• 1: Home
• 2: About Us
  • 2.1: Company Values
  • 2.2: Senior Consultants
• 3: Business/Entrepreneur Consultancy
  • 3.1: Free Business Advice
  • 3.2: Company Setups
    • 3.2.1: Start-Up Consultancy
    • 3.2.2: Complete Packaged Solutions
  • 3.3: Business Plan Development
  • 3.4: Business Structure Development
  • 3.6: Websites
  • 3.8: Research and Information Services
• 4: Market Entry Services
  • 4.1: Assessment of Needs
  • 4.2: Market Reseach
    • 4.2.1: Latest Market Research
  • 4.3: Strategic Planning
  • 4.4: Sales
  • 4.5: Support Services
  • 4.6: Translation and Localisation
  • 4.7: Manufacturing in CEE
    • 4.7.1: Relocating
    • 4.7.2: Outsourcing
• 6: Sourcing Agents
  • 6.1: Portland Cement
  • 6.2: Photovoltaic Silicon
  • 6.4: Quartz
  • 6.5: Potassium Feldspar
  • 6.6: Bauxite
• 8: Contact Us
  • 8.1: Press

Russia 

Economic Summary

• Russia is classified as a middle income country. Russia was the largest republic of the Soviet Union. Russia is the largest country in the world, with an area of 17,075,200 sq km. Russia constitutes more than one-ninth of the world's land area. Russia is a collection of diverse territories at different stages of development.

• Russia contains the greatest reserves of mineral resources of any country in the world. Although minerals are abundant, many are in remote areas with extreme climate conditions, which makes them expensive to extract. Russia is especially rich in mineral fuels. The country may hold as much as one-half of the world's potential coal reserves and may hold larger reserves of petroleum than any other nation. Mainly because of high international oil prices, Russian export revenue has soared since 2000. Import growth has picked up over the same period as a result of rising real incomes and real rouble appreciation. The trade surplus climbed to US$118bn in 2005. The structure of exports is heavily dominated by fuels and raw materials.

• The performance of the Russian economy since the 1998 crisis has been impressive. Between 1998 and 2006, Russian GDP expanded by an estimated 57.6 percent, while real incomes of the population grew by 65 percent. Poverty (headcount) rates were cut in half and regional disparities also declined. Unprecedented macroeconomic stability was achieved in the context of strong budgetary and current account surpluses. Important reforms in areas such as taxation, budgetary institutions, and the removal of administrative barriers to business facilitated the rapid development of market institutions in many areas. The pace of growth began to slow in 2001 and 2002, along with the steady weakening of the factors the supported the initial growth, although a major strengthening of oil, gas, and other prices on Russia's commodity exports gave a new boost to economic growth since 2003. Modernization and productivity growth outside the oil and gas sector have also been important contributing factors to the recent expansion.

• The positive recent trends in GDP growth, investment, budgetary surpluses, and poverty reduction have continued in 2005 and 2006. According to official estimates, GDP, fixed capital investment, and disposable income grew by 6.4, 10.5 and 9.3 percent in 2005, respectively. High oil, gas, and other commodity prices boosted Russia's economic prospects not only for the short-term growth. Most international investors have revised upward their expectations of these prices in the medium and longer term, thereby increasing the perceived attractiveness of Russia's rich and largely untapped resource base. The continued responsible conduct of macroeconomic (stabilization) policy has also improved the economic climate in Russia. In January 2005, Standard and Poor's joined Fitch and Moody's in awarding Russia an investment grade rating. In September 2006, Standard and Poor's further upgraded Russia's sovereign rating.

• Despite the continued strengthening of world prices on commodity exports, many sectors are witnessing the slowdown in economic growth. According to the latest Rosstat estimates, industrial production grew by only 4.0 percent in 2005 and 4.2 percent in January-July 2006, relative to the same period of 2005. Downward trends have been particularly notable in the oil sector and tradable manufacturing goods. This appears to reflect the uncertain business and regulatory environment, particularly in oil, as well as significant increases in production costs due to the real appreciation of the ruble and high factor prices. The slowdown has heightened concerns within Russia about a loss of competitiveness in some branches of industry, and intensified debates over appropriate policy measures to address resource dependency and promote more diversified growth.

• Weaknesses in the microeconomic foundations of Russia's economic growth raise questions about sustainability. The investment climate in Russia still suffers from weak property rights enforcement, inadequate competition, barriers to migration, and problems in public governance. These problems find reflection in still low private investment levels and a marked slowdown in the growth of manufacturing in recent years. Their solution becomes increasingly critical to maintaining rapid growth as capacity and labor supply constraints increasingly bind in high growth regions and the ruble appreciates. Russia's high dependence on oil and gas, coupled with relatively low average productivity in manufacturing, complicates the realization of diversified growth and the effective integration into world markets.

• The Kremlin appears to have acknowledged concerns over the business climate, and has given indications of supporting measures that would limit the discretionary authority of the tax administration. The final government Medium Term Program for the Social-Economic Development of the Russian Federation (2006-2008) reiterates the basic commitment of the government for improving conditions for the private sector as the primary engine of growth and investment.

• Although domestic and foreign direct investment are still somewhat low relative to Russia's needs, investment has been growing even more rapidly than GDP in recent years, and has become an increasingly important source of economic growth. From a very low base in the late 1990s, fixed capital investment has grown at an average rate of 9 percent since 2000, as compared to 6 percent average GDP growth. According to the latest official estimates, fixed capital investment grew by 10.8 percent in January-July 2006 relative to the same period in 2005. A large share of investment (27 percent) is concentrated in energy and pipelines. But substantial investment has been important in some other sectors as well, and can be associated with substantial restructuring in many service industries, the food industry and some areas of machine-building. Inflows of direct foreign investment have picked up notably in recent years, reaching and estimated US$ 13 billion in 2005.