How Russia Spurned its Biggest Foreign Direct Investor

The Russia Monitor has published an excellent, must read case study on the Ikea experience in Russia, revealing – pardon my ignorance – that the Swedish furniture retailer is the largest foreign direct investor in the whole country, spending double the amount being invested in the planned Skolkovo Valley project.  Wow.

At the same time, IKEA’s decision is clearly Russia-specific.  There, onerous and unpredictable building regulations actually have the opposite of their ‘intended’ effect.  On the books, Russia should be home to some of the safest architecture in the world.  In reality, the unreasonable regulations and bribe-craving officials who enforce them encourage and reward companies that cut corners (and if you can hire a third party to cut those corners, all the better for Swedish sensibilities).

Why is this a big deal?  Because IKEA is the single largest foreign direct investor in Russia, having thrown approximately $4 billion into the country since the first store opened in 1999.  This is roughly equal to all the investments made by all foreign enterprises into Russia’s Kaluga business parks over a similar time period.  Even the planned ‘Russian Silicon Valley’ at Skolkovo will only receive $2 billion over the next three years.  That’s right, IKEA has spent more on shopping malls in Russia over the past 9 years than Russia plans to spend on its silver bullet solution to modernization and the innovation economy.