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Russian Capital in the Visegrád Countries

  • Centre for Economic and Regional Studies
  • Institute of World Economics Budapest

Abstract and Figures

This working paper analyses investment by Russian firms in the four Visegrád countries, their motivations and ownership advantages, based mostly on the eclectic paradigm. Beside statistical data, we rely on case studies to present the profile of the most important Russian investors in each host country. The Visegrád countries have attracted less Russian investment than their economic importance would warrant, due to various factors, most notably the joint effects of reticence in host countries and firm strategies that do not necessarily see the subregion as a major priority. Most of the Russian investment examined is market, and to a lesser extent, resource seeking, concentrated in the hydrocarbons, steel and nuclear energy industries, often dominated by state-owned firms. Some innovative private Russian companies, with features similar to developed-country multinationals, can also be identified. Extant investment theories with the exception of the eclectic paradigm fall short of explaining Russian investment. This paper suggests that further analysis is needed on the role of the home country in stimulating outward investment and directing it to specific locations.
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Centre for Economic and Regional Studies of the Hungarian
Academy of Sciences – Institute of World Economics
MTA Közgazdaság- és Regionális Tudományi Kutatóközpont
Világgazdasági Intézet
December 2014
Kálmán Kalotay
Csaba Weiner
Centre for Economic and Regional Studies HAS Institute of World Economics
Working Paper Nr. 210 (2014) 1–55. December 2014
Russian capital in the Visegrád countries
Kálmán Kalotay (UNCTAD), Andrea Éltető, Magdolna Sass,
Csaba Weiner senior research fellows (Centre for Economic
and Regional Studies, Hungarian Academy of Sciences)
ISSN 1215-5241
ISBN 978-963-301-616-9
Magdolna Sass’s contribution was supported by the Hungarian Scientific Research Fund (OTKA) under
Grant No. 109294. Csaba Weiner’s research was supported in part by OTKA under Grant No. K–105914.
The views in this paper are those of the authors and do not necessarily reflect the opinion of the United
Nations or CERS HAS.
Centre for Economic and Regional Studies HAS
Institute of World Economics
Working Paper 210 (2014) 1–55. December 2014
Russian capital in the Visegrád countries
Kálmán Kalotay (UNCTAD), Andrea Éltető, Magdolna Sass, Csaba
Weiner (Centre for Economic and Regional Studies, Hungarian
Academy of Sciences)
This working paper analyses investment by Russian firms in the four Visegrád countries, their
motivations and ownership advantages, based mostly on the eclectic paradigm. Beside
statistical data, we rely on case studies to present the profile of the most important Russian
investors in each host country. The Visegrád countries have attracted less Russian investment
than their economic importance would warrant, due to various factors, most notably the joint
effects of reticence in host countries and firm strategies that do not necessarily see the
subregion as a major priority. Most of the Russian investment examined is market, and to a
lesser extent, resource seeking, concentrated in the hydrocarbons, steel and nuclear energy
industries, often dominated by state-owned firms. Some innovative private Russian companies,
with features similar to developed-country multinationals, can also be identified with market-
as well as efficiency-seeking investment. Extant investment theories with the exception of the
eclectic paradigm fall short of explaining Russian investment. This paper suggests that further
analysis is needed on the role of the home country in stimulating outward investment and
directing it to specific locations.
JEL: D22, F23, M16
Keywords: foreign direct investment, multinational enterprises, Central Europe, Russia, Czech
Republic, Hungary, Poland, Slovakia
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Introduction: context and methodology
The recent rise of outward foreign direct investment (OFDI) from emerging
economies can be best explained by the fast expansion of multinational enterprises
(MNEs) from a handful of leading countries. Among those top countries, Russia has been
particularly dynamic: it has entered permanently the club of the world’s 20 largest
sources of OFDI stock, and is currently among the top 10 countries of the world in terms
of OFDI flows (UNCTAD, 2014).
Moreover, in the 2013 Forbes List of 2000 Global
Companies, there were already 30 Russian firms.
However, only a few large MNEs are
responsible for the overwhelming majority of this outward expansion, based in natural
resources and in selected services (banking, telecommunications, see Kalotay &
Sulstarova, 2010). While these companies have shown global ambitions from the outset,
many of them remained regional MNEs, concentrating their foreign assets in Europe and
Central Asia (Kuznetsov, 2013). Moreover, there is a clear regional refocusing of Russian
OFDI since the onset of the global crisis, targeting the East Central European region
(including the Visegrád countries) more than before.
The Visegrád countries (Czech Republic, Hungary, Poland and Slovakia) could indeed
be major targets for the expansion of Russian MNEs. Poland has a common border with
Russia, while the other three countries are geographically close. Even more important is
the common economic heritage Russia and the Visegrád countries share, because in the
period between 1949 and 1991, when they were members of the Council for Mutual
Economic Assistance (CMEA), they were involved in an almost exclusive trade
partnership with each other – with a clear Soviet leadership. The dominance of political
factors coupled with a lack microeconomic roots of that economic cooperation resulted
in the quick dissolution of the Council already in 1991 in the aftermath of a radical
change in the global economic landscape. Since then, the Visegrád countries (together
Direct investment from Russia received a great boost during the 2000’s, first in 2003, and then in 2006
(CBR, 2014a). In 2008, Russian FDI outflows reached a record high of $55.7 billion, but the crisis was
strongly reflected in the figures from the third quarter of 2008 and onwards, leading to a major year-on-
year decline of 22 per cent in 2009. However, FDI outflows were again at record highs of $66.9 billion
and $86.7 billion in 2011 and 2013, respectively, placing Russia in the top 5 FDI providers in 2013. Since
2009, except for 2012, FDI outflows
have again been exceeding inflows (Weiner, 2011; CBR, 2014a;
UNCTAD, 2014). Foreign direct investment by Russian business was less affected by the crisis than
foreign direct investment planned and undertaken in Russia.
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with other former CMEA members) reoriented their foreign trade towards developed
countries, first of all towards the European Union (EU), reducing Russia’s share to
negligible, except in oil and gas imports. However, one has to consider that if Russian
firms wish to re-establish business links with former European CMEA countries
(including East Germany) capitalizing on the tradition of more than four decades of
cooperation, they find the Visegrád countries right in the middle of that area,
concentrating about 60% of the population; they are also the countries through which
the strategic Friendship Pipeline
and gas pipelines flow. If the aim of Russian firms is to
establish themselves in the industrial heartland of Europe, the main East–West
transport corridors they can use pass through the Visegrád countries.
These countries
could therefore become the most natural entrepôt for all firms going West, especially if
one considers that they are already part of the EU customs union, and also offer the
benefit of free movement of people within the Schengen Zone. As the data presented in a
subsequent section show a low share of Russian investment in the Visegrád countries,
one can refer to missed business opportunities.
Despite relative familiarity with Russian partners, the reaction of politicians and
public opinion in the Visegrád countries to the arrival of Russian firms has not always
been positive. Part of the misgivings may be explained by a general “they are not us”
attitude, which can be observed in any host country, even the United States (Tyson,
1991). Furthermore, the negative experience of the Soviet military occupation and the
inefficient functioning of the planned economic system imposed on these countries by
the Soviet leadership between 1945 and 1989 add to these fears. However, part of the
local resistance to Russian firms may stem from fears derived from the alleged
misbehaviour of those firms in foreign countries. Some Russian MNEs are perceived as a
potential threat on the assumption that they may be a tool of Russia’s leaders to regain
It is the world’s longest oil pipeline carrying oil on around 4,000 kilometres from Russia to points in
Ukraine, Belarus, Poland, Hungary, Slovakia, the Czech Republic and Germany.
Corridor III linking the EU capital Brussels to the East passes via the Polish cities of Wrocław, Katowice
and Kraków, before going to Kiev (the latter linked to Moscow and St Petersburg via Corridor IX).
Corridor V linking Northern Italy to the East passes via the Hungarian capital Budapest, then goes to
Uzhhorod in Ukraine, to link up with Kiev, and then Russia. And perhaps the most important of all links
is the Corridor II, starting from Berlin, passing via the Polish cities of Poznań and Warsaw, then in the
East continuing to Moscow and Nizhny Novgorod via the Belarus capital Minsk.
This low share cannot be explained by the current Crimean/Ukrainian crisis for at least two reasons:
because this low share characterized the pre-crisis period, too; and because the crisis affects all host
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political and economic hegemony in the former CMEA region. Additionally questions can
be raised about the quality of certain parts of Russian OFDI. One problem is an alleged
link with illegal or unethical behaviour (Ledayeva, 2013). The use of transhipment
countries to hide the origin of the investor can further exacerbate that perception. It has
to be recalled that, in 2012, more than half of the country’s OFDI stock had transited via
offshore financial centres, more than twice as much as OFDI directly targeting the
European Union (EU)-28 (Figure 1).
Our methodological approach is twofold. First, we analyse available macro data on
Russian FDI in the four Visegrád countries. Available Russian and host country flow and
stock data are examined for the period 2004–2012, using sources of balance of
payments of the Visegrád countries and other available data sources. We show
discrepancies between the data sets and present anecdotal evidence for the inclination
of Russian investor companies to use third countries as intermediaries in their foreign
investment projects realised in the Visegrád countries (see e.g. Kuznetsov, 2013).
Figure 1. Russia’s OFDI stock by main groups of countries, end 2012
Billions of dollars
Other Europe; 22
Former So viet
Union minus Baltics;
Other economies;
EU-28 minus
offshore financial
centres; 115
Offshore financial
centres; 232
Source: Authors’ calculation, based on Bank of Russia data.
From the intermediary country, capital either goes back to Russia or lands in a third
country as “non-Russian” investment. As a result, raw data can provide a misleading
picture about the geographical and the sectoral composition of Russian OFDI, a
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distortion that only case studies can correct efficiently. Thus our second methodological
approach is to apply case studies of Russian investment in the four countries analysed.
This methodology permits us to get around the above-mentioned data problems that
surround Russian OFDI. We observed the following characteristics of the top Russian
subsidiaries in each Visegrád country: the main characteristics of the Russian investing
company (name, industry, activity, employment, foreign expansion and its motivations,
ownership structure with special attention to links to government), and those of the
local subsidiary (time of entry, entry mode, Russian share, industry, transhipping or
round tripping involved, main motivation of the investor, main changes in its operations
after the acquisition). Moreover, we also include the analysis of cases of unsuccessful
takeovers alongside the same characteristics.
Our methodological approach has both its advantages and drawbacks. The above-
mentioned data problems surrounding Russian OFDI and its high concentration in terms
of the number of investing companies clearly favour our approach. Differences between
the four analysed countries and their economic relationship with Russia indicate the use
of separate country studies. Furthermore, case studies are rich in detail and can provide
important information concerning up till then neglected but important features. Case
studies can be used as tests for the applicability of theories, which is one of our main
aims in the case of Russian MNEs. On the other hand, case studies are not representative
and provide limited scope for generalization (OECD, 2009). They are also criticized for
being subjective (Gibbert et al., 2008). Our approach of multiple and comparable case
studies, analysing the same list of characteristics of Russian subsidiaries in the four
countries attempts to widen the scope for generalization.
The paper is structured as follows: First, a brief summary of bilateral foreign direct
investment (FDI) statistics is presented. This information is complemented – after a
summary of the literature on Russian OFDI and MNEs – by case studies of Russian
investment in the four selected countries. The subsequent section presents implications
for extant OFDI and MNE theories. The last section concludes.
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The place of Visegrád countries in OFDI from Russia: what statistics show
As mentioned, FDI statistics are unable to capture the full complexities of Russian
corporate actions. The main limitations are the following:
FDI measures only the equity-related activities of MNEs. Therefore, should Russian
firms engage in non-equity modes of production in Visegrád countries (such as
franchising, licensing, contract manufacturing, business process outsourcing etc.);
FDI data would reflect reality in the field quite poorly.
FDI statistics on the countries of origin and destination always register the economy
of residence of the immediate investor, not that of the final owner of the assets. Due
to the presence of transhipment as a dominant form of OFDI, a large part of data may
escape the radar screen of host countries which use only the traditional FDI
As mentioned above, investment to offshore centres is often, at a later stage, further
transhipped to a final target country, or round tripped back to Russia. This feature is not
a unique characteristic of OFDI from Russia. Brazilian MNEs use offshore financial
centres as transit points for their OFDI on an even larger scale (Kalotay, 2012). ). Even
developed country multinationals try to optimize their taxes through techniques known
as “Dutch sandwich” or “double Irish”, when they insert a Dutch or Irish affiliate in their
foreign investment in third countries. In both cases, a difficulty arises from the fact that
one loses track of the final destination of investment projects. One exception can be
made with Cyprus due to its almost 100% reliance on Russian (and, to a lesser degree,
related Azeri, Kazakh, Ukrainian) capital (Pelto et al., 2004; Kalotay, 2013). For that
reason, we can use FDI from Cyprus as a more or less acceptable proxy for transhipped
FDI from Russia. Unfortunately, the same rule cannot be applied to the British Virgin
Islands, Luxembourg, Bahamas, Jersey etc. where Russian offshore capital is mixed with
investment coming from other jurisdictions.
The rest of Russian OFDI targets primarily the so called wider European space
(Kuznetsov, 2013a), especially the EU member countries, followed by other Europe and
the former Soviet Union. It has to be noted here that even in those locations, some of the
transactions can be of transhipped nature, especially in the Netherlands and
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Switzerland. Beside the group of tax heavens and wider Europe, the only sizeable target
of Russian OFDI is the United States (Table 1).
Table 1. Russia’s outward FDI stock by top 20 recipients and
main groups of countries, end 2012
Millions of dollars and percentages
Item Value ($
million) Share in total
Total outward FDI stock 406 295
Offshore financial centres 232 205
Of which:
Cyprus (1) 151 806
British Virgin Islands (3) 46 649
Luxembourg (7) 9 114
Bahamas (10) 5 937
Jersey (13) 5 124
Saint Kitts and Nevis (14) 4 951
Bermuda (17) 3 619
EU-28 minus offshore financial
114 725
Of which:
Netherlands (2) 64 632
United Kingdom (6) 9 962
Germany (8) 9 089
Austria (9) 7 460
Spain (16) 3 715
France (18) 3 279
Bulgaria (19) 2 835
Ireland (20) 2 538
Other Europe 22 052
Of which:
Switzerland (4) 11 965
Turkey (11) 5 661
Former Soviet Union minus Baltics 15 472
Of which:
Ukraine (12) 5 404
Belarus (15) 3 790
Other high-income countries 15 798
Of which:
United States (5) 10 662
Other economies 6 043
Source: Authors’ calculation, based on Bank of Russian data.
EU financial centres: Cyprus and Luxembourg.
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According to Bank of Russia data, the four Visegrád countries accounted for less than
1% of the OFDI stock at the end of 2012 (Table 2). Among these four countries, by far
the Czech Republic was the most important destination of Russian capital invested
directly. If we add the other seven economies of transition which are members of the EU
(especially Bulgaria and Lithuania, in which the Russian stocks exceed $1 billion), the
share in Russian OFDI still reaches only 2%. This has to be compared with the massive
share of 37% represented by Cyprus. It has to be noted that in 2009 and 2010, Hungary
was the largest recipient of Russian OFDI stock (Table 2). However, it was due to
Surgutneftegaz’s acquisition of shares in the oil and gas company Mol (see below), which
never resulted in an effective control, and ended up with the resale of that share to the
Hungarian State.
Table 2. Russia’s OFDI stock in Central and East European countries,
2009, 2010, 2011
and 2012
Millions of dollars
End 2009 End 2010 End 2011 End 2012
Country Value
Country Value
Country Value
Country Value
1 Hungary 2 266
Hungary 2 230
Bulgaria 2 439
Bulgaria 2 835
2 Bulgaria 1 586
Bulgaria 1 884
Serbia 1 488
Serbia 1 784
3 Lithuania 1 380
Lithuania 1 420
Lithuania 1 444
Czech Rep. 1 585
4 Montenegro 1 339
Czech Rep. 1 192
Czech Rep. 1 309
Lithuania 1 329
5 Czech Rep. 1 336
Montenegro 896
Montenegro 935
Montenegro 1 108
6 Poland 596
Bosnia and H. 678
Latvia 704
Latvia 879
7 Estonia 589
Serbia 623
Bosnia and H. 561
Bosnia and H. 725
8 Bosnia and H. 541
Poland 581
Poland 545
Poland 596
9 Latvia 535
Latvia 473
Croatia 250
Croatia 318
10 Serbia 394
Romania 258
Hungary 228
Estonia 267
11 Croatia 206
Croatia 226
Estonia 220
Romania 138
12 Romania 63
Estonia 149
Romania 147
Hungary 106
13 Slovakia 48
Slovenia 59
Slovenia 64
Slovakia 78
14 Slovenia 14
Slovakia 52
Slovakia 59
Slovenia 45
15 Albania
TFYR Macedonia
16 TFYR Macedonia
TFYR Macedonia
TFYR Macedonia
Excluding the CIS and Georgia.
In descending order.
Note: The Visegrád countries are highlighted in grey.
Source: Authors’ compilation based on CBR (2014b).
National data of the four Visegrád countries also suggest that Russia is not a major
source of inward FDI (Table 3). The figures provided by these countries are fairly similar
to, but, with some exceptions, somewhat lower than the mirror data obtained from
Russia. In Hungary and Slovakia, the values of inward stock from Russia are negative,
indicating that the Russian parent firms are net borrowers from their local affiliates in
the deals directly registered from Russia. In the Czech Republic and Poland, the values
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are positive but remain well below the 1% mark. As for Cyprus, that can be assumed as
an important additional source of Russian capital, its share exceeds 3% in each of these
countries except Hungary. These are all proofs of an apparently modest presence of
Russian capital in the four Visegrád countries. As for the other seven transition
economies which are EU members, the presence of Russian capital is more noticeable in
the three Baltic States and Bulgaria, but similar to the Visegrád group in Croatia,
Romania and Slovenia.
Table 3. The place of Cyprus and Russia in the inward FDI stock of Visegrád countries
and other new EU members, end 2012
Millions of dollars and percentages
inward FDI
Russia Russian
data Diffe-
Host country Value Share in
total (%)
Value Share in total
Czech Republic 136 493
5 372
1 585
1 174
Hungary 84 811
1 552
Poland 219 833
7 813
Slovakia 55 905
2 339
Visegrád total 497 041
17 077
2 365
1 759
Bulgaria 49 318
2 703
2 296
2 835
33 324
Estonia 19 382
Latvia 13 556
Lithuania 16 033
1 329
Romania 78 135
3 342
Slovenia 15 494
Total of other new EU
members 225 241
8 386
4 838
5 811
Source: Authors’ calculation, based on national data.
Note: Data are not strictly comparable across countries because of their differences in terms of deducting special
purpose entities from their FDI data.
For Croatia, cumulative FDI inflows have been used.
Romania reports its inward FDI stock from Russia being less than €100 million, without specifying the amount.
The difference with mirror data has been estimated as the value of Russian reports minus €99 million.
The extant literature on Russian OFDI in a nutshell
There is a growing body of literature that deals with OFDI from Russia and activities
of Russian MNEs abroad but Visegrád countries as hosts have hardly been addressed.
Most of the literature has been produced by a relatively small circle of academics. A
common thread of these studies is that they attempt to explain why Russian firms are
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investing abroad, and why their expansion is so quick. As will be highlighted in this
summary, the number of studies explaining the selection of one location instead of
another is relatively small. Their studies can be divided into five categories: (1)
comprehensive overviews, in particular, by Finnish and Russian research institutes,
including surveys that have jointly been conducted with the Columbia Center on
Sustainable Investment; (2) regionally focused studies; (3) host-country-specific studies;
(4) sectoral studies; and (5) company case studies (Table 4).
Table 4. Summary of literature on Russian OFDI and MNEs, 1994–2014
egional focus
Country focus
Sectoral focus
Company focus
Bulatov (1994, 1995
& 1998), Vinslav et
al. (1999), Liuhto &
Jumpponen (2003),
Vahtra & Liuhto
(2004), Vahtra (2006
& 2007), Kuznetsov
(2007, 2010, 2011 &
2013a), Kalotay
(2005), Deloitte
(2008), Sk
(2007 & 2008),
IMEMO (2009 &
2011), Panibratov &
Kalotay (2009)
Panibratov (2012
CIS: Vahtra (2005),
Libman & Kheifets
(2006), Kuznetsov,
Kvashnin & Gutnik
Kuznetsov (2006)
Wider Europe:
Kuznetsov (2013b)
CEE: Pelto, Vahtra
& Liuhto (2004),
Weiner (2006)
Baltic States:
Kilvits, Purju &
Pädam (2005)
Central Asia:
Kuznetsov (2008)
West Africa:
Degterev (2007)
Hungary: Weiner
(2011 & 2013)
- Latvia:
Yeremeyeva (2009)
- Brazil:
Latukha et
al. (2011)
Mineral resources:
Boyarko (2
Energy: Ehrstedt &
Vahtra (2008)
Oil: Väätänen &
Liuhto (2001)
ICT: Panibratov
Telecom: Lisitsyn et
al. (2005)
Chetverikova (2009),
Survillo & Sutyrin
Banking: Panibratov
& Verba (2011)
Gazprom & Lukoil:
Liuhto (20
Gazprom: Heinrich
Source: Authors’ compilation, partly based on literature reviews carried out by Kuznetsov (2010) and Liuhto &
Majuri (2014).
The fast rise of Russian OFDI has been noted by various studies, including the
paradox of outflows exceeding inflows in certain years, especially since the onset of the
global crisis (Weiner, 2011; CBR, 2014a). According to Panibratov and Kalotay (2009),
50 to 60 MNEs account for the bulk of Russian assets abroad, but despite this
concentration, the total number of Russian firms investing abroad probably exceeds
1,000. In contrast, by citing the work of Libman and Kheyfets (2006), Deloitte (2008)
asserted that the total number of Russian companies controlling foreign assets was at
least 5,000 in 2005. However, Kheyfets (2008) believed there might be 5,000–10,000
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firms identified as MNEs according to the UNCTAD criteria, even if purely offshore
companies engaged exclusively in financial transactions were omitted.
Foreign assets of the top 20 Russian non-financial MNEs reached $111 billion at the
end of 2011 (Kuznetsov, 2013a), still below their end-2008 peak level of $118 billion
(IMEMO, 2009). The list is dominated by resource-based MNEs, i.e. oil and gas and
metals companies with considerable exports, such as Lukoil, Gazprom, Evraz and Mechel
(Kuznetsov, 2013a). In the 2000s, Russia’s MNEs based on natural resources managed to
improve their financial positions through the big export revenues caused by high energy
and commodity prices, and this allowed them to expand globally (Weiner, 2006).
Russian metals giants suffered consequences of the crisis more severely than Russian oil
and gas companies. However, Kuznetsov (2010) claims that during the crisis, there were
only few large divestments of Russian MNEs. At the end of 2011, Europe and Central
Asia accounted for about two-thirds of the foreign assets, while former Soviet Republics
represented 28% of those of the top 20. Contrary to Bulgaria and Romania, the Visegrád
countries are not among the leading EU host countries. The top 20 list covers both state-
controlled and private MNEs. As Panibratov points out, even in the case of private firms
the interest of the Russian state can be high (Panibratov, 2014).
The investment activity of the top investors is typically driven by the search for
markets or resources. Strategic-asset-seeking motives can be found especially among
Russian machinery MNEs outside the top 20. Likewise, efficiency-seeking FDI is more
typical for mid-sized MNEs. International expansion is done predominantly via
acquisitions (Kuznetsov, 2013a). Kalotay and Sulstarova (2010) argue that Russian
MNEs challenge some of the premises of traditional FDI theorems (e.g. the investment
development path (IDP), the Uppsala school and explanations based on the standard
theory of factor movements). Regarding the eclectic paradigm, Kalotay (2008a, 2008b,
2010) and Kalotay and Sulstarova (2010) suggest the extension of the OLI theorem with
a home-country leg to OLIH (see later). The influence of the government in Russian OFDI
is undoubtedly large, although its effects on the firms and sectors vary (Panibratov &
Latukha, 2014). Kalotay (2010) further differentiates between four subsets of H
advantages, including home-country-based competitive (Hc), business environment
(Hb), development strategy (Hd) and state involvement (Hs) advantages. The influence
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of the government in Russian OFDI is undoubtedly large, although its effects on the firms
and sectors vary (Panibratov & Latukha, 2014).
Russian capital in Poland
Russia is a surprisingly small investor in Poland despite the common economic
heritage and geographic proximity of the two countries as well as the recently increased
activities of Russian multinational companies. This is also astonishing given the fact that
in the second half of the 1990s, Poland was the second most important destination for
Russian investors behind the United States, and the main CEE destination (Weiner,
2006). As it was already shown in Table 3, in 2012, in the total stock of FDI in Poland,
capital originating (directly) from Russia represented only 0.31%. Additionally, we can
assume that a substantial part of the FDI stock originating from Cyprus can be of Russian
origin. Its share in total amounted to 3.55%. Thus, assuming that all FDI from Cyprus
conceals Russian FDI, the upper limit of the share of Russia in Polish inward FDI stock is
a mere 3.9%. According to Kuznetsov (2010, p. 9), the Russian share (including
transhipping OFDI) at the end of 2008, did not exceed 1% in the case of Poland. We can
assume that this share can be very similar at the end of 2012. (At the same time,
Germany was the largest investor country (15.1% of total in 2012 stock), followed by
the Netherlands (14.7%), France (12.3%), Luxembourg (10.2%), Italy (5.6%) and Spain
(5.4%). Thus the six top investor countries represented almost two-thirds (63.3%) of
the total stock of inward FDI in Poland.)
In terms of annual inflows, in six out of the nine years following the EU accession of
Poland, inflows from Russia were negative. In other years, the FDI inflows never
exceeded 1% of total. If again, inflows from Cyprus are added, then the inflows would
remain negative only in two years (2004 and 2006), and its share in total would be
substantially higher. Certain larger divestment transactions affected the annual FDI
inflow data. This was characteristic especially during the crisis years of 2007–2009,
which affected investment (and divestment) by Russian multinationals in Poland. Lukoil,
for example divested some of its Polish gas station network (Filippov, 2011).
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According to the data of the Polish National Bank, there is very little new investment
in the form of equity capital from Russia to Poland. The main component of FDI is
reinvested earnings of Russian affiliates operating in Poland, especially in 2004.
Furthermore, these affiliates offer loans to the parent company or other affiliates in
Russia, as it is shown by the high level and negative sign of the “Other capital”
component, especially in 2004, 2006 and 2009.
A similar calculation applied to Cypriot FDI in Poland results in a completely different
picture. New investment in the form of equity capital is much more substantial,
especially starting from 2008. Profit repatriation was present in 2008 and 2009,
otherwise Cypriot affiliates in Poland reinvested their profits in the host country.
Transactions in other capital were less important than equity capital and overall
represented a flow towards the Polish affiliates from the Cypriot parent companies
(except for 2009). Thus most probably, new Russian FDI in Poland arrives mainly
through the intermediation of Cyprus.
Data of the Polish Statistical Office show that in 2012 Poland hosted altogether
25,914 entities with foreign capital.
According to the top investors list of the Polish
investment promotion agency for 2013,
the first 5 companies listed in Table 5 are the
largest Russian foreign investors in Poland.
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
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Table 5: Top Russian investor companies in Poland, 2014
Name of the
Direct or
Industry of Russian owner Activities in
Poland Polish firm acquired –
present firm
EKOTON Direct Manufacturing of equipment
for wastewater treatment Manufacture
of machinery
for wastewater
Lab Direct Information and
communication, security
Kaspersky Lab Polska
Sp. z o.o.
Luxoft Direct Technology, software
development Product
Luxoft Poland Sp. z
Gazprom Direct Transporting and storage,
energy Transport via
LUKOIL Indirect, via
Netherlands Productiona and trade of oil
and gas Wholesale of
oil and gas Lukoil Polska
Severstal Indirect, via
Latvia Steel and steel-related mining Steel
production Severstallat Silesia Sp.
z o.o
Bagdasarian Direct Manufacture of food, drinks,
tobacco Manufacture
of other food
Śnieżka S.A.
Source: Polish Investment Promotion Agency
and authors’ elaboration.
Altogether, Russian-owned firms can be grouped as follows.
Large resource-based companies: It is apparent that the two large resource-based
oil and gas companies, the top two multinationals from Russia (Kuznetsov, 2013),
Lukoil and Gazprom are present in Poland, with fuel retail trade and gas
transmission activities, respectively, both headquartered in Warsaw. In 2014,
there were 116 Lukoil filling stations in Poland, compared to more than 5,800
worldwide, distributed in 27 countries.
Before the economic crisis, Lukoil was
plannin to establish a much larger network of filling stations in Poland.
in 2009, influenced by Poland’s negative attitude towards Russian capital, Lukoil
decided to freeze its investment, i.e. to stop expanding its network of filling
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
stations as well as constructing a fuel terminal and acquiring Polish refineries.
Lukoil opened its first filling station in Poland in 1996.
Lukoil Polska, Lukoil’s
Polish subsidiary, is owned via the Netherlands-based Lukoil Europe Holdings
B.V. No Russian investment has yet been made in Polish refinery assets.
Poland is an important host country for Gazprom investment (Panibratov, 2010).
Gazprom is present in the midstream business by its stake in Poland’s EuRoPol
GAZ, the owner of the Polish section of the Yamal–Europe gas pipeline, carrying
Russian gas to Poland and Germany (and onwards) via Belarus. Commissioned in
1999, the Yamal–Europe pipeline reduced the significance of Slovakia, while
Poland became an important gas transit country in Central and Eastern Europe
(Weiner, 2013). EuRoPol GAZ is owned by Gazprom (48%), the Polish state-
controlled oil and gas company PGNiG (48%) and another Polish company, Gas-
Trading (4%).
EuRoPol GAZ was set up in 1993 to design, construct and operate
the pipeline.
However, implementing the EU’s Third Energy Package, EuRoPol
GAZ handed over operation and Poland’s state-owned natural gas transmission
system operator (TSO) Gaz-System became the independent system operator
(ISO) in 2010 (Weiner, 2013). In 2000, a serious scandal was unfolded relating
the laying of a fibre-optic cable along the Yamal–Europe pipeline.
Another important Russian investor is Severstal, one of the world’s leading steel
and steel-related mining companies. Currently, the company has two divisions:
Severstal Russian Steel and Severstal Resources. The Polish Severstallat Silesia
Sp. z o.o. was founded in 2008 by the Latvian Severstallat that belongs to
Severstal Russian Steel.
Poland is among Severstal’s most important
destinations in terms of foreign investment in production facilities (Panibratov,
2010, p. 33).
Gas-Trading is minority-owned by the Gazprom Group.
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
Technology companies: Relatively newly established, quickly growing Russian
companies with activities concentrated in the information and communication
technology (ICT) industry are also present in Poland with local affiliates. One of
them is Kaspersky Lab, the well known information technology (IT) security
vendor, established in 1997, which is estimated to be one of the world market
leaders in its area.
While its headquarters is in Moscow, its holding company is
registered in the United Kingdom. In Poland, one can find one of the 30 regional
offices worldwide, and one of the 11 European offices.
The Polish regional office
was the fifth to be opened (Panibratov, 2010).
Moreover, a less widely known, but also quickly growing ICT company, Luxoft has
also invested in Poland. Luxoft is an IT solutions service provider. It is specialized
in application and product engineering outsourcing services for enterprise IT
organizations and software vendors. The company is incorporated in British
Virgin Islands. According to the website of the company, Krakow is amongst the
most important delivery locations, with sales and marketing activities as well,
while Wroclaw is also a global location of the company.
The Krakow centre,
established in 2010, offers application and product development services and
specializes in solutions for the travel, automotive and finance industries.
Wroclaw location was opened in 2013.
It focuses on solutions for the banking
and financial industry. The important position of Poland for the company can be
underlined by the fact that out of its 20 locations worldwide, there are two in
Poland. Moreover, the development centres of the company are located in a few
countries: Russia (Moscow, St. Petersburg and Omsk), Ukraine, Poland, Romania,
the United Kingdom and Vietnam (Filippov, 2011). Both latter cases underline
the importance of third countries, through which the Russian investment in
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
Poland is realised. Furthermore, it is interesting to note that these two companies
are present with market-seeking affiliates in Poland, though in the case of the
development centre of Luxoft, efficiency-seeking motives also play a role. Apart
from favourable wages, political stability and protection of intellectual rights
were important factors for Luxoft.
Engineering companies: EKOTON belongs neither to the Russian top
multinationals, nor to the quickly growing IT company category. It is an industrial
group whose main activity is providing engineering services and producing
equipment for wastewater treatment using environmentally friendly
technologies. It was founded in 1995. The Polish subsidiary plays a much larger
role for this medium-sized multinational company: it has altogether 300
employees and three plants in three countries: Poland (Bialystok), Russia and
Out of the six representative offices, one can also be found in Poland.
This investment is mostly local market seeking, but access to the EU market with
a large potential may be at least as important. The geographic position of Poland
also plays a role, as well as the “knowledge” factor, given the innovative nature of
production and products.
According to the list of the previous years, Bagdasarian, a Russian company
active in food production, owner of Śnieżka S.A. Lubzina is also present on the
Russian market. The entry mode in Śnieżka was greenfield, located in a special
economic zone in order to qualify for investment incentives. Having a look at the
top Cypriot investors in Poland, we could not identify any of them, which would
conceal a Russian company.
Overall, the surprisingly low involvement of Russian multinationals in Poland can be
partly attributed to the negative sentiments attached to Russian capital in the country
(Weiner, 2006). This can be illustrated by the fact that besides successfully operating
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
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Russian affiliates, the Polish resistance towards Russian capital is manifest in
unsuccessful takeovers as well like in the case of Azoty Tarnów. It is the biggest
chemicals producer in Poland and its takeover by the Russian firm Acron was hindered
in 2013 and 2014 because Azoty is considered as a strategic asset for the Polish state.
Another case was that of the Polish construction firm Polimex. In 2012 the Russian VIS
Construction wanted to be the biggest shareholder but as a reaction the Polish Industrial
Development Agency bought the largest package of shares instead.
Furthermore, articles published in the Russian press call the attention to the Polish
“resistance” towards Russian economic expansion in the country. According to a survey,
cited by the English-language version of Pravda, the Russian newspaper, 62% of Poles in
2012 believed that their government should prevent that Russian companies or citizens
take over Polish firms.
See e.g.
warsaw-mover.html and
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
Russian capital in the Czech Republic
Nominally, Russia represents a small portion of the inward FDI stock of the Czech
Republic. However, if the sizeable investment originating in Cyprus, as well as Russian
investment transhipped via other countries, is added, the real importance of Russian
capital in the Czech Republic is much higher. It is also confirmed by the data of the
Bisnode business information agency: in terms of the number of foreign-owned
companies, Russians were at the first place in 2013. According to the aggregate capital
stock in Czech firms, Russians occupy 21
place with 19% of companies with foreign
At the end of 2012, representatives of Czech business circles established the Russian–
Czech Mixed Chamber of Commerce
with the goal to support Russian investment in the
Czech Republic. The Chamber opened a Representation in Moscow in June 2014 for
assistance in agreements on cooperation, partner search and marketing in Russia.
Russian investors are present mainly in the Czech manufacturing sector, but there are
also two banks with Russian interests.
Banking: The EuropeanRussian Bank was founded in Prague in 2009 as a branch of
First Czech–Russian Bank (FCRB) which was the first (and then the only) Russian
bank, which received a license for banking activities in the EU. FCRB was founded in
1996 in Moscow and dominated by the former Czech Investment and Postal Bank.
After the fall of the scandalous Investment and Postal Bank,
the bank gradually
came under Russian (Gazprom) control. FCRB was established to operate foreign
trade and investment projects of the Russian Federation in the Czech Republic and
the provision of banking services to companies that are involved in the Czech–
Russian trade relations. The European–Russian Bank opened another office in
Karlovy Vary in 2010. According to press information, the European–Russian Bank
and the FCRB could have ties to Russian intelligence and organised crime.
In 2012,
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
at times of embargo against Iran, the First Czech–Russian Bank was said to service
Iran trade facilities.
Russia’s largest bank, Sberbank, acquired the Czech assets of
Austria’s Volksbank in 2012, together with the Volksbank affiliates in six other
countries of Central and Eastern Europe.
Sberbank CZ has 23 branches in the Czech
Republic and employs 720 people.
Real estate: Russian capital (in large part from private persons) has a strong presence
in the Czech real-estate industry, because Karlovy Vary is a popular tourist and
business meeting place for Russians, who purchased houses, hotels and other real
estate there. In 2013, the Czech Republic was the 9
most important destinations for
Russian real-estate investment.
Manufacturing: Czech assets were used to leverage competitiveness in a strategic way
in the case of pipe manufacturer ChTPZ Group
’s acquisition of MSA, a leading
manufacturer of industrial valves (via Arkley Capital S.a.r.l. registered in Luxemburg,
which manages the assets of ChTPZ).
It was a strategic step from ChTPZ to increase
ChTPZ Group’s competitiveness and meet the requirements of fuel and energy sector
companies more comprehensively. The transaction – according to estimates worth
more than ten million dollars – provided the ChTPZ Group access to the market for oil
and gas pipeline accessories. The Czech company was integrated to ChTPZ Group
administratively, when the 25-year-old son of the Russian energy and industry
minister Khristenko was put to the board of directors in MSA.
The Russian owner
also wished to modernize the firm, to increase its sales in Russia, to draft investment
proposals, to bolster capacity in the Czech Republic and to build a similar plant in
Bosnia and Herzegovina, Croatia, Hungary, Serbia, Slovakia and Slovenia.
From among other CEE countries, Latvia is 6
, Croatia 14
, Estonia 16
, Hungary 18
, Slovenia 19
Lithuania 25
Chelyabinsk tube-rolling plant group
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
Expansion was the main aim for the personal protective equipment producer Vostok-
Service buying Cerva Export Import a.s. in 2006. Cerva has been operating on the market
since 1991 and concluded direct business contracts with important world suppliers and
manufacturers. After its acquisition, Cerva began to develop and expand more. In 2007,
Cerva established affiliates in Russia. In 2009, a new informational system SAP was
introduced and the whole company moved to its new offices. The company acquired
100%, and 51% shares in two companies – the Hungarian Vektor Kft., the biggest
manufacturer of special clothing in Central and Eastern Europe, and Panda, an Italian
manufacturer of work and leisure shoes. The company’s turnover increased dynamically
and exceeds €70 million. Cerva became a springboard for the European expansion of
Vostok-Service, which now is an international holding company with foreign assets in
the Czech Republic, Slovakia, Poland, Hungary, Italy and India. In 2007, the press spoke
of Vostok-Service as a firm with low transparency of ownership structure but it is also
one of the few examples for successful Russian companies in the light industry. The firm
has powerful owner and contacts, important business partners.
Vostok-Service is
owned by Vladimir Golovnev, member of the ruling United Russia party. From 2007 to
2011, he was a member of Duma, a Deputy Chairman of the Duma’s Economics and
Business Committee. In 2013, the press discovered that clothes for Vostok-Service are
made under inhuman conditions by women prisoners.
Expansion into new industries, such as regional air transportation, was the main
motive of Ural Mining and Metallurgical Company’s (UGMK) acquisition of a 51% stake in
the Czech aircraft manufacturer Aircraft Industries a.s. in 2008. The deal can be linked to
UGMK’s plans of expansion into new sectors, such as regional air transportation and the
production of short-haul aircraft. UGMK is the second largest copper producer in Russia.
The Czech plant is the largest Czech manufacturer of small transport aircrafts, its
flagship aircraft is L-410. The Russian owners of the company have spent on R&D and on
new technology – for instance, a varnishing plant. A year after UGMK purchased 51 per
cent of the company, orders arrived from the Russian and other ex-Soviet markets for
$14 million. This figure has increased five times until 2013, reaching $76 million. (Sales
of the L-410 aircraft in the rest of the world increased much less dynamically.) The
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
company’s global turnover and its profit rose and the number of employees increased
from 515 to a thousand for 2014.
In 2011, the press wrote about a dramatic board
meeting at the Czech firm when two executive were shot.
In 2013, UGMK bought all
100% of stock in Czech Aircraft Industries. “Now we are reformatting management and
will be forming an investment program that takes into account our understanding of the
development of this enterprise, and considering the market that is developing in Russia
and beyond,” said the company’s general director, Andrei Kozitsyn.
Three Skoda subsidiaries were also acquired by a Russian investor. The Škoda JS
company in this form has been active in engineering and supplies for the nuclear energy
industry since 1999. (Presently Škoda JS employs 1100 employees).
Škoda Hute s.r.o.
and Škoda, Kovárny s.r.o. produced metallurgy, steel products. In 2004 the Russian OMZ
(United Heavy Machinery) took over these companies. OMZ is a large Russia-based
international heavy industry and manufacturing conglomerate owned by Gazprombank
since 2006.
The motivation of OMZ was market access to East European markets – as
the manager himself told the press.
In 2007, Škoda Hute and Kovárny were merged
and re-branded to Pilsen Steel s.r.o. In 2010, Pilsen Steel was sold to United Group SA
(established in 2008 as an international metallurgy group with headquarters in
Luxembourg and operating offices in Moscow and Pilsen).
Hydrocarbons: Market access was a motivation for Russia’s Lukoil in taking over the
JET filling stations in the Czech Republic in 2007 and created an own Czech affiliate
for the operation of the 44 filling stations.
In 2014, Lukoil rationalized its activity
and sold these stations to the Hungarian Mol oil company.
Lukoil owns also Lukoil
The petrol stations of Poland (83), Hungary (30) and Slovakia (14) were taken over at the same period.
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
Aviation Czech s.r.o that provides fuel supply and fuelling aircraft of contractors at
international airports of Prague and Ostrava.
Local market was also an aim for Gazprom with acquiring a 50.14% share in the Czech
Vemex (gas importer) via its German affiliate (Gazprom Germania GmbH) in 2009.
Other owners of Vemex were indirectly also bound to Gazprom. Vemex has another
Czech affiliate since 2011 dealing with distribution: Vemex Energie, controlled by 51%.
Vemex has a 100% affiliate in Slovakia too: Vemex Energo s.r.o., which was founded in
Bratislava in 2003 to trade natural gas in Slovakia. Vemex Energo offers natural gas of
Russian origin, which obtained under a contract between the companies Gazprom
export and Vemex. In 2011, Vemex Energo also began the market supply for households
and small clients as a part of the expansion of trade activities of companies operating
within the Gazprom Group on end-user markets of EU countries. In 2011, EU
Commission officials conducted searches in the offices of Gazprom Germania and Vemex
too because of “concerns that the companies concerned may have engaged in
anticompetitive practices in breach of EU antitrust rules or that they are in possession of
information relating to such practices”.
In 2012, the Commission opened formal
investigation and prepares antitrust charges against Gazprom.
Reverse geographical expansion was the main motivation of TVEL Fuel Company,
which belongs to the Rosatom Group. Together with Czech ALTA Invest, it founded the
firm ALVEL in 2011, taking a minority share in the joint venture. The Czech partner is
the majority shareholder possessing 50% +1 shares of the equity capital. The rest
belongs to the Russian investors. It was a culmination of a long-term cooperation
between the Czech firm Alta Invest and the Russian TVEL that manufactures and
In 2014, the Czech Administration of State Material Reserves imposed a 27 million crowns fine on the
firm for violating a contract on oil supply. Lukoil signed a contract in 2009 for replacing old fuel with
new one when the fuel prices were falling. Later the fuel prices went up and it was unprofitable for
Lukoil to supply the
promised fuel. The contract was repeatedly extended and modified to more suit
Lukoil. According to the last version signed a year ago, Lukoil does not have to replace the old fuel with
aviation fuel, but with standard diesel oil or gasoline. But Lukoil did not supply the fuel by the deadline
in 2013. The case is on the personal level influenced by top politics, because the head of Lukoil Aviation
Czech is Martin Nejedly, President Milos Zeman’s counsellor and vice chairman of his party. See and
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
supplies fuel for a total of 76 power reactors in the world, of which there are four
reactors at Dukovany and two in Temelín. One third of the electricity produced in the
Czech Republic comes from nuclear power plants using Russian nuclear fuel. ALVEL
combines Czech knowledge, speciality and technical execution with Russian
technologies and TVEL know-how. ALVEL functioned successfully throughout 2012; all
planned economic indicators were achieved. According to the results of the accounting
period, the revenue exceeded €2.5 million.
The Company is planning to expand
geographically, including the East European markets (Slovakia, Hungary and Bulgaria)
and to open a branch in Moscow to promote company’s services on the Russian market.
Steel: Evraz Holding’s privatization-related acquisition of the giant Vítkovice Steel
(2005) was driven by market-seeking motives.
The acquisition of Vítkovice Steel was
carried out by the Cyprus-registered affiliate of Evraz Mastercroft Limited. Evraz
Vítkovice Steel (EVS) was hit by the crisis and the general downturn in the European
steel market and in end-2012 steel production was stopped for four months and in 2013
again twice for a month.
The number of workers has gradually decreased in EVS to
1,100. In 2013, EVS produced only 571 thousand tons of steel products. The company
became indebted, trade unions protested. On 3 April 2014, a group of private investors
including Martinley Holdings, Nabara Holdings, Vitect Services, Hayston Investments
and Dawnaly Investments purchased 100% of shares (each buying 20%) of Evraz
Vítkovice Steel a.s. from Evraz. Investors paid $89 million for the plant plus took on its
The history of Vítkovice Steel dates back to 1830 with steel production. Later the company built its own
rolling mills. By the mid-2000s, Vítkovice Steel became the third largest steel company and employed
1,600 people. Its steel production reached 960 thousand tons of steel per year. In 2005, the Czech
Government approved the results of the tender for sale of this last government-owned steel company.
The tender winner was the Russian group Evraz Holding, which offered $285 million for the company.
The firm promised to invest around $120 million more to the development of the company and the
region. Evraz Group was created in 1992 by Alexander Abramov and the most (31%) of its shares is
owned by the Russian billionaire Roman Abramovich. The steel production of Evraz is 13.7 million tons,
owns steel mills and mines in Russia, Ukraine, the Czech Republic, Italy, the United States , Canada and
South Africa. Evraz is the largest steel producer in Russia and the twelfth largest steel producer in the
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
debt of $198 million, including $129 million it owes to Evraz
and want to continue the
company’s development.
Telecommunications, information technology (IT): The Russian micro-electronics
producer JSC NIIME & Micron used the Czech Republic as a springboard for expansion in
third markets. NIIME & Micron (a Russian micro-electronics producer) and Czech
STROM Telecom (a Czech telecommunications equipment and software manufacturer)
established Sitronics in 2002 as a Scientific Concern. In June 2004, the Company gained a
controlling share in Kvazar-Micro, the largest Ukrainian IT company.
As a result of this,
the Company launched an IT services business line. In 2005, assets that formed the
Scientific Concern, as well as Kvazar-Micro and Sitronics were consolidated into the
brand name Sitronics. In June 2006, Sitronics purchased a majority stake in the Greek
Intracom Telecom. This purchase gave access to South European, Middle Eastern and
African telecommunication service markets, which generated substantial product range
synergy, as well as opened up numerous R&D designs. In 2007, Sitronics put 17.5% of its
shares on the London Stock Exchange, introduced new technologies and funded
corporate development with the gained capital.
Since 2008, the company has
undertaken key measures to optimize and integrate the Group’s businesses and in 2009,
Sitronics launched new products and concluded numerous landmark contracts. In 2012,
the Russian AFK Sistema group gained full control of Sitronics.
(The chairman of
Sistema was arrested in September 2014 on suspicion of a former money laundering.)
An analysis of key projects (Table 6) reveals a variety of motives for Russian
investors’ presence in the Czech Republic.
Sitronics Annual Report 2008 (
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
Table 6. Main Russian investors in the Czech Republic, 2014
Name of the
Direct or indirect
investment Industry of Russian
owner Activities in the Czech
Republic Czech firm acquired
– present firm
Evraz Group Indirect, via
Cyprus Mining, steel and
vanadium production Steel mills Vítkovice Steel –
Evraz Vítkovice Steel
(sold in 2014)
Gazprom Indirect, via
Germany Energy Gas distribution Vemex
Vostok Service Direct Textile, clothing Personal protective
equipment Cerva Export-Import
Lukoil Indirect, via
Netherlands Oil, and gas Petrol stations JET petrol stations
(sold in 2014)
Lukoil-Aero Direct Oil, gas Airport fuel supply Lukoil Aviation
Czech s.r.o
Sberbank Indirect, via
Austria Banking Banking Volksbank offices
UGMK Direct Copper mining Aircraft manufacturing Czech Aircraft
ChTPZ Indirect, via
Luxemburg Pipeline manufacturing Pipeline fittings MSA
TVEL Direct Nuclear fuel Nuclear fuel supply Alta Invest – ALVEL
(joint venture)
Micron Direct Microelectronics IT services Strom Telekom –
Sitronics TS
(Gazprom) Direct Heavy industry Engineering and
supplies for nuclear
energy industry
koda JS
OMZ, later
United Group
SA Direct Heavy industry Metallurgy, steel Škoda Hute, Kovárny
(later Pilsen Steel
Source: Authors’ collection.
In sum, the Russian presence in the Czech Republic serves mostly as a local market
access or a starting point for gaining positions in the neighbouring regions. Regarding
the entry mode of Russian investors, we cannot find pure greenfield investment, only
acquisitions or joint ventures. The activities of Russian-owned firms in the Czech
Republic are not always transparent, follow the oligarchic practice of the home country
and sometimes do not fulfil legal requirements.
There are also “sleeping” Russian firms with no activity, like Albion CZ that was liquidated in June 2014 and
belonged to Alexander Babakov (member of the Russian Duma and banned from the EU). See:
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
Russian capital in Hungary
Russian investment in Hungary has attracted lots of attention at the turn of the
century (due to the acquisitions of shares in Hungary’s petrochemical manufacturers
BorsodChem and TVK by the Russian gas giant Gazprom) and at the beginning of the
2010s (due to the acquisition of shares in Hungarian oil and gas company Mol by
Surgutneftegaz, Russia’s third largest oil producer). In both cases, Russian attempts
ultimately proved to be unsuccessful due to local resistance to takeovers, fuelled by fear
of Russian capital. Still, Russian FDI plays a limited role in Hungary. Hungary’s
leadership in Central and Eastern Europe in attracting Russian FDI is deemed to be
temporary, being limited to the end of both 2009 and 2010 (Table 2), and was only
because of the Surgutneftegaz deal. Acquired in 2009, and subsequently sold in 2011,
Surgutneftegaz’s stake in Mol was the single largest Russian FDI project in Hungary.
Not only was the deal highly significant in Hungarian context, but it presented the
evidence that very large outward direct investment from Russia was also registered
during the economic crisis. The Surgutneftegaz deal occupied the sixth and seventh
places among the top outward merger and acquisition (M&A) transactions from Russia
between 2007 and 2009 and between 2007 and 2010, respectively (IMEMO, 2011;
Kuznetsov, 2011). But excluding the Surgutneftegaz deals, Hungarian and Russian
bilateral data reflect mainly the activities of the Rakhimkulov family (i.e. those of Megdet
Rakhimkulov and his sons, Ruslan Rakhimkulov and Timur Rakhimkulov). This is so
despite the fact that more than 2,000 joint ventures with Russian ownership are
operating in Hungary.
Among the top 20 non-financial Russian-based MNEs, ranked by
foreign assets, only a few companies are active in FDI in Hungary.
The main industries of involvement of Russian capital in Hungary include banking,
hydrocarbons, metallurgy, machinery and real estate:
Surgutneftegaz picked Mol for its first outward foreign direct investment. The purpose of the acquisition was
unclear, and the ownership structure of Surgutneftegaz has not been made public either. Mol did everything
possible to keep Surgutneftegaz away from exercising its ownership rights, prompting Surgutneftegaz to resell
its stake to the Hungarian State.
The sources of this figure are the Hungarian Investment and Trade Agency (HITA, and its predecessor ITD
Hungary) and the Trade Representation of Russia in Hungary.
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
Banking: Having played a significant role, right from the start, both as a
representative and an investor for his own account, Megdet Rakhimkulov, a former
Gazprom official, has been a top Russian investor in Hungary. The General Banking and
Trust (ÁÉB) was bought in 1996 by Gazprombank and had been taken over gradually by
the Rakhimkulovs’ family company, the Hungary-registered Kafijat, and its London-
registered (at that time) subsidiary Firthlion Ltd. Kafijat was used to acquire stakes
(directly or indirectly) in companies in Hungary. A number of companies merged into
Kafijat, and, finally, at the end of 2007, ÁÉB also did so.
Previously, about 70% of ÁÉB’s
operations had been devoted to Gazprom and Gazprombank. In 2004, this proportion
accounted for about 8–10%, but a large part of the operations was still linked to Russian
After ÁÉB discontinued its activities, no Russian-related bank existed in
Hungary (except for representations), although the Rakhimkulov family has continued
to own a 9% share in Hungary’s leading retail bank OTP Bank Nyrt. But Sberbank’s
takeover of Volksbank International AG in 2012 also included the assets in Hungary (see
above). A continuation of history is proven by the fact that part of these Hungarian
branches had been owned by ÁÉB. Sberbank is operating only 51 branches in Hungary,
and has not reached a share of 5 per cent in most segments. The aim is, as a universal
bank, to have a share of more than 5 per cent in all important segments in Hungary by
Again, investment in the sector is mainly of a market-seeking motive. The
primary objective of Sberbank Hungary Zrt. is to provide comprehensive services to
Russian private and corporate clients, and to enhance the trade between the Central and
Rakhimkulov moved back to Russia in 2007. With this, he changed his residency status from a Hungarian
investor to a Russian one. In 2008, the Cyprus-based AWB Consulting Services Ltd. and Charing
Investments Ltd., i.e. the companies of the Rakhimkulov brothers, acquired Kafijat (“A Rahimkulov fiúk
tőkeátcsoportosítása”, HVG, No. 31/2008). In 2008, Kafijat’s share capital was reduced substantially and
large dividends were paid. Available sources suggest Firthlion is now equally owned by AWB Consulting
Ltd. and Charing Investments Ltd. (; We do not know whether there have been
any changes in the ownership structures of the two Cypriot companies since 2008. Timur Rakhimkulov, now
a minority shareholder, is going to be the majority owner of Business Telecom Nyrt., or BTel, a Hungarian
telecom provider, via his Hungary-registered company SkillInvest Kft.
Simon, Ernő and Ildikó Szép, “Meg kell őszülni a sikerhez – Beszélgetés Medget Rahimkulovval, az Általános
Értékforgalmi bank többségi tulajdonosával”, Figyelő, Vol. 48, No. 45, 2004, pp. 68–71.
Palkó, István, “Mit keres egy orosz óriás a magyar és a német bankpiacon?”,, 7 July 2014,
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Visegrád countries
East European countries and the Commonwealth of Independent States.
Currently, the
Hungarian banking industry is facing refund obligations regarding foreign-currency
loans which were very popular before the economic crisis, but since then the exchange
rates have depreciated markedly.
Hydrocarbons: Neither in the gas industry nor in the case of oil, were Russian oil
and gas companies able to control the entire value chain from wellhead to final customer
(i.e. to vertically integrate their business). The state-controlled Gazprom plays a limited
role as an investor in Hungary, and the issue of unbundling of transmission assets under
the EU’s Third Energy Package for an internal gas and electricity market in the EU
further limits its abilities. Gazprom uses Panrusgáz Gas Trading Zrt.,
an intermediary
established in 1994, to channel imported Russian gas to local incumbent Hungarian Gas
Trade Zrt., a subsidiary of Hungary’s state-owned electricity company MVM. Panrusgáz
was forced to pay significant amounts of “crisis tax” in Hungary, prompting Panrusgáz to
ask for revoking its gas trading licence.
Among gas traders in Hungary, two companies
have Russian owners. One of them is Centrex Hungary Zrt. which was registered in 2004.
The Russo–German joint venture WIEE Hungary Kft. was established in 2010 and
received a gas trading license in Hungary in February 2011. Its ultimate owners are
Gazprom and the BASF Group’s Wintershall of Germany.
Gazprom’s joint projects with
Refund obligations concern unfair unilateral contract changes and exchange-rate margins (Gergely, Andras,
Marton Eder and Zoltan Simon, “Hungary Banks Face $4.1 Billion Cost on Loan Refund Bill”, Bloomberg, 12
September 2014,
The Russian shareholders of Panrusgáz are Gazprom Export (owning 40% of the shares), the export
arm of Gazprom, and the Hungary-registered Centrex Hungary Zrt. (owning 10% of the shares).
Incorporated in 2004, Centrex Hungary is an affiliate of the Gazprombank-controlled and Vienna-based
Centrex Europe Energy & Gas AG. (Note that Gazprom has not had control over Gazprombank for many
years.) Accounted for a minor amount, Centrex Hungary is another long-term buyer of Russian gas for
In December 2010, Panrusgáz asked for the Hungarian energy regulator to revoke its gas trading
licence, which the Hungarian Energy Office did so in February 2011.
There is also another gas trader in Hungary, an obscure one, which had Russian ownership. MET
Hungary Zrt. (formerly Mol Energy Trade Kft. and then Mol Energy Trade Zrt.) was set up in 2007 by Mol
and became half-owned by the Belize-based Normeston Trading Ltd. in late 2009. In 2012, Normeston’s
stake was sold to a company registered in the Cayman Islands. The only information released is that
Normeston is owned by a Russian national. The Hungarian watchdog NGO speculated that
Rakhimkulov was behind Normeston (Sarkadi Nagy, Márton, “Orosz oligarcha lehetett a Mol
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
Mol in Hungary did not turn out to be fruitful. Their two joint ventures, including SEP
Company Kft. and Pusztaföldvár Gas Storage Zrt., went into voluntary liquidation and
were deleted from the registry in 2014 and 2012, respectively.
Meanwhile, in
Hungary’s gas sector, MVM has become established as the main player (both as the
largest gas trader and commercial gas storing company) in no time. Also, it has obtained
a foothold in Hungary’s gas transmission. Due to the failure of Surgutneftegaz, there are
no Russian companies with shareholdings in the Visegrád countries’ refinery industry.
In Central and Eastern Europe, three Russian companies have oil refineries, including
those of Lukoil (in Romania and Bulgaria), Zarubezhneft (in Bosnia and Herzegovina)
and Gazprom Neft (in Serbia). Lukoil, Russia’s second largest (and the largest privately
owned) oil producer, became a participant in Hungary’s motor fuels retail and wholesale
market in 2004, although limited in size. In 2014, Lukoil Hungary Kft., Lukoil’s
Hungarian subsidiary through a Netherlands-based Lukoil affiliate, controlled a network
of only 75 filling stations in Hungary with a 6% retail market share in 2013 (Lukoil,
2014). Examining the Hungarian gasoline retail market for the period 2007–2008,
Farkas et al. (2009) found that the prices of the vertically integrated Lukoil had been one
of the lowest in Hungary, and possibly the largest competitive pressure on the market
had been coming from Lukoil. Meanwhile, the vertically integrated Mol and OMV were
selling for higher-than-average prices. Motor fuels of Lukoil Hungary Kft. are supplied
both from Hungary’s Mol Duna Refinery and Romania’s Petrotel–Lukoil Refinery. Due to
the crisis tax in Hungary, Lukoil Hungary Kft. had handed back its wholesale fuel licence
tulajdonostársa”,, 4 December 2013,
SEP Company Kft. was set up in 2006 to examine the possibilities of the extension of the trans-Black Sea
Blue Stream gas pipeline (running from Russia to Turkey) as well as construction of underground gas
storage facilities and creation of a gas trading hub in Hungary, but none of the ideas were implemented.
However, SEP Company Kft. had some role in South Stream’s preliminary studies. Registered in early
2010, Pusztaföldvár Gas Storage Zrt. aimed at constructing an underground gas storage facility in
Hungary. According to Hungarian economic daily Világgazdaság, Mol revised cost estimates for the
project, which proved to be too high, about twice the former number (“Világgazdaság: a Mol lemond a
gáztárolóról”,, 16 November 2011,
Compared to its gas consumption, Hungary is a great power of gas storages, and there is no need for
further expansion (“Fő feladatunk, hogy közös nevezőre hozzuk a Gazprom Export és az E.ON Földgáz
Trade érdekeit”, gáz.áram, Spring 2010, pp. 18–21).
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
but later returned to the market.
In 2014, Lukoil decided to withdraw from the CEE
region. Its Hungarian and Slovakian filling stations are expected to be acquired by Norm
Benzinkút Kft, which had been registered in Hungary but is related to Russia.
resource-seeking Russian FDI has also appeared in Hungary. Gazprom Neft, Gazprom’s
oil arm and Russia’s fourth largest crude producer, has interests in exploration ventures
in Hungary via Serbia’s NIS, majority owned by Gazprom Neft.
Metallurgy: There is a strong indirect Russian presence in Hungarian metallurgy.
In late 2009, Russian investors obtained a stake of 50% plus two shares in Ukraine’s
Industrial Union of Donbass (ISD). As a result, the iron and steel industry in Dunaújváros
(situated some 70 kilometres south from Budapest) and Diósgyőr (being part of the
Northern Hungarian city Miskolc) acquired Russian ultimate owners. In some media
sources, the Russian state-owned Vnesheconombank (VEB) appears as the largest owner
of ISD and ISD Dunaferr Danube Ironworks Zrt. in Dunaújváros.
But in official
documents, the role of VEB is described as assistance to unnamed Russian investors to
purchase ISD.
Due to the permanent crisis of Hungarian iron and steel, this
engagement seems to carry high risks. In 2013, it was announced that as part of a cost
optimization program, they were looking to cut staff by 1,500. As a reaction, the
Hungarian government decided to buy ISD Dunaferr from VEB, but the offer was
refused. In July 2014, the United States widened its sanctions to include VEB. At the time
of the takeover, Dunaferr was presumably needed for ISD because of Hungary’s rolling
B. Horváth, Lilla, “Erősített tavaly a Lukoil”, Világgazdaság, 24 May 2013,
It is a joint venture between IMFA Petroleum Kft. (set up by a former Hungarian representative of the
now defunct Russian oil producer Yukos) and the above-mentioned Belize-based Normeston Trading
NIS’ affiliate Pannon Naftagas Kft. was registered in Hungary in 2011. It is taking part in exploration
projects in Hungary in a consortium with the Hungarian affiliates of Canada’s Falcon Oil & Gas and
Austria’s Rohl-Aufsuchungs Aktiengesellchaft (RAG). Moreover, in 2014, NIS bought half of RAG Kiha Kft.,
a subsidiary of RAG via RAG Hungary Kft., which owns an exploration licence in its own right.
Ábrahám, Ambrus, “Májusban döntést ígérnek az állókohóról”, Népszabadság, 25 April 2013,
“Vnesheconombank Chairman Vladimir Dmitriev’s Interview to the TV Channel Russia 24” (TV Channel
Russia 24, Interview, 2 December 2013), VEB News, 3 December 2013,; “Regular Meeting of Vnesheconombank’s
Supervisory Board Held”, VEB Supervisory Board Decisions, 19 December 2013,
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
mill capacity and the access to the EU market. But the EU market has been losing its
significance and the restrictions have been cut.
Metallurgy in Diósgyőr has moved from
one liquidation to another, and at the company DAM in Diósgyőr, there has been no
production since December 2008. In 2010, the liquidator sold the assets of Diósgyőr
metallurgy to Öko-Ferr Kft., belonging to ISD Dunaferr’s ISD Power Kft. Mechel Service
Hungary Kft., an affiliate of the Russian mining and metals company Mechel registered in
has decided to limit its local engagement to selling Mechel’s rolled products to
Hungarian customers.
Machinery: There are two major Russian capital-related projects operating in
In 2008, Ganz Machinery Works Holding Zrt. started a joint venture with
its Russian state-owned partner Transportno-Tekhnologicheskoye Mashinostroyeniye
of Atomenergomash called Ganz Engineering and Energetics Machinery Kft.,
involved, among others, in the manufacture and installation of hydro machines,
nuclear power station machinery and oil drilling equipment. The company has
unique knowledge and experience in Central Europe in planning and manufacturing
of small-series products. Its high-capacity power plant pumps are also in demand in
the Russian and Ukrainian nuclear industry.
Another Russian group,
CTP/Agromash Holding B.V.
took over Austria’s Vogel & Noot in 2009, including its
Lebhardt, Olivér, “Vasmű tér, végállomás”,, 16 January 2014,
It is directly owned via the Netherlands-based Mechel Service Global B.V., an affiliate founded in March
Since its privatisation in 1993, the Russians had always had shareholdings in DKG-East Oil and Gas
Equipment Manufacturing Zrt. (and its predecessors), a manufacturer of equipment for the oil, gas and
petrochemical industries. DKG-East is currently in the hands of Hungary’s Olajterv Group. Meanwhile, not
only have the owners of DKG-East changed, but so have the target markets of its products.
In 2010, TTM was replaced by Tsentralnoye Konstruktorskoye Byuro Mashinostroyeniya (TsKBM). TsKBM is
owned by Atomenergomash, which is owned by Atomenergoprom, an affiliate of Russia’s Rosatom State
Atomic Energy Corporation. TsKBM is a 51% owner of the joint venture.
Concern Tractor Plants (CTP), the previous parent company, is now part of the Netherlands-registered
Machinery & Industrial Group N.V. (M&IG; initially it was operating under the name of Concern Tractor
Plants N.V.), which became the holding company for the former. However, the group is managed by CTP
being headquartered in Russia. The Netherlands-registered Agromash Holding B.V. also belongs to M&IG.
M&IG is a leading manufacturer of earthmoving machinery. In 2010, through a debt restructuring,
Vnesheconombank acquired 100% of M&IG shares but did not obtain control over the company. Most of the
shares had been held by Mikhail Bolotin.
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
two Hungarian agricultural machinery factories. One of them produces ploughs in
the city of Mosonmagyaróvár, close to Austria and Slovakia; the other one located in
the city of Törökszentmiklós in Central Hungary produces cultivators, compact disc
harrows, subsoilers, packer and rollers. Production started in Mosonmagyaróvár in
1993, while in Törökszentmiklós in 2008. In machinery distribution, Uraltrak Kft.,
established in 1991, is the only official local dealer of Russia’s Chelyabinsk Tractor
Plant, a specialist of engineering and production of industrial tractors and engines.
Real estate: The interest of Russian players in Hungary’s real estate market is
palpable, though Hungary is not among the top destinations for residential real-
estate purchases by Russians. Nevertheless, in 2013, Russian citizens were the most
important non-EU foreigners buying residential real estate in Hungary.
Zala County
is the most attractive destination (with special attention to the spa city of Hévíz),
followed by Budapest.
Epitomized by Surgutneftegaz’s attempt to take over Mol, Hungary has also seen both
divestments and unsuccessful projects by the Russians.
Russian firms have been
discouraged, among others, by tax charges, such as the controversial crisis tax (finally
abolished at the end of 2012), the so-called “Robin Hood” tax on energy firms and the tax
on public utility pipelines and cables. Still, some investment is on the horizon. One of the
particularities of these projects that they go beyond the standard definition of OFDI:
The extension of the nuclear power plant near Paks, located in Central Hungary, is a
project mostly based on an intergovernmental agreement, signed in January 2014.
The Russian state-owned company Rosatom is expected to participate in the design
and construction of the future fifth and sixth blocks of the plant, and the Russian
partners will provide a government loan of up to €10 billion to Hungary. VEB will act
as an agent for the Russian government.
In contrast, EU citizens are no longer obliged to obtain permit.
“Özönlenek az oroszok a magyar lakáspiacra? Itt a friss jelentés”,, 8 May 2014,
The Hungarian Airlines Malév was under Russian control for three years. It was renationalised in 2010, and
finally went bankrupt in 2012.
Two “mothballed” power stations in Eastern Hungary have been taken over by the Russo–Ukrainian
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
In a more classical OFDI project, in May 2014, Magnit, Russia’s largest grocery
retailer announced to build a logistics centre and a transport department, with a fleet
of 1,000 trucks, in North-Eastern Hungary. But the project has been put on hold due
to the crisis in Ukraine. Hungary’s geographic location and the agricultural base
might have played a role in the investment decision. Part of the food supplies would
come from Hungary, which is not a novelty, because Magnit has already bought food
products from Hungary. A great advantage of the Záhony area in North-Eastern
Hungary at the Hungarian–Ukrainian border is that it has broad-gauge lines. Trucks
carrying products to Magnit from Western Europe are currently going to Russia via
The issue of the Záhony area has always been in the forefront of the
Russo–Hungarian relations. A joint venture aimed at setting up and operating an
international warehouse and logistics centre in Záhony was established in 2003 but
it was struck off the register in 2008 after liquidation. Both Slovakia and Hungary
raised the idea of building of a broad-gauge railway through their countries.
One potential large project involving OFDI but also other types of transactions could
have been the construction of the local section of the South Stream gas pipeline. But
South Stream was abandoned on 1 December 2014.
A Hungarian–Russian joint
venture (South Stream Hungary Zrt.) involving Gazprom was registered in March
Szakonyi, Péter, “Itt a döntés, óriási orosz cég jön Magyarországra”,, 30 May 2014,
; “Záhonyban lesz az orosz Magnit központja”, Origó, 10 June 2014,
See “Russia Decision to Drop Pipeline Puts EU in Tough Spot –Update”, Dow Jones Newswires, 2
December 2014,
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
Table 7. Main Russian investors in Hungary, 2014
Name of the
Russian company
Direct or
Industry of
Russian owner
Activities in
Hungarian firm
acquired – present
Indirect, via
Volksbank Hungary
Zrt. (now: Sberbank
Hungary Zrt.)
Rakhimkulov family
Indirect, via
Investment and asset
Kafijat Trading and
Consulting Kft. (now:
Kafijat Investment and
Asset Management
Rakhimkulov family
Direct and
indirect, via
the UK and
Investment and asset
OTP Bank Nyrt.
Gazprom Export
(Russia, 40%) and
Centrex Hungary
10%) (Initially:
Gazprom – 50%)
Direct and
indirect, via
Energy and
Gas intermediation
Joint venture:
Panrusgáz Hungarian–
Russian Gas Industry
Rt. (now: Panrusgáz
Gas Trading Zrt.)
Ukraine’s ISD,
controlled by
Russian investors
Indirect, first
and then via
Steel production
Production of flat-
rolled products
Dunaferr Danube
Ironworks Rt. (now:
ISD Dunaferr Danube
Ironworks Zrt.)
Indirect, via
Oil and gas
Retail and wholesale
of oil products
Independent, Avanti
and JET filling stations
as well as greenfield
investment (now:
Lukoil Hungary Kft.),
but have sold to
Hungary’s Norm
Benzinkút Kft.
Rosatom’s TsKBM
(Initially: Rosatom’s
Manufacturer of
special pumping
equipment for the
nuclear power
industry, research
centres and other
Manufacture and
installation of hydro
machines, nuclear
power station
machinery and oil
drilling equipment
Ganz Engineering
Environmental Kft.
(Present joint venture:
Ganz Engineering and
Energetics Machinery
Kft.) (51%)
Holding B.V.,
Indirect, via
Production of
Vogel & Noot
Mezőgépgyár Kft. and
Vogel & Noot
Talajtechnika Kft)
Gas transmission
Joint venture: South
Stream Hungary Zrt.
Source: Authors’ compilation.
Family company of the Rakhimkulovs.
This refers only to the activity of the particular Hungarian firm.
There were changes in the ownership structure of Panrusgáz. Centrex Hungary is an affiliate of the
Gazprombank-controlled Centrex Europe Energy & Gas AG (Austria).
This refers to the activity of Gazprombank.
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
Vnesheconombank acquired 100% of M&IG shares but did not obtain control over the company. Most of
the shares had been held by Mikhail Bolotin.
UniCredit Bank Austria AG, Austria, took a mortgage over the shares.
On 1 December 2014, Russia abandoned the South Stream gas pipeline project.
Russian capital in Slovakia
Compared with the other Visegrád countries, the analysis of Russian corporate
strategies in Slovakia is at a nascent stage. To the best knowledge of the authors of this
paper, no proper case study on their strategies has been prepared so far. The lack of
such studies can be in part explained by the fact that Russian firms are more reluctant to
engage in interviews (although it is not fully impossible) (see IMEMO, 2011). The other
explanation is that Slovak researchers have seen more priority in following the
strategies of Western MNEs in the process of EU accession than the activities of Russian
firms. For these reasons, we cannot present a full in-depth analysis of Russian firms in
The identity of Russian investors in Slovakia is only partly known – mostly the big
household names, such as Gazprom, that has limited activities in the country under the
name of Vemex Energy, headquartered in the Czech Republic; Lukoil, which entered
Slovakia in 2007 when it bought ConocoPhillips’ gas stations in various countries,
including the Visegrád Four; and Sberbank, which in 2012 acquired Austrian
Volksbank’s affiliates in seven countries, including the Visegrád Group except Poland. In
the past, Yukos participated in the privatization of the pipeline company Transpetrol
(2002); however following its bankruptcy, the Slovak State bought back that share in
2009. A common thread of these entries into Slovakia was that they were always related
to large-scale acquisitions, which facilitated instant access to the local market.
Another mode of entry for Russian companies is the participation in public tenders
for large-scale construction contracts. These transactions are not FDI per se; however,
they play an important part in Russian state-owned firms’ internationalization
strategies. In Slovakia, the most important deal of this type is the nuclear power
equipment and service export monopoly Atomstroyexport’s participation in the 3
As mentioned in the Hungarian case study, too, Lukoil is about to sell its gas stations to another, mostly
Russia-linked company at the moment of closing this study.
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
phases of the reconstruction of the Mochovce Nuclear Power Plant. Russian
companies were also participating in tenders for the Bohunice Nuclear Power Plant. The
participation of Russian companies in those bids in Slovakia has been coordinated since
2012 by Rusatom Overseas, which is a wholly owned affiliate of the State Atomic Energy
Corporation Rosatom.
The lack of information about the majority of Russian companies, often small in size,
is related to the fact that their reputation is still low in the aftermath of the withdrawal
of Soviet troops in 1991, and they compensate this special liability of foreignness by
registering companies under local names, helping them remaining mostly invisible.
The identification of Russian firms is further complicated by the fact that many of their
transactions targeting Slovakia are financed by capital transhipped via the Netherlands,
Cyprus and Switzerland.
Challenges for the extant theories
The main challenge of the emergence of new sources of OFDI for extant theories is to
strike a balance between preserving their explanative power under the conditions of
increasing diversity and maintaing their relative simplicity. It would be an easy response
to create a special theory for each and every new case: one for the Dragon
multinationals (it already exists, see Matthews, 2002), one for the Russian Eagles (it
does not yet exist), etc. The limitation of this approach is that such a fragmentation of
theory would make cross-country (and retroactive, over time) comparisons impossible.
The explanation for Dragons cannot be transferred to Eagles and vice versa. However, if
extant paradigms do not develop together with time, they risk becoming extinct theories
soon. To illustrate evolution over time, let us draw a parallel with trade theory: the idea
of comparative advantage is almost 200 years old but not yet completely dead despite
the rise of its competitors. To survive, it needed to expand its purview to factor
See “HNClub: Ruský kapitál sa tlačí na Slovensko”, 18 February 2013,
The authors are grateful to Sonia Ferencikova for drawing their attention to this point.
See “Slovensko samení. Investori z východu striedajú západných”, 25 November 2012,
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
movements, and received a big push by the invention of the revealed comparative
advantage method in the 1960s (Balassa, 1965).
For OFDI theories, a similar approach would be the most reasonable. The world has
evidently changed since the times of the creation of the original theories and paradigms;
the issue is if they contain sufficient flexibility to adjust to new circumstances, such as
the rise of Russian OFDI, and its growing concentration in the wider Europe.
Traditional theories of capital endowments and movements such as the Heckscher–
Ohlin–Samuelson (HOS) paradigm (Heckscher, 1919; Ohlin, 1933; Samuelson, 1948)
face a major difficulty in explaining how lower middle-income the Russian Federation is
on the global top list of OFDI. In principle, Russia should be a capital importer, not a
capital exporter country. The main reason for the HOS’ limited power of explanation is
its aggregate macroeconomic approach, which does not for instance consider such
structural elements as the split of Russia into high and low-income segments, and the
accumulation of capital by the high-income group, used in part for international
business expansion (Kalotay, 2008). The same weakness of aggregation, and a wish to
establish uniform thresholds across countries and time, make it difficult for the IDP
(Dunning, 1981) too, to explain why Russia’s investment position turns into balance
(and since 2009 FDI outflows have been exceeding inflows)
The Uppsala School (Johanson & Vahlne, 1977, 1990; Johanson & Wiedersheim-Paul,
1975), positing that the internationalization of firms takes place through stages, also
suffers regarding the international leapfrogging of Russian firms. Firms following the
Uppsala stages start operating with limited experience and face uncertainty on foreign
markets; they internationalize via international trade at best. They envisage investing
abroad gradually. Why this theory does not hold to the majority of Russian firms?
Because they are not the typical technology-based small upstarts, but mostly giant firms
deriving large income from natural resources. Among the Russian investor firms in the
Visegrád region, we have found some technology-based firms (Kaspersky Lab, Sitronics),
but they are not the dominant ones and even they internationalised very rapidly. In the
same vein, the Uppsala School applies well to greenfield OFDI but less to the acquisition
See UNCTAD data published on-line on 25 June 2014 in conjunction of the launching of the World
Investment Report 2014.
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
of foreign assets, in which the relative lack of experience is compensated by, at least
partly, the expertise found in the target firm.
The OLI paradigm of Dunning (1977) can in principle fit Russian MNEs better. For
firms to successfully invest abroad, they must possess ownership advantages (O), which
enables it to invest successfully in a foreign country. The host country must possess
certain location advantages (L), linked to the firm-specific advantages of the investor.
Furthermore, the firm in question invests abroad, that is internalizes foreign
transactions (I) only when it is more profitable than other forms of presence, such as
exports. The original OLI framework has been extended and modified several times.
their most updated form by the author (Dunning & Lundan, 2008), ownership
advantages can be divided into asset-based advantages (Oa) such as cutting-edge
technologies, marketing prowess or powerful brand names, and transaction-based
advantages (Ot) such as common governance of assets and interaction with other
corporate networks). From this, it can be deducted that transaction-based ownership
advantages are indirectly shaped and influenced by the home-country business
environment and culture (e.g. the Chinese Guanxi networks). Despite these advances,
besides papers applying successfully the framework, there have been studies which in
the case of new MNEs have not found satisfactory results when they applied the OLI
framework for explaining their emergence (Child & Rodriguez, 2008). The eclectic
paradigm was also criticized for not explaining FDI from less developed countries to
developed ones.
Thus we should ask whether the emergence and presence of Russian
MNEs in the Visegrád countries can be explained using the OLI framework.
As for Russian firms’ Oa, it is obvious that their (exclusive) access to raw materials
and related technical knowledge are very important for their investment in the Visegrád
countries. In all the four countries, investment in oil- and gas-related activities
dominates; there is also some steel-production investment. These activities derive Oa
advantages from the parent companies’ natural-resource-related expertise. Another
As Narula (2010) argues, too much extension and sub-categories for the eclectic paradigm can endanger
the usefulness of the theory. Rugman (2010) also considers the paradigm too eclectic, very broad and
Moon and Roehl (2001) suggest an “imbalance theory” for unconventional FDI instead, claiming that a
firm wants to search for balance between ownership advantages and disadvantages when investing
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
industry performing similarly is that of nuclear energy production: Russian firms are
already present in Slovakia, and Hungary concluded an agreement about extending its
nuclear power plant’s capacity with the help of Russian companies and the Russian
government. On the other hand, we could find Russian companies, whose competitive
advantage is very similar to that of developed-country MNEs, in the sense that they are
based on innovation and R&D activities. We can find even born global companies among
them, which internationalized very early in the life cycle of the company. The most
notable case is that of Luxoft (and to a lesser degree of Kaspersky Lab) investing mainly
in Poland, not only with a market-seeking motive (representative office) but also with an
efficiency-seeking motive (local lab with exporting activities). We could find only traces
of acquiring competitive advantages or ownership advantages instead of exploiting
existing ones (Narula, 2006). Only the case of Sberbank in acquiring an Austrian bank
together with its affiliates in the Visegrád countries may belong to that category.
The Oa advantages of Russian firms in Visegrád countries are closely related to their
Ot advantages. For instance, in almost all cases, the development of business required
the use of existing business links. The most evident case is that of financial services, in
which the main motivation of Russian banks investing abroad has been providing
financial services to locally active, directly or indirectly Russian-owned affiliates. In
these cases the ownership advantages can be partly related to existing deep contacts
with these companies at home and providing them similar to home financial solutions –
though some of these are more characteristic of an evolving market economy
environment. The effort to use the same practices in a host country can be traced in the
quasi criminal cases in the Czech Republic.
The ownership advantages (both Oa and Ot) of Russian firms are reinforced by
locational advantages, as the locations/countries in question rely almost exclusively on
certain Russian natural resources. The two types of advantages are interconnected
through personal, economic, infrastructure and technical networks inherited from the
CMEA era in the case of hydrocarbons, iron and steel and nuclear energy industries. The
machinery industry shows a similar interconnection of ownership and locational
advantages: they are partly related to the production of related equipment, and
ownership and related locational advantages are based on the same common inherited
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
factors. For technology-based companies, the locational advantages are not specific to
the Visegrád countries in case they have market-seeking motivations; but they become
important if they have efficiency-seeking ones: the relatively low wages of highly skilled
local labour, and similar languages (in the case of the Slavic countries) offer important
locational advantages.
The expansion of Russian MNEs in Visegrád countries is similar to other emerging-
country multinationals in the form of relatively high state involvement, either
transparently or in an indirect way. The term transparently refers to cases when firms
are majority owned by the Russian State (such as in the case of Gazprom) or enter into
the host markets through state contracts (such as in the case of the nuclear power
industry). The term indirect means state influence without any formal link developed.
Indirect influence can become a norm in state capitalism (Grätz, 2014). The role of
Russian State and the Russian policy environment in prompting OFDI raises the issue if
that factor can be assimilated under the Ot factor, or a home-country (H) factor has to be
added to the OLI legs. State-owned companies obviously possess advantages that
facilitate their internationalization (such as financial and administrative support). That
hypothesis can be extended to privately owned firms whose international expansion is
seen by the State as strategic priority and as a consequence, it is supported by all
available means. In the case of Russian MNEs active in innovative industries (especially
ICT-related services), home-country factors play a minor role. State influence is low
although the Government is still very much interested in the development of these
industries and companies (Panibratov & Latukha, 2014). The OLIH hypothesis (Kalotay
& Sulstarova
, 2010
; Kalotay, 2010) needs to be further tested in the future, both against
findings on Russian OFDI and OFDI from other emerging markets, also based on state
capitalism (e.g. China).
The number of studies on Russian direct investment and the activity of Russian
multinationals abroad is growing fast as the country is becoming one of the key sources
of OFDI on the European and global scene. Knowledge about the activities of Russian
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
MNEs in specific locations is however uneven. Relatively little is known about their
activities in the Central European region. To start filling that gap, this paper has
described the motives and patterns of Russian investment in the region, finding a broad
variety of investors in the four Visegrád countries. Certain companies (the technology-
based firms) show characteristics similar to developed-country MNEs, other firms are
large state-owned and natural-resource-based firms, alike the ones found in other
emerging countries, and yet others fall under no straightforward categorization (e.g. real
estate investors).
The reactions of the Visegrád host Governments to Russian MNEs have been mixed.
The group of state-owned resource giants has stirred up more concerns about their
perceived relationship with Russian foreign policy objectives. Additionally, the use of
transhipment and other tactics to hide the origin of capital by some Russian investors
has given rise to serious worries in Visegrád countries. Divergences in the attitudes of
the Visegrád countries can explain the main differences in the presence and activities of
Russian MNEs in each country analysed.
This paper has also drawn tentative conclusions on the applicability of international
business theory to this special case of OFDI, especially as far as Dunning’s eclectic
paradigm in concerned. On the basis of the analysis of the Visegrád countries, it has been
found that the main elements of the OLI paradigm can be applied when explaining
Russian FDI there, but its extensions with home-country factors seem to be necessary.
This refers first of all to MNEs in natural-resource-based industries, mainly oil, gas and
steel; but home-country interest is prevalent in other industries, too.
To validate the results of this paper, further research on Russian OFDI in the four
Visegrád countries is necessary in the future. Moreover, in order to compare these
conclusions with the findings of studies on Russian firms in similar geographical areas, it
is also imperative to investigate patterns of Russian investment in other EU countries.
The analysis of the activities and motivations of Russian MNEs in turn need be compared
with the behaviour of other emerging-market MNEs. In this respect, it is already possible
to count on studies on Chinese MNEs which, to some extent, seem to reinforce the idea
of home-country influence (see Wei et al., 2014); yet other studies re-confirm the
importance of EU countries in the global strategies of Chinese firms (see for example,
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Kálmán Kalotay, Andrea Éltető, Magdolna Sass, Csaba Weiner / Russian capital in the
Visegrád countries
Ebbers & Zhang, 2010; Spigarelli, 2012). The task is to weave these strands of literature
together to arrive to a more coherent explanation of activities of emerging-market
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Business Academy “Landscapes and Mindscapes in a Globalized World”, Oslo,
Norway, 11–13 December, 2005b.
... million (4.5%), Russia with EUR 748 million (3.8%), Luxembourg with EUR 675 million (3.4%), Latvia with EUR 605 million (3.0%) and Cyprus with EUR 562 million (2.8%). If we consider Kalotay´s hypothesis that FDI from Cyprus are really Russia´s FDI correct, then we can estimate the value Russia´s FDI in Estonia approximately EUR 1.3 billion (6.6%) (Kalotay, et. al. 2014). By activities, financial intermediation created 27.5%, real estate 19.0%, manufacturing 13.6% and trade 12.6% of Estonia´s inward FDI stock. ...
... National statistics on FDI, especially in transition economies, are extremely unreliable due to using 'offshore' facilities (Kalotay et al., 2014), a lack of accounting on small investment projects, as well as reinvested profits and some other points leading to the distortions (Kuznetsov et al., 2013). Most of these are found for the Visegrad group. ...
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The article investigates the Russian place in outward FDI geography of the Visegrad countries. The role of the neighborhood effect is shown. With the help of the authors’ special methodology for FDI calculations which overcomes deficiencies in the Bank of Russia’s statistics, the distribution of the Visegrad group’s FDI between Russian regions is studied. The authors demonstrate the presence of a hierarchical-wave model of spatial diffusion of FDI by investors in retail and banking. At the same time, it is found that Moscow and its surrounding dominate the recipient regions. It is also shown that Visegrad group investments in Russia are mostly made by enterprises which remove any political component. As a result, their FDI expansion to the Russian market is likely to continue as soon as the Russian economy returns to growth.
Résumé Cet article analyse les déterminants de localisation des IDE chinois et russes en Europe entre 2006 et 2017. Les IDE chinois et russes présentent certaines similitudes. Ils sont attirés par la technologie et l’innovation. Toutefois, contrairement aux EMN russes, les choix des investisseurs chinois sont aussi liés à l’existence d’opportunités offertes par le marché, notamment par la crise des subprimes. En revanche, les IDE russes sont davantage motivés par des considérations géopolitiques. L’impact des variables institutionnelles sur l’IDE chinois est contrasté tandis que les IDE russes ont été attirés par des institutions faibles. Mots-clés : IDE Sud-Nord, les EMN émergentes, Union européenne, déterminants institutionnels, modèle multi-niveaux Abstract This article investigates locational determinants of Chinese and Russian FDI in Europe from 2006 to 2017. Chinese and Russian FDI bear certain similarities. They have been attracted by technology and innovation. However, in contrast with Russian MNEs, the choice of Chinese investors have been also affected by the existence of opportunities offered by market, in particular by the subprime crisis. Russian FDI has been more motivated by geopolitics. The empirical results on the impact of institutional variables on Chinese FDI have been mixed, while Russian FDI has been attracted by weak institutions. Keywords: South-to-North FDI, Emerging Market Multinational Enterprises (EMNEs), European Union, Institutional Determinants, Multilevel Model Resumen Este artículo analiza las determinantes de la localización de la IDE china y rusa en Europa en el período 2006-2017. Las IDEs chinas y rusas presentan ciertas similitudes: ellas han sido atraídas por la tecnología y la innovación. A diferencia de los rusos, los inversores chinos han sido guiados por las oportunidades ofrecidas por el mercado, en particular por la crisis de las subprimas. En cambio, la IDE rusa responde más a motivaciones geopolíticas. Los resultados sobre el efecto de variables institucionales sobre la IDE china han sido contrastados, mientras que la IDE rusa ha sido atraída por instituciones débiles. Palabras clave: IDE Sur-Norte, empresas multinacionales emergentes, Unión Europea, determinantes institucionales, modelo multinivel
This chapter describes economic relations between Russia and the Czech Republic as they impact on the general relationships between these two countries. The concept of ‘hybrid campaign’ is applied to these economic relations, and its benefits and limitations are discussed.
In this chapter the process of internationalization of Russian hi-tech multinational enterprises (MNEs) is analysed with a focus on telecommunications and IT companies that are expanding abroad. Of particular interest are the choices that Russian MNEs make when facing entry challenges, environmental constraints and investment alternatives.
This is the second edition of the celebrated volume by Professor John H. Dunning, first published in 1993, which has now been not only updated but also enriched with the addition of a number of new topics. This addition was not least due to the expertise of the co-author, Sarianna Lundan, in the institutional aspects of international business and the internal governance of transnational corporations (TNCs). It is a comprehensive synthesis of all the theories in International Business based on extremely rich data evaluation in almost all fields of TNC activities and their environment. It is a “creative masterpiece which unbundles the DNA of the field of international business” as described by Alan Rugman in his assessment of this volume.
Russian multinationals are playing an increasingly important role in the world economy, particularly in some key sectors such as oil, gas and metallurgy. At the same time, Russian multinationals differ in many respects from multinationals from other countries in that they often receive special treatment from the Russian government, and, because of past experiences, international investors are often reluctant to invest in them. This book presents a comprehensive overview of Russian multinationals. It discusses the rise of Russian multinationals, examines Russian multinationals' activities in key sectors, analyses the relationship between Russian multinationals and the Russian government and between Russian multinationals and international investors, and concludes by assessing how Russian multinationals are likely to develop in future.