Russia

Internal Causes
o Fractionalization of the political spectrum: Russia has a multi-party system, there are some
differences in the political spectrum in terms of ideologies and policies. With federal
structure in place, there exists both the left and the right frontier. There is a potential risk in
this regard because although there are legislative elections going to held in 2021, but the
Presidential election are scheduled to take place in 2024. Hence, signaling no chance to
improve German-Russian trade relations.

Rating: 4/7

o Fractionalization by language, race, religion: Russians are mainly polytheists. In Russia,

there are approximately 185 ethnic groups speaking more than 100 languages including
Russian, which is the official state language. The majority of the population identified with
orthodox Christianity. Besides this, many other religious groups reside in the country like
Muslims, Buddhists etc. with such a diversity and social compositions, there persists a social
and ethnic harmony in the country thereby minimizing the risk in this context.

Rating: 6/7

o Restrictive measures to retain power: Although Mr Putin’s, who is the current President of
Russia, term runs until 2024, but due to his charismatic leadership and his synonymity with
state, any incidence triggering his departure would lead to political instability. Moreover, in
the polling conducted by the Levada Centre, a well-respected Russian pollster, indicates that
from mid-2018 to early 2019, popularity of both the government and the president have
fallen. The fact is also evident in 2018 Gubernatorial elections, United Russia, the party
closely associated with Mr Putin, performed poorly, hinting at rising popular discontent.
Hence, there are concerns with this variable which causes potential risks.

Rating: 2/7

o Xenophobia, nationalism, corruption: As per the 2018 survey conducted by Levada,

xenophobia seems to be high amongst 1,600 Russians over 18 years of age. Negative
attitude towards foreigners had surged since 2017, the highest spikes was witnessed for
Romans, Chinese and Vietnamese. In addition to this, more Russians had favor ethnic
discrimination against non-Russians in job and rental placements. The trend is expected to
continue for the next few years till there is a change in the government. Thus, it creates a
high risk for a German company to make an investment in Russia when Germany was the
first nation to impose sanctions on the counter party.

In Russia, the President has most of the constitutional power and there is no independent
Institutions. Weak governance mechanisms lead to high corruption in the country. To
mitigate this issues, Mr Putin has adopted a stridently nationalist course and appealed to
 memories of Soviet-era power to shore up domestic support. This had increased a
nationalist’s sentiments in the minds of the people of Russia. There are no signs that the
current scenario would change till 2024 and the German company investing would also face
challenges in this front.

Rating: 2/7

o Social conditions (population density and wealth distribution): Russia covers an area of
about 17 million sq. km (6.6 million sq. mile) with population of about 142.7 million. Its
population density is about 8.35 persons per sq. km. The country GINI index is less than 40
which is quite fair (GINI index measures the extent to which the distribution of income
among individuals or households in an economy or community deviates from a perfectly
level of distribution).

Rating: 6/7

o Strength of radical left: there is an existence of left front in Russia. It is a united front of
political organizations. This front strongly criticizes President Mr. Vladimir Putin and its
policies. They are against Russia’s stand on war in Ukraine. Since, Mr. Putin would continue
till 2024, his authoritarian style of governance would further radicalize this front’s
movement.

Rating: 4/7

External Causes
o Dependence on and/or importance to a hostile major power: In a recent survey by the
German-Russian Chamber of Commerce, where more than 140 companies had participated,
revealed that the German companies had suffered losses of more than €1.1B since the
sanctions had been imposed by the US. The actual amount to the German economy is way
larger when comprises of more than 4500 German companies operating in Russia.

The sanctions were imposed in the amidst of Ukraine crisis by both US and European Union
on Russian financial, energy and defense sectors which is hindering Russia's offshore field
development. Due to these sanctions, any firm engaging in these sectors cannot access both
US and EU capital markets. Russia also had responses with retaliatory sanctions on both
economies. These sanctions are expected to remain till 2023 since the new President is
elected in Russia. However, there is less chance of further increasing the sanctions to other
sectors as it would also affect US and EU investors and the world economy. Hence, current
US and EU sanctions had on one hand limits the market opportunities and on the other hand
increases the risk for a German investor making investments in Russia.

Rating: 1/7
 o Negative influences of regional political forces: The support from Germany to Ukraine since
2014 had brought bitterness in the relationship between the two countries (Germany &
Russia). The ongoing war between Ukraine and Russia which started in 2014 had led to
criticism of Russia from most of the countries of the world. In addition to this, Mr. Putin’s
decision to support Syrian President, Mr. Bashar al-Assad and the current Iranian regime had
put Russia negatively in the limelight of the world. It ties with its neighbor countries is
getting weaker with all its decisions and the sanctions imposed on it. Moreover, recent
moves from Russia which makes the process easier for the Ukraine separatist to take Russian
citizenship adds fuel to the fire. No corrective measures from Russia in this regard is likely to
be expected till 2023. Similarly, no change in the position of Germany to criticize Mr. Putin’s
foreign policies and with the continuation of the sanctions from both the sides increases the
risk specially for a German investor in Russia.

Rating: 1/7

Symptoms
o Societal conflict (demonstrations, strikes or street violence): There has been instances of
demonstrations against the government’s position on Ukraine and other policies like
increase in the pension age. The bleak economic prospects might lead to increase protests
against government. Additionally, there are worries about the risk of major social unrest
which some Russian officials believe could be orchestrated by the West. In Russia, most of
the media houses are owned by state and there is no free journalism. Despite Russia's
authoritarian environment, the regime remains responsive to public opinion. Russian civil
society retains its ability to coordinate and mobilise, and in certain circumstances it can push
officials to change policy.

Rating: 3/7

o Instability (non-constitutional changes, assassination, civil war): In Russia, most of the

major positions are appointed by the President, for instance, the Prime Minister, the Chief
Justice etc. Opponents and critics at home and abroad accuse Mr. Putin of weakening
Russia's institutions, halting democratic development and protecting some of the wealthy
elite. The weakness of most political and legal institutions as well as the governance system
of Mr Putin elevated uncertainty into the political arena. Moreover, there is so much powers
in the hands of Russian President that he could amend or implement any law by amending
the constitution.

Rating: 2/7