Russia’s full-scale invasion of Ukraine has caused a massive negative shock to the world economy and a “profound and immediate” impact on capital flows in both countries, according to a report by the Organisation of Economic Co-operation and Development (OECD), published on May 4. 

The OECD, an intergovernmental club of 38 rich nations, stated that the investment needs of Ukraine will be “enormous” after Russia’s large-scale military aggression, due to the “wanton destruction of property, including commercial and industrial assets and infrastructure”. The OECD Council suspended the participation of Russia and Belarus in OECD bodies with immediate effect on February 24 2022.


“Given their superior access to capital and larger financing capabilities, foreign multinationals may play an important role in rebuilding the needed infrastructure and industry,” the report reads.

Official Ukrainian figures, released on March 28, estimated the economic costs of Russia’s invasion at over $500bn. The European Bank of Reconstruction and Development (EBRD) has estimated that about 60% of Ukraine’s gross domestic product was generated in territories directly affected by fighting. 

Several companies, notably in the tech and automotive sectors, have already decided to relocate operations from Ukraine to neighbouring countries. This includes Irish automotive technology supplier Aptiv, which has moved its Ukrainian operations to its other facilities in Poland, Romania and Serbia. 

Foreign direct investment (FDI) into both Russia and Ukraine has effectively dried up since the invasion began on February 24. Figures from fDi Markets show that greenfield FDI worth just $98.5m was announced in Russia in the first quarter of 2022, down by 95.6% on the previous year. Ukraine saw the value of greenfield FDI decline by 34.8% over the same period.

Over the past decade, investors from OECD countries accounted for almost two-thirds of the greenfield FDI announced in Russia, according to fDi Markets. However, in the face of mounting reputational risks and practical challenges, almost 1000 companies have also publicly announced their intention to voluntarily curtail operations in Russia, according to researchers from Yale University. This has led commentators to note we are entering a new age of corporate activism.

The OECD said that foreign companies “may find it challenging to support their [Russian] affiliates through intracompany loans and injections of equity capital — which are an important component of FDI flows — now that the country’s financial system is almost decoupled from advanced economies.”

Sweeping Western sanctions on Russia and capital controls imposed by the Kremlin are also making it very difficult for foreign investors hoping to exit the country. 

“Companies are likely to treat assets in Russia as frozen and illiquid, doing nothing with them for the time being,” Joshua Ray, a London-based partner at law firm Rahman Ravelli, told fDi in March 2022. 

The OECD also noted that outward FDI flows from Russia “will likely decline significantly in light of international sanctions and economic crisis”. Meanwhile, foreign dealmaking in both Ukraine and Russia has declined significantly due to the war.

The value of cross-border mergers and acquisitions (M&A) announced in Russia fell to $121.6m in the first three months of 2022, down by 93.2% on the same period a year earlier, according to Refinitiv figures. The number of M&A deals also fell by 26% over the same period. 

The war in Ukraine has combined with inflationary pressures to weigh on global sentiment too. The value of global announced cross-border M&A stood at $328.9bn in the first quarter of 2022, down by 24% from the same three months of last year. This was the lowest total recorded for the first quarter of the year since 2018.

Economies have been rocked by their reliance on Russian fossil fuels and commodities. The country is the world’s largest natural gas exporter, supplying 19% of the world’s gas consumption in 2021. 

“Developing and emerging economies that import considerable quantities of fossil fuels from Russia are at risk of surging inflation and recession and also likely to resort to coal to mitigate the shock,” wrote the OECD.

The EU announced on May 4 that it would ban imports of Russian crude oil within six months and of refined oil products from the country by the end of 2022.