Аbout Russia - Аbout Russia |

Full name:	Russian Federation
Population:	142.8 million (UN, 2008)
Capital:	Moscow
Area:	17 million sq km (6.6 million sq miles)
Major language:	Russian
Major religions:	Christianity, Islam
Life expectancy:	59 years (men), 73 years (women) (UN)
Monetary unit:	1 rouble = 100 kopecks
Internet domain:	.ru
International dialling code:	+7

Business and economics

The Russian Federation is the ninth largest country in the world in terms of population and the seventh largest in terms of gross domestic product (GDP), Russia is the world's largest country in land area, occupying 75% of the former Soviet Union (17 million sq km or 6.6 sq miles), has a significant percentage of the world's mineral resources and produced 14% of the world's total mineral extraction. The Russian Federation holds the world's largest natural gas reserves, 38% of the world's total. Together with the Middle East, which holds 35% of total reserves, they account for 73% of world natural gas reserves. With up to 10 percent of the world’s known oil reserves, Russia pumped on average 9.4 million barrels a day and exported around 7 million last year--second only to Saudi Arabia and occasionally outstripping the desert kingdom in monthly production. In the past six years, the high prices for crude oil have added at least 15 percent to the country’s GDP, brought billions of dollars to the treasury, boosted personal incomes by almost one-third, and significantly enhanced Russia’s position in the world.

The high oil prices brought in revenue for Russia between 2005 and 2008 and continue to do so in light of the North Africa and Middle East crisis of 2011, which is in charge of a very substantial increase in oil prices. However, the country has yet to tackle the limited domestic demand and its heavy dependence on foreign import, which contributed to the contraction of its economy by 7.9% in 2009. The industries which are particularly attractive such as: mining, construction, aerospace, research and development, food and beverages, agriculture, logistics, timber and metal processing. The average salary is still quite low, but in certain areas, especially in the main cities Moscow and Saint-Petersburg an immense skilled workforce is available. Last but not least, Russia is not a homogeneous country – it has a variety of nationalities, along with developed and poor areas with different needs. High end, luxury goods will sell very well in Moscow and Saint-Petersburg, but would find few customers in other of Russian regions.

Today Russia’s GDP is slowly, but surely recovering from the recession of 2009, when it fell by an incrediblyly substantial 7.9% for such a robust economy, as it seemed back then. In 2010 growth returned to 4.3% and is forecasted to stay at the same level in 2011 too. Between 2000 and 2008 Russia’s current account balance reached almost 10% of GDP. However, it has been declining gradually, from 18% in 2000 to 6.1% in 2008, as the value of GDP in current prices recorded in USD increased sixfold. In 2010 Russian exports grew by 24.15% and imports by 23.7%, an increase in comparison with 2009, when demand on both the domestic and foreign markets was depressed and trade seriously suffered as a result.

In 2008 inflation in the Russian Federation reached 14.1% and 11.7% in 2010, which was high enough for an economy in recession. In 2010 it dropped to 6.2% and is expected to continue falling in 2011 (5.7%).

Investment breakthrough of 2011

According to Federal Statics Bureau of Russia (Rosstat) only within first six months of 2011 there has been invested over 87,7 billions dollars from foreign companies into Russian Economy, which is over 2.9 times more than there had been invested during the same period of time in 2010. It has been already described as an abnormal volume of investments, such inflow has never been registered before. The contribution of direct investments accounts for 7039 million dollars, which is for 30% more, than it was for the first six months of 2010.The amount of portfolio investments has increased for 34,5%, up to 241 million dollars. All other investments have grown 3,3 times higher and account for 80 418 million in the total figuer.

The recent economical reports show that there has been accumulated over 315 milliard dollars of foreign capital by to the end of June 2011, indicating the 19,9% growth over the figures of the previous year’s same period. During the first six months of 2011 the amount of foreign cleared off capital constituted 81,7 milliard dollars, which is 2,5 times higher than it was a year before, which means that the foreign investments have accounted 6 milliard dollars. And the total growth of direct and portfolio investments is 30% this year alone. Mostly due to western manufacturing companies readiness to establish their presence on the Russian Market. Additionally, the Russian stock is becoming more and more attractive for foreign investors.

The 2011 year’s economical situation for the Russian Market is quite promising yet for another reason, oil prices remain high, and though the global recession is no myth and the oil prices may considerably roll back, the Russian Budget for 2011 year was calculated to withstand the oil price of 80 dollars for barrel, so it has a high degree of safety still. There is also a significant capital repatriation, mostly made by Russian companies registered in Cyprus, this fact also gives some optimism. All analysts predict a bright future for Russia in terms of foreign capitalization generally thanks to its vast mineral resources and enormous territory.

Mineral deposits

Mining was the country's major industry in 2002, and Russia was the largest exporter of palladium and nickel (20% of world output), and ranked second in the production of aluminum and platinum-group metals, third in potash, sixth in gold, and seventh in mine copper. Russia also produced a large percentage of the CIS's bauxite, coal, cobalt, diamond, lead, mica, natural gas, oil, tin, zinc, and many other metals, industrial minerals, and mineral fuels. Enterprises considered part of the mineral and raw-material complex contributed 70% of the budget revenues derived from exports; petroleum, petroleum products, and natural gas were Russia's leading export commodities in 2002; metals and chemicals also were leading export commodities. With up to 10 percent of the world’s known oil reserves, Russia pumped on average 9.4 million barrels a day and exported around 7 million last year--second only to Saudi Arabia and occasionally outstripping the desert kingdom in monthly production. In the past six years, the high prices for crude oil have added at least 15 percent to the country’s gross domestic product, brought billions of dollars to the treasury, wich boosted personal incomes by almost one-third, and significantly enhanced Russia’s position in the world. The shelves of the Far East and Eastern Siberia have especially good prospects for large-scale and long-term developments of the offshore oil and gas fields. The promising areas in these regions (excluding Sakhalin and its shelf) are estimated at about 1.5 million square kilometers. Potential recoverable resources are estimated at billions of tons of conventional fuel. These reserves are concentrated mostly in the Sea of Okhotsk and the Bering, Chukchi, and East-Siberian Seas. Here, more than 20 oil- and gas-bearing and potentially oil- and gas-bearing basins of different geotectonic nature have been discovered.

Despite decreased metal output compared with the Soviet period (e.g., 20% as much tin), Russia was producing more aluminum, lead, and zinc in 2000 than during the Soviet era. Ten percent of the technology employed in the nonferrous mining and metallurgy sector was rated as world class, labor productivity was one-third below that of advanced industrialized countries, and energy expenditures were 20%–30% higher. Another problem was that the resource base for metallurgical enterprises was not competitive in terms of quality, with the exception of antimony, copper, nickel, and molybdenum. More than one-half of industrial mineral output was exported, depriving the domestic sector of so badly needed supplies, especially barite, bentonite, crystalline graphite, and kaolin. So far Russia has not been successful in attracting foreign investment for developing its mineral deposits, because of high and unpredictable taxes, not quite reliable legal system, not always secure licensing, inequity in the treatment of domestic and foreign partners, a retrograde banking system, and the inability to directly export commodities.

The most troubling areas are transportation, taxation, domestic consumption, investments, and especially ownership. In the end, all of these issues are linked to the ideological change in economic policy over the past four years and thus are unlikely to be addressed effectively until the country alters its political direction.

Though there is little doubt that Russia will remain one of the world’s leading exporters for many years. Unless arrested or reversed, several structural tendencies may significantly jeopardize Russia’s ability to meet the world’s rapidly growing demand for oil.

The business overview

All recent political changes, government reforms, a stable economy, vast natural resources and a large population have all led to Russia seeing enormous advances in their foreign trade links. However, Churchill's description of the country as a 'riddle wrapped in a mystery inside an enigma' still very much holds true for outsiders looking in. Gaining some basic insight into the Russian mentality, culture and etiquette are key for anyone doing business in Russia.

Russia offers enormous investment opportunities in various industries, both on the domestic market and for companies from outside the country. However, this is not a market which a Western entrepreneur will find familiar at first glance, and the 19^th century saying that “one cannot understand Russia, Russia is something which one should believe in” is still topical. Despite the fact that the Soviet era is already a distant memory, the country’s economy is still controlled to a vast extent either directly by the state or through companies which are dependent on the state and which enjoy various privileges. Simultaneously, sensitive areas such as defence and mining are either closed to non-Russian investors or are available only as minority stake in a joint venture, with a controlling stake held by the Russian partner. The well known cases of TNK/BP and Yukos have not helped to encourage foreign investors. Nevertheless, Russia offers a unique investment opportunity, and one must obey certain operational rules on its market as additional expenditures of market entry. The complications include a still substantial amount of bureaucracy, a poor developed infrastructure, rigorous regulations, local competition and the lingering shadow economy. It is generally advisable to enter by means of a joint venture or the takeover of a Russian company which knows the local conditions and can provide effective trouble-shooting expertise.

This country is the largest twentieth-century example of why capitalism talks and communism walks. After eight decades of rigid Red rule, the bear was finally let out of the cage. It is still a mere infant in capitalist years, and if anyone has taken the phrase 'free market' too literally it's Russia. There are few barriers, few restrictions and few lines drawn in the corporate sand.

Exploitation has been rife at times, and there are instances of criminality at the highest levels of government and business. Corruption is no secret, though, so it is probably best we get it out of the way now. Political transitions are not mellifluous by nature, and Russia suffered. Yet something has risen from the ashes: the phoenix of a new Kremlin, a new opportunity.

Success breeds in the most unlikely of situations, and like most countries that have recently found capitalism, times are good for investment. Russia is currently flirting with top-ten economic status, adamantly poised in eleventh place. It is the biggest and most attractive emerging market, and its advantages read longer than Tolstoy. Frankly, there has never been a better time to be a part of Russia's new chapter.

Stifling red tape might be tougher to plough through than the Soviet snow, but its no better or worse than other emerging markets, and even some developed ones. If we're discussing the bureaucratic barometer, just look at Italy and we'll say no more. Things ultimately get done. Russia excels in building these areas of economics: special free zones, concession agreements, independent investments funds and development banks. It also maintains a progressive approach to economic advancement, focused primarily on stabilization and eclecticism.

In terms of main Russian disaster, corruption, its perception in 2010 as measured by Transparency International stood at 2.1 (the CPI – the Corruption Perception Index), which left Russia in 154^th place among the 180 countries surveyed. Russia’s CPI has been falling in recent years, at a time at which many countries have been making progress in this arena. The country is regarded as one of the most corrupt major economies. Corruption is Russia’s most serious economic problem, and it is difficult to tackle now that it has become endemic, despite some decisive attempts by the government to curb it.

Social environment

By the year of 2010 the population of Russia has reached the figure of 138.9m and become the 9^th largest in the world. The average age in 2010 was 38.7 -35.5 for men and 41.9 for women. In Russian society women outnumber men by approximately 11 million. In terms of nationalities, the major groups are: Russian 79.8%, Tatar 3.8%, Ukrainian 2%, Bashkir 1.2%, Chuvash 1.1%, and others/unspecified 12.1% (2002). Most people declare themselves to be atheists or non-practicing believers (unspecified 8.8%, unaffiliated 59%), a possible consequence of 70 years of Soviet rule. Those who claim to be practicing worshipers make up between 27% and 35% of the population and are Russian Orthodox (15-20%), Muslim (10-15%), and other Christian (2%). The average monthly salary paid in the Russian Federation in 2010 was EUR 445.

Technological environment

Russia has a well-developed and, in some areas, outstanding, research and development base. This applies in particular to industries developed during the reign of Soviets: heavy industry, aviation, aerospace, nuclear energy, chemical industry, etc. Some of these are closed to foreign companies for security reasons. However, these restrictions are sometimes mitigated if a Russian partner company is involved in the project.

The total installed generating capacity in Russia has been estimated to be 215m kW. Of this, 68% is accounted for by fossil fuel power plants, 21% was generated by hydroelectric units and 11% by the 31 nuclear power stations, making this the most extensive electricity industry in Europe and the fourth largest in the world. The country is rich in fossil fuels and accounts for 40% of global gas resources, 12% of oil deposits and 16% of confirmed coal resources. However, the Russian economy is the least energy effective of all of the ten foremost energy consuming countries (in terms of energy used per unit of GDP). It has been estimated that possible gains from emphasising the more effective use of energy in Russia could reach between EUR 90bn and EUR 115bn per annum. This would address an increasing demand problem by 2020 at a third of the cost of building the capacity required to meet demand. Whereas the extensive use of energy might be explained by the size of the country, the harsh climate or the importance of heavy industry, the greatest potential for savings is in residential consumption. This issue is becoming more important, because, in terms of gas, Russian domestic consumption is increasing more rapidly than production – and demand in Western Europe, a traditional export market, is expected to increase by more than 50% between now and 2030. Oil output is also expected to start declining in the near future. The achieving of a balance between energy supply and demand will be a key problem for the Russian economy in the next few years.
Russia still has a very low internet penetration rate, 29.% in 2009 (data vary in accordance with the source and methodology). However, demand is growing rapidly, and, given the size of the population, and the low living standards, this means that the internet industry has the potential to develop as the economy grows, which makes it an attractive market for potential investors. The mobile phone penetration rate was estimated to be 166% in 2009.

Infrastructure

The transport network of the Russian Federation consists of 87,157 km of broad gauge railways and 1.16m km of roads, of which 41,000 km are major roads of federal importance. There also exists an extensive network of domestic and international airports, as flying is sometimes the only possible way of travelling because of the vast size of the country.

The currency

Political structutre

Russia is a federal presidential republic, with the President as head of state. The Prime Minister is nominated by the President. However, the approval of both chambers (the Duma and Federation Council) is necessary. Despite the fact that legislative power is represented by the Federal Assembly, both the President and the government may rule by issuing ordinances. Since November 2008, the term of Parliament has been extended up to 5 years and that of the president up to 6 years.Russia is a member of all major international organisations and has a permanent seat on the United Nations Security Council.

Climate and weather

The climate in Russia can vary due to its vast size. Continental climate dominates in the central part of the country, and in the south, it is subject to Arctic and Atlantic influences, as a result of mountains obstructing the flow of warm air masses from the north and west plain and Indian Ocean.

There are only two distinct seasons - summer and winter. Spring and autumn are usually brief periods between the changing temperatures of summer and winter. The coldest month is January (on the shores of the seas it is February) and the warmest is usually July. Overall the weather, due to global warming, is becoming more and more unpredictable.

Labour and workforce

In 2010 the unemployment rate in Russia reached 6% , which is an increase in comparison with 4% in 2009, though in 2008 it was 6.2% . However, we believe that the available statistics as usually do not reflect the real situation and this figuer is actually higher.

If there is one word associated with emerging markets, it's “booming”, and it’s just the right word to describe today’s Russian economy. The challenges of market entry shouldn't be underestimated, but the Great Bear is an eastern promise of opportunity. If you want to be part of the great emergence, then it is time to give a strong consideration to the first step onto this vibrant market.