Conference e-mail

The Aleksanteri Institute

Unioninkatu 33 (P.O. Box 42)
00014 University of Helsinki

Past Aleksanteri Conferences

Samir Balakishi (University of Bristol, UK)

Russian Foreign Direct Investments in the South Caucasus

After the disintegration of the Soviet Union, the CIS was formed by 12 former Soviet republics in 1991. The concerns about FDI prevalent in these transition economies are compounded by specific concerns pertaining to Russian motivations and behaviour. As a historical legacy of the Russian-dominated USSR, Russia’s importance as an export market, dependence on energy supplies from Russia, and Russian foreign economic policy initiatives which seek to subordinate the other former Soviet states' interests to Russia’s own, make Russian FDI a particularly sensitive issue, such as in Georgia, where the relations with Russia have been especially controversial. This paper will explore by providing examples from several industrial sectors and discussing both the extent of Russia’s FDI to which concerns about its attempts to control the economic assets of the South Caucasus states are grounded and the related economic and political leverage driven by these investments in their target economies. It will assess the large volume of Russian investments and evaluate what makes Russia a major investor in the South Caucasus, why various Russian investors chose to invest in the region, what is the nature of its investments, more often targeted to the strategic economic sectors of the South Caucasus states. In addition to being an important energy and commodity supplier to the three South Caucasus states, Russian corporations hold considerable stakes in oil, natural gas, and power corporations in the region. The investments in the strategic natural resource based sectors constantly provide Russia with significant economic and political leverage in the region. Besides traditional natural resource based industries, the Russian telecommunication corporations have commenced to aggressively seek markets and assets abroad, and particularly in the South Caucasus countries. Finally, this paper will examine the Russian state’s involvement in these investment decisions and attempt to identify whether Russian authorities have an operational agenda for encouraging investments in the South Caucasus.