These improvements are now taking on a more imperative character given the recent turmoil in the financial and credit markets along with a general deterioration in the global investment climate.  The economies of the Commonwealth of Independent States (CIS) are not shielded against external shocks and an abrupt withdrawal of capital as some emerging markets are currently experiencing may have severe consequences.  This was also demonstrated during the second half of 2008 in Russia, Ukraine and Kazakhstan. 

CASE Network E-brief 02/2009 Alina Kudina

“Institutional investors notice positive developments in the CIS and tend to react to them” argues Alina Kudina. “If positive economic developments in the CIS are accompanied by bold action, including reform of the domestic financial sector, further integration within the region and global economy, and strengthening of legal, political, and regulatory institutions, an upsurge in portfolio flows and FDI into the region is sure to be expected” she continues.  Based on a survey of 120 foreign-owned companies in Ukraine, Moldova, Kyrgyzstan and Georgia, the most urgent problems faced by foreign investors in the CIS relate to the volatility of the political environment, growing economic uncertainty, ambiguity of the legal system, and high levels of corruption.

Addressing those challenges, among others, sooner rather than later, will help them secure a greater chance of more diverse and longer-term investment in the future.

This e-brief is based on the results of two studies conducted as part of ENEPO – EU Eastern Neighbourhood: Economic Potential and Future Development, a project funded by the Sixth EU Research Framework Programme.  The full reports on determinants of portfolio flows into the CIS and on motives and impediments to foreign direct investment (FDI) are published in CASE Network Studies and Analyses series No.354 and No.370.