Aug. 21 (Bloomberg) -- Russia’s foreign direct investment plummeted an annual 45 percent, the most on record, to $6.1 billion in the first six months of the year as the economy of the world’s biggest energy producer contracted at a record pace.

Overall foreign investment, including credits and flows into securities, fell 30.9 percent from a year earlier to $32.2 billion, the Moscow-based Federal Statistics Service said today. The office began collecting the data in 1999.

“Given the pressures on the credit market and uncertainties in the financial sector both in Russia and globally, it would have been surprising to see a pickup in FDI volumes in this period,” said Vladimir Tikhomirov, chief economist at UralSib Financial Corp. “I wouldn’t be surprised to see it lower in the third quarter too.”

Gross domestic product shrank a record 10.9 percent in the second quarter following a slump in the price of oil, its key export earner. This year’s decline ended a decade of expansion averaging almost 7 percent. President Dmitry Medvedev has made developing an “innovative economy” a priority in an attempt to wean Russia off dependence on oil, gas and metals exports.

Stocks, Bonds

Foreign investment in stocks and bonds dropped 25 percent to $862 million compared with the same period last year, the statement said. Portfolio investments jumped more than sevenfold on a quarterly basis, as recovering oil prices helped Russia’s benchmark Micex Index rally about 23 percent in the period.

Other foreign investments, including loans from foreign banks and Russian companies’ foreign divisions, were down 26.5 percent in the first half at $25.2 billion, the data showed. Still, the second quarter saw almost double the $8.7 billion of the first three months, Tikhomirov said.

“The market started to unfreeze somewhat for Russian companies,” as they sought to restructure their loans with foreign banks, Tikhomirov said. “It shows it was easier for some to attract loans in the second quarter than in the first.”

Investment in the retail industry, which received the most funds in the first six months of 2008, dropped almost 41 percent to $8 billion. Ikea, the world’s biggest home-furnishings retailer, had the opening of its outlet in Samara delayed almost two years after a disagreement with local officials. The retailer has faced at least four disputes with authorities since entering the Russian market in March 2000.

Lost Competitiveness

The country risks losing competitiveness as foreign investment dries up and the global economic crisis prompts the government to raise its stakes in corporate stocks. State ownership of corporate stocks reached 45 percent at the end of 2008, the Moscow-based Institute of Contemporary Development said in a February report.

More than half of the stock market is controlled by the state, a setup that investors should approach with caution, according to Troika Dialog, Russia’s oldest investment bank.

The decline in Russian FDI compares with a 35.7 percent slump in China’s inflows in July, the Commerce Ministry said on Aug. 17, as companies stalled expansion plans.

Russia’s manufacturing industry received the largest amount of investment in the first six months, according to the Statistics Service. Foreign investors brought $9.2 billion into the industry, including stock and bond purchases.

Lending Failure

The Netherlands was the largest foreign investor in Russia in the first six months, followed by Cyprus and Luxembourg. The U.S. was the eighth biggest.

PepsiCo Inc., the world’s second-largest soft-drink maker, and Pepsi Bottling Group Inc. said on July 6 that they plan to invest $1 billion in Russia over three years in anticipation of a resurgence of consumer demand.

So far the central bank’s five interest-rate cuts since April 24 have failed to spur lending as banks hold back on concern borrowers can’t repay loans. Retail sales declined 8.2 percent in July, the most in almost 10 years, as households cut back spending after incomes dropped and consumer borrowing declined.

“Though assets are cheaper, the fact that FDI is falling sharply means that companies aren’t rushing to use this drop in price,” Natalia Orlova, chief economist at Alfa Bank in Moscow, said by phone.

-- With assistance from Zoya Shilova in Moscow. Editors: Tasneem Brogger, Chris Kirkham.

To contact the reporters on this story: Alex Nicholson in Moscow at anicholson6@bloomberg.net; Paul Abelsky in St. Petersburg at pabelsky@bloomberg.net.

Last Updated: August 21, 2009 08:38 EDT