Europe Economy

Here's just how badly Russia is bleeding capital

Russia capital controls a 'credible threat': Pro

Investors have known for a while that Russia is bleeding capital. Now new data show just how dramatically investors began abandoning Russia after the Kremlin started working to destabilize Ukraine and was slapped by Western sanctions in response.

According to a new report from the Institute of International Finance, Russia saw a net outflow of investments in the second quarter—its first time since 2008, during the global financial crisis.

As recently as the first quarter of 2013, long before the crisis with Ukraine erupted, Russia saw net investment inflows of a whopping $90 billion. Compare that to the second quarter of this year, when the Ukraine crisis was in full swing, and Russia saw negative net investment of nearly $8 billion, even as investors continued to put money into comparable nations like Poland and Turkey.

Pro-Russian rebels jump off an armored personnel carrier during a parade in Luhansk, eastern Ukraine.
Marko Djurica | Reuters

"Russia was already weakening" before the crisis, said Charles Collyns, chief economist at the IIF. "And then it worsened in March when the Ukraine situation began."

Even before the Ukraine crisis and subsequent sanctions from the United States and European Union, the Russian economy was starting to show signs of trouble, due to weakening demand for oil.

"The country was living on the high commodity prices," said Collyns. The decline in prices, along with the crisis, have "laid bare the fundamental issues" of the Russian economy.

Russia is a major producer of oil, but not much else. It is reliant on energy prices remaining high, but the price of oil has marched lower over the last few months.

To make matters worse, the number of eurobond issuances from Russia has also plunged, as the chart below shows, indicating that it's likely becoming more difficult for bond issuers to borrow.

Russia is open to foreign investors: Deputy fin min