to act in their favor inside the Russian Federation, but also abroad. So the private ownership is not a guarantee to prevent this so-called out of state influence. If we take figures and numbers, in Finland we have 5 thousand Russian companies operating, only 5 or 10 of them are somehow important in different ways, even for our economy. So the big picture is that they are usually normal, but the cases with scum pop-up periodically in media and so on. But I need to be honest – not every Russian company is acting in the favor of Kremlin when they are trying to invest in something.

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It is a little bit similar to the behavior of Chinese businesses, which are private by nature but still have some connections with the government.


  • I have been followed the Russian investment abroad for twenty years. And one trend that has happened after the Ukrainian war – they have started to retreat their investments from the United States and some Western Europe countries as well. And when we are speaking about the Chinese companies – they are much more organized and controlled, comparing to Russian. Next point, what matters here is the fact that around half of Russian investments in Western Europe, returns to Russia. So they are using their investments abroad as the banks for their operations back in the home. And it is very normal, common advice for all the businesses “don’t keep all the eggs in the same basket”. If I would be a Russian oligarch, I definitely wouldn’t keep all my money at home. Elections will come sooner or later, bringing a huge distribution of the economic power after Putin’s retirement. We know for sure, that the cake doesn’t grow anymore, Russian GDP is growing only 1% annually. And if you have to distribute the cake, so you have to take it from somebody else. This will create turbulence.

China is investing in some fields, where the Russians are less active to some extent. Chinese companies are trying to invest more in hi-tech. Huawei is very famous, but not all of us know, that even the Swedish carmaker Volvo is already in Chinese hands. And because they are more organized, they are more scary for me. What might happen if the Chinese and Russians really find each other? In this case, there will be various games, like Chine will transfer its assets in Ukraine to Russian control, and for that get some actives in Central Asia. That kind of game we cannot exclude. And when we are speaking about the values, last year China was #1 investor abroad in the whole world. They invested more than $130 bln last year, Russians – less than $40 bln. So the scales are different, and the Chinese are coming very fast.


Which sectors of European and Ukrainian economies are the most vulnerable to this kind of foreign threat?


  • If we start with the Russians, so far they used to invest a lot in energy-related sectors, like energy production, energy logistics. Also in telecommunications, I have mentioned that they are very interested in Post-Soviet republics. These assets are very cheap, Russians have certain knowledge, which is superior for local markets, for example in Central Asia and they are rather effective in doing this. And also the banks, they use them not only for financial operations but for money washing. The most notorious case is the Danske bank. Scales are huge, we can speak about $200 bln have been washed by Danske bank from 1990-s. If you compare with your GDP you can imagine the scale (in 2018, Ukrainian GDP was $130.9 bln.– Ed.).

China had started its initiative “One road, one belt” in 2013, somebody calls it “The New Silk Road”, quite a nice name for economic expansion. Why China is doing it? I think we need to understand, that they need to secure their logistical chains from raw materials. They have huge funds in their hands to do something proper with those plans. Nowadays everybody knows the big game between the United States and China. Donald Trump, I think, tries to slow down Beijing with economic means. And there is a slogan, that if China won’t be sopped by economic means, then they have other means, even military. Of course, economic means are better for ordinary people. Same time, China is the biggest trader in the world, the biggest investor in the world and the biggest consumer of touristic services. Travelers from China are spending twice as much more money abroad than Americans. So Chinese are coming in all ways. When I’m thinking of Ukraine, if I would be Chinese, I would be looking very much in this agriculture asset, which could be acquired at relatively cheap prices. I think they could buy all of this by their huge fund. So this is the question for your regulators to limit somehow and to control the situation, to what extent is appropriate that foreigners are coming here with investments and are there any means to do it somehow. You know that the Chinese are using a lot of middlemen, even more than Russians. Sometimes it is very difficult in practical terms to stop them because they could use Ukrainian businessmen, but in reality, they will have everything in their hands. You need to open the land market, but same time define the conditions very carefully. In the European Union, there is already in force regulation for the screening of foreign direct investments. I think Ukraine would benefit from close cooperation with the EU in the field of tracking the source of investments. How it works in Europe – this is an exchange of information between member states about those investors, exchange of best practices. We could learn a lot, especially concerning Russian operations, not only as warfare in a hybrid war. This would be one of the steps of Ukraine to make more closer cooperation with the European Union as well. What is the key point in the EU – the members still had the final word, so the EU is never going to stop any project, they only make some warnings for the governments.

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  • If the investors are really clever, it needs lots of time to look who is behind the project, behind the money. On pragmatic reason, of course, when the money comes from these offshore countries you need to follow them very carefully and not allowing those. If you don’t have a proper owner you cannot even allow them to come in. There is an anecdote, which could be a kind of illustration for that – if you take the first three letters from Cyprus, you will find the real owner – Rus(sia). The money-flow between Russia and Cyprus is enormous. A couple of years ago I was in Cyprus, meeting local authorities. Because of that time, there was a huge statistical difference regarding the flow of the money between the Central Bank of Cyprus and Central Bank of the Russian Federation. According to Russian data that was more than $150 bln had been moved from Russia to Cyprus, and the Cyprus authorities confirm only $20 bln. So if you have some $130 bln gap you can understand, that something is not correct. And Cyprus is only one of such countries. Half of all Russian foreign investments landed in offshores like Bermuda, Bahamas, Cyprus, British Virgin Islands, etc. But at the same time, if you look at the inward FDI stock to Russia – the same countries appear, so this is my reason to say, that more than half of investments turn back home, so Moscow uses them as the banks. The first reason is diversification, second – to get cheaper loans in western banks. Because in Russia you still have to pay higher interest rates. In that situation, we should decide on Russian oligarchs, who are behind this, how independent they could be from Kremlin. And this is not always easy – if you don’t play their rules. My way or highway. Many businessmen had been forced out to sell all their property. That is why many oligarchs could act like a normal businessman, but one day changes their behavior completely, not because of their own choice, but they have to if they want to survive in Russia. They are hostages of the regime. Sometimes we say, that there are no property rights in Russia, there are so-called consensus that you can use something for a certain period if the czar allows you that. A temporary right to manage the assets, but not to own. That is the reason for many Russians to diversify their assets because they know the risks.



Kari Liuhto. He has started his academic career at Turku School of Economics in 1991. He shifted to Lappeenranta University of Technology in 1997 where he was nominated as a professor. Since 2003 – Professor of Russian trade and the director of the Pan-European Institute at Turku School of Economics. Since 2011 – Director of the Centrum Balticum Foundation (Finland). He acted as a responsible leader for projects related to the Russian market economy, business in the Baltic Sea region, EU-Russian economic relations, and investments, investments in Central Eastern Europe. In 2007 named Knight First Class of Order White Rose Finland.

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