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In-depth PESTLE Insights
Publication Date: May 2009
This profile analyzes the political, economic, social, technological, legal and environmental structure in Russia. Each of the PESTLE factors is explored on four parameters: current strengths, current challenges, future prospects and future risks.
Russia has an established political structure, but corruption and crime still pose a problem Russian politics gained considerable stability after Vladimir Putin became president in 1999. Both political and economic reforms introduced under his leadership were well received, prior to the recent global crisis. In the presidential elections of May 2008, Dmitry Medvedev, previously the chief of staff and vice president under Putin, was elected as the new president. There was considerable support for Medvedev, as it was believed that he would undertake policies very similar to that of Putin. This was later proved when Putin was appointed prime minister in June 2008. With both Medvedev and Putin at the helm, Russia was expected to have the twin advantages of political stability and high economic growth. However, with the economic crisis, it is feared that the relationship between Prime Minister Putin and President Medvedev may not remain as harmonious as before, especially due to differences in opinion on ways to tackle the economic crisis. However, despite its established and seemingly stable political structure, Russia is considered to be one of the most corrupt nations in the world. According to Transparency International (TI), Russia scored 2.2 out of 10 in 2009 Corruption Perception Index (CPI), down from 2.3 in 2007, which is the lowest standing in the last eight years. The government has not been very effective in controlling increasing criminal activities and corruption, which could prove to be a major impediment for foreign investments.
Russia: Country Analysis Report – In-depth PESTLE Insights
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Strong current account surplus; however rising unemployment is a cause for concern Despite global slowdown, the Russian external trade showed tremendous growth with increasing current account surplus in 2009. In 2008, the current account surplus stood at around 7% of GDP. The country’s current account surplus came down from around $102 billion in 2008 to around $47 billion in 2009. According to Central Bank of Russia, the current account surplus increased by 250% to reach $33.9 billion in the first quarter of 2010, up from $9.7 billion in the same quarter in 2009. The rising unemployment level in Russia is currently posing a challenge to the government. The number of unemployed people rose from a level of 4.6 million in 2007 to more than 6.4 million in 2009, recording an unemployment rate of 8.4% in 2009. Despite improvements seen in real wages, high mortality rate still dogs the social system During 2007–08, increased economic growth in Russia stimulated an increase in real incomes and wages of the working population. The same trend continued in 2008, with the average real wages and real disposable incomes in the first four months increasing by 13.1% and 11.8% respectively compared to the same period in 2007. The growth in real wages, during the 2007–08 surpassed the real GDP and productivity growth. Furthermore, almost all sectors of the economy reported an increase in real wages of more than 10%. The largest increase was recorded in the public sector, retail trade and construction sectors, with growth in real wages up by around 17% compared to previous periods. The average monthly dollar wage increased to around $650 in the first four months of 2008, with a growth rate of 41% over 2007. Although, the real wages declined by 1.8% in first quarter of 2009, the disposable income grew by 4.5% during the same period. Furthermore, the average real wages again grew by 3.4% at the end of first quarter of 2010 and real disposable income grew by over 4%. The average monthly dollar wage increased to around $694 in the first four months of 2010. High mortality and morbidity among the Russian working population have become a huge challenge to economic and social development. The death rate in 2009 was an estimated 16 deaths per 1,000. As a result, supply constraints of labor are expected to become a major impediment to economic growth. Currently, Russia’s demographic crisis is considered more serious than that of Western Europe. Furthermore, the population has declined by six million since 1992 to an estimated 140 million in 2009. It is also expected that the population will fall by 30% by 2050. The high mortality rate is expected to exacerbate the problem of a decreasing labor force. Although Russia is renowned for its advanced space technologies, it is lagging behind in fundamental research Historically, Russia has been known for creating some of the most advanced space technologies in the world. The Russian space station, Mir, for example, has played a vital role in promoting international space stations in many space programs. The space agency is also a revenue generating body for the government, which has become more prominent with Russia taking up launching activities on a commercial basis. Furthermore, the country has started space tourism. However, the science and technology system in Russia has more recently been falling short of international standards mainly due to the structures of the old Soviet system exerting control over scientific streams. The chief problems of the system include language barriers, a weak network and co-ordination of activities, lack of active presence in international meetings, discrepancies in intellectual property rights and policies, political obstacles and differences among scientific bodies.
Russia: Country Analysis Report – In-depth PESTLE Insights
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Russia is increasing its access to international labor; however, the country is dogged with a weak judiciary After the end of the Soviet rule, a fall in population led to a decline in Russia’s labor efficiency for many years. This led to the need for foreign workers in various industrial sectors of Russia, which in turn caused the government to ease its immigration policy. The liberal immigration laws brought in many foreign workers, especially from the EU region; indeed, it was reported that the total foreigners who entered Russia rose to 14.5 million at the end of 2008. Immigration laws play a vital role for foreign direct investment (FDI) and, in Russia's case, they are presently adding to its strength. Aside from the immigration laws, Russia’s judicial system is relatively weak and unpredictable. Corruption is rampant among law enforcement bodies and judges, and court decisions are often difficult to implement. Many foreign investors have experienced problems executing judicial rulings and obtaining approval on contractual agreements. This is presently proving to be a major obstacle for FDI in Russia. Russia is well equipped with a good environmental management system, although lack of resources is a challenge Russia’s environmental management systems are well equipped with various levels of controls and streamlined monitoring systems. A three-tier executive federal governance body—which comprises federal ministries, federal services, and federal agencies—manages the environmental management system. Presently, the system plays a vital role in co-ordinating various conservation activities in Russia. However, the biggest challenge of the Russian government is its inability to tackle huge environmental problems that may arise due to military and other toxic wastes. The federal funds available for the disposal of solid fuel missiles are not sufficient to conduct any cleaning programs. Furthermore, in Russia there is also a scarcity of trained local staff to implement environmental regulations.
Political landscape • In July 2009, President Medvedev and Barack Obama reached an agreement to cut back their countries' stockpiles of nuclear weapons. Russia also supported the US decision to shelve controversial missile defense bases in Poland and the Czech Republic. • In April 2010, Ukraine and Russia signed an inter-governmental protocol on the supply of goods on industrial cooperation in 2010. The sides also signed protocols on cooperation in the aviation industry and on industrial policy. Economic landscape • Although, the country managed to maintain 6% growth in 2008, the Russian economy contracted by 8% in 2009. With the prevailing economic deterioration, the government has drawn policies to reduce budget deficit which was about 6% of GDP in 2009 to around 3% by 2012. • The insurance market in Russia has grown continuously for the last five years, despite sharp declines in the life insurance segment’s value since 2003. The Russian insurance market generated a gross premium income of $36.9 billion in 2008, representing a compound annual growth rate (CAGR) of 18.4% for the period spanning 2004-20–08.
Russia: Country Analysis Report – In-depth PESTLE Insights
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Social landscape • Income inequality in Russia has widened in the post-liberalization period. The difference between the 10% richest and 10% poorest among the population in Moscow was over 42 times in 2008 compared to 38.6 times in 2005. • Even though the country went through a severe economic crisis during 2009, the government was able to carry out large-scale anti-crisis measures without any cuts in social spending. The actual social spending increased by over 27% in 2009 compared to that of 2008. Technological landscape • Russia has been historically known for its excellence in space technologies and is one of the most successful countries with regards to its implementation of many space programs. The government has allocated more than $11 billion for the Russian Space Agency for the period 2006–15. • The country's IT market is presently the fastest-growing in the Central and East European (CEE) region. There is huge potential for IT spending by Russia's traditional industries to make their conventional systems of operations IT compliant. Legal landscape • The new government has set a long list of legal reforms which are expected to bring improvement to the country’s judicial system. • Russia has also agreed to various legal assistance programs from many countries to solve its domestic and international legal issues. Environmental landscape • The Russian government is planning to set up an effective security system to prevent pollution and man-made environmental disasters. The main tasks outlined by the government include implementation of environmental decisions consistently and completely, and the creation of an effective system for ecological security in the country.
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5 3. total as % of GDP Imports.7 31.3 19.1 28.9 29.7 10.2 3404 6.4 157 426.Overview Key fundamentals Table 1: Russia – key fundamentals 2008 2009 2010 2011 2012 2013 2014 GDP.2 18.8 140.5 18.4 138. constant prices ($bn) GDP growth rate (%) GDP.0 2930 8.3 3089 7.5 138.5 160 442.4 5.0 2832 10.4 8.6 4.1 9.3 4.4 152 417.4 19.7 6.4 3.6 -8.1 3006 8.7 4.7 28.5 2.9 31.0 6.7 17.8 136.0 137.4 4. (m) Unemployment rate (%) Doctors per 1.0 8.4 27.8 140.0 4. total as % of GDP Mid-year population. constant 2000 prices.7 3219 7.4 4.0 3064 13.7 139.3 133 396.000 people Mobile penetration (per 100 people) 431.8 26.0 2. per capita ($) Inflation (%) Exports.9 17.5 163 Source: Datamonitor DAT AMONITOR Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor.0 4.4 9.5 162 465.7 9. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 5 .0 20.4 144 408.
This brief is a licensed product and is not to be photocopied Published 05/2010 Page 6 .Table of Contents TABLE OF CONTENTS Overview Catalyst Summary Key facts and geographic location Key facts Geographical location PESTLE analysis Summary Political analysis Economic analysis Social analysis Technological analysis Legal analysis Environmental analysis Political landscape Summary Evolution Structure and policies Performance Outlook Economic landscape Summary Evolution Structure and policies Performance Outlook Social landscape Summary Evolution Structure and policies Performance 1 1 1 10 10 11 12 12 13 16 20 23 26 29 32 32 32 35 40 42 43 43 43 45 47 61 62 62 62 62 65 Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor.
This brief is a licensed product and is not to be photocopied Published 05/2010 Page 7 .Table of Contents Outlook Technological landscape Summary Evolution Structure and policies Performance Outlook Legal landscape Summary Evolution Structure and policies Performance Outlook Environmental landscape Summary Evolution Structure and policies Performance Outlook APPENDIX Ask the analyst Datamonitor consulting Disclaimer 68 70 70 70 70 71 75 77 77 77 77 81 82 83 83 83 83 86 87 88 88 88 88 Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor.
2002–13 Figure 19: Education expenditure in Russia. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 8 . 2002–13 Figure 21: Internet users in Russia. 2002–08 Figure 15: Consumer price index (CPI) and CPI-based inflation in Russia. 2007 Figure 6: Evolution of GDP growth in Russia. 2009 Figure 9: Agricultural output in Russia. 2002–13 Figure 16: Employment in Russia. 2002–09 Figure 12: Current account balance in Russia. 2002–13 Figure 17: Major religions in Russia Figure 18: Healthcare expenditure in Russia. 2002–13 Figure 8: Sector specific GDP in Russia. 2001–08 Figure 13: Russia’s external trade position.Table of Contents TABLE OF FIGURES Figure 1: Map of Russia Figure 2: Unemployment in Russia. 2002–13 Figure 20: Growth of fixed and mobile phones in Russia. 2002–13 11 17 33 35 38 45 48 49 50 51 52 54 55 57 59 61 64 66 68 72 73 75 87 Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. 2002–09 Figure 10: Industrial output in Russia. 2002–13 Figure 22: R&D expenditure in Russia. 2002–09 Figure 14: FDI inflow in Russia. 2002–09 Figure 11: Services output in Russia. 1990–2009 Figure 7: GDP and GDP growth rate of Russia. 2002–13 Figure 3: Russia’s political events timeline Figure 4: Russia – Key political figures Figure 5: Distribution of seats by political parties in the Duma. 2000–10 Figure 23: Carbon dioxide emissions in Russia.
This brief is a licensed product and is not to be photocopied Published 05/2010 Page 9 .Table of Contents TABLES Table 1: Russia – key fundamentals Table 2: Russia – key facts Table 3: Analysis of Russia’s political landscape Table 4: Analysis of Russia’s economic landscape Table 5: Analysis of Russia’s social landscape Table 6: Analysis of Russia’s technology landscape Table 7: Analysis of Russia’s legal landscape Table 8: Analysis of Russia’s environmental landscape Table 9: Mid-year population by age (m) in 2009 Table 10: Patents received by Russia – 2000–08 Table 11: International environmental treaties signed and ratified by Russia 5 10 13 16 20 23 26 29 63 71 86 Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor.
chemicals and military equipment.1% Major religions (1995 census) Russian orthodox – 20% Muslims – 15% Other Christians – 2% None – 63% Country area Language Exports 17.14 years (women) Ethnic composition (2002 data) Russian 79.075. medicines.33 years (men) 73. DAT AMONITOR Imports Source: CIA Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. Bashkir 1.03 years (total population) 59. meat. and semi-finished metal products.1% and other unspecified 12. natural gas. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 10 .04 million Currency Ruble (RUB) GDP per capita (PPP) $15. Chuvash 1. wood and wood products. Ukrainian 2%. Tatar 3. metals.8%.ru Demographic details Life expectancy 66.Key facts and geographic location KEY FACTS AND GEOGRAPHIC LOCATION Key facts Table 2: Russia – key facts Country and capital Full name Capital city Russia Moscow Government Government type Head of state Head of government Federation President Dmitry Anatolyevich Medvedev Prime Minister Vladimir Putin Population 140.200 sq km Russian Major exports include petroleum and petroleum products.2%. consumer goods. sugar.100 Internet domain . Machinery and equipment.8%.
between Europe and the North Pacific Ocean.Key facts and geographic location Geographical location Russia is located in Northern Asia. Figure 1: Map of Russia Source: CIA The World Factbook DAT AMONITOR Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 11 . The country also borders the Arctic Ocean.
Also. The economic conditions deteriorated in 2009. The environmental management system in Russia lacks resources to tackle the environmental problems of the country. witnessed political stability under Prime Minister Vladimir Putin and President Dmitry Medvedev. the country has not been very successful in registering patents over the years for its products. Russia has also entered into various legal assistance programs with many countries around the world. To mitigate the effects of these problems. the government is set to introduce an environmental security system to enhance environmental protection and conservation. but contracted by 8% in 2009. Despite an increase in real wages. The Russian judicial system has been very ineffective and weak since the fall of the USSR. came into existence after the disintegration of the Union of Soviet Socialist Republics (USSR. and after a seven-year transitional period of numerous market reforms. the country has introduced many reforms which are expected to bring improvements in the system. the country is also seen as one of the leading IT destinations of the future. a rise in food prices has drastically affected the poor in Russia. in its present form. Russia has been one of the most successful countries in implementing ambitious space programs. However. However. as unfair competition practices are hampering the entry of foreign direct investment (FDI) into the country. also known as the Soviet Union). The Russian population is among the most highly educated in the world. The country has also signed various international environmental treaties to participate in environmental conservation. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 12 . Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. corruption and crime remain two significant impediments to the smooth functioning of the state. the mortality rate in the country is still very high among the working population. In addition to its advances in the space sector. Government finances and the balance of payments came under pressure along with the fall in oil prices and as a result the economy went into a recession. In addition. the government has plans to implement certain reforms and streamline funds for social development in the near future. However. Russia gradually opened up its economy.PESTLE analysis PESTLE ANALYSIS Summary Russia. The Russian economy grew at a rate of 8% in 2007.
The new government had promised to continue with economic reforms and thereby cohesively integrate the Russian economy with the rest of the world. Under Mr. The continuity in policies has been main reason for the country to come back to growth in 2010. From that point. in April 2010. As such there was considerable support for Medvedev and belief that the new president would undertake policies very similar to that of Putin’s. both political and economic reforms undertaken under his leadership have taken the country on a growth path. especially Georgia have deteriorated. Medvedev was previously the chief of staff and also deputy prime minister under Putin’s rule. Putin elicited little opposition and his approval rating rarely fell below 70%. The president. which haunts all the governmental agencies of Russia. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 13 . Moreover. Overall. Table 3: Analysis of Russia’s political landscape Current strengths ▪ Continuity in polices ▪ International integration Future prospects ▪ Growing international relations Current challenges ▪ Corruption and crime ▪ Terrorism Future risks ▪ Pressure from bureaucracy Source: Datamonitor DAT AMONITOR Current strengths Continuity in policies Russian politics gained considerable stability after Vladimir Putin became the president in 1999. Dmitry Medvedev was elected as the new president. continues to be a serious challenge to the country. Medvedev has followed similar line of policies that the previous administration had followed. its relations with its neighbors.PESTLE analysis Political analysis Overview The Russian political system was reinvigorated by the election of Dmitry Medvedev as the new president and Vladimir Putin as the prime minister. deteriorating economic conditions have brought fresh challenges for the present government. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. Since his election as the president. Putin served as the president for almost three full terms and implemented effective reforms to bring the country out of economic and political turmoil. This was later proved when Vladimir Putin was once again appointed as prime minister of the country in June 2008. However. went in for a greater international integration in all spheres starting from industry. These policies have also been welcomed by the new president. R&D and environment. In the presidential elections of May 2008. Putin's leadership. The president also initiated an agreement with Japan to step up cooperation in energy development in the Middle East and Eastern Siberia. Moreover. the Russian economy had boasted an annual growth rate of almost 7%. the reforms undertaken by Mr. corruption and crime.
The government has not effectively monitored and controlled these criminal and corrupt practices. Russia was in 146th place in 2009. transnational trade. These are proving to be significant impediments for the effective implementation of government policies in Russia. metal industry. and R&D development. The country entered into several bilateral agreements with China. Corruption remains a barrier to foreign investments and negatively affects the country's economic development. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 14 . According to a survey conducted by the Council of Europe (CoE). by giving more support to the rapidly growing middle class. falling from 143rd place in 2007. nearly 80% of businesses in Russia are paying some form of bribes to many state-run agencies. According to Transparency International (TI). The government blamed Muslim militants from the North Caucasus as the cause for the attack. and public procurement. according to a survey carried out by the World Bank. Iran.PESTLE analysis International integration Russia came out of a strict socialist regime to become a more economically open society during 1991–2009. Throughout this period. The country is also in talks with Ukraine for an economic integration program in near future. Furthermore. financial services. Current challenges Corruption and crime Russia is ranked as one of the most corrupt nations in the world. Through this strategy. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. Out of the 180 countries surveyed in terms of Corruption Perception Index (CPI). which is its lowest standing in the last eight years. commercial services. down from 2. customer fraud (20%) and counterfeiting of money or securities (7%). The main goals of the Russian government during this period were to not only bring about a qualitative economic change in the country but also to transform the social structure of the Russian society. The country has been on high alert on terrorist activity since then. and its performance with respect to corruption has worsened. This is currently posing severe threats to national security in the country.2 out of 10 in 2009 Corruption Perception Index (CPI). In March 2010. as well as consumer goods. economic crimes committed in Russia include political fraud (13%). more than 25 people were killed when a bomb blast caused the derailment of a Moscow-St Petersburg express train.3 in 2007. More than 40 terrorists were suspected to have taken part in the attack and as of March 2010. environmental issues. Russia has scored 2. Japan. Terrorism The terrorist activity has always been a concern in the country and has gained strength during 2009 and 2010. The council has also reported that criminal organizations in Russia have largely targeted the fuel and energy sector. the US and many other European nations during the course of 2009 and 2010 in many spheres such as energy. The Russian government has initiated free market exchange with many European countries and is on course to open its markets for many more countries around the world. 39 people were killed and more than 60 were injured in two suicide bomb attacks on the Moscow Metro. Russia has endeavored to closely integrate itself with the international community. 10 were arrested. resulting in large investments pouring into the country. the government has been instrumental in shaping Russia’s new long-term economic policy by relying on fully-fledged international integration and comprehensive modernization of key industries and infrastructures in the country. Increasing criminal activities is another factor restricting governmental effectiveness in the country. embezzlement of funds (13%). In November 2009.
which slows down co-ordination among government agencies. an international association of various countries which was rechristened as the G8 after Russia’s induction. As corruption is widespread in state agencies. as witnessed during the G20 meeting in April. The BRIC summit is expected to unite these major economic growth centers to increase their role in international affairs. 2009. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. unofficial payments for licenses and state procurement contracts are common. especially after its induction to the G7. relations between Russia and NATO and security issues in the Black Sea region. In a historic event for the reduction of the nuclear stockpile. Russia has also emerged as the representative voice of the BRIC nations. This agreement is a welcome sign for both the countries. India and China) summit in Yekaterinburg in May 2008. Future risks Pressure from bureaucracy Since the end of Soviet rule. Russia. including the situation around the Conventional Forces in Europe Treaty (CFE). convening a high-profile gathering of four nations with vast resources but differing interests. both the US and Russia signed a new strategic arms agreement in April 2010. The main areas of focus included a number of regional and international problems.PESTLE analysis Future prospects Growing international relations Russia has a strong presence in the international political arena. Russia’s bureaucratic structures and state administration has been under the control of the ruling party. Furthermore. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 15 . the country also held talks with Turkey in May 2008 to improve its bilateral relations with the country. There is no clear division of functions and responsibilities among various governmental institutions. This is an outline agreement to cut back their countries' stockpiles of nuclear weapons by more than 30%. All these initiatives are expected to enhance Russia’s position in the international arena. Russia also hosted the BRIC (Brazil. The number of corrupt employees in public administration is also a continued problem and has decreased the efficiency of governance in the country.
5% of GDP in 1998 to a surplus of 12% of Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. the country went into a recession in 2009. Table 4: Analysis of Russia’s economic landscape Current strengths ▪ Successful economic reforms ▪ Strong current account surplus Current challenges ▪ Unemployment ▪ Dependence on foreign money Future prospects ▪ Comfortable foreign exchange reserves ▪ Growing foreign investments Future risks ▪ Decreasing budget surplus ▪ Adverse balance of payments Source: Datamonitor DAT AMONITOR Current strengths Successful economic reforms Russia's adoption of institutional developments and market reforms in 1998 has been beneficial for the country. The global economic slowdown gripped the Russian economy too. Improved competitiveness and higher oil prices facilitated a dramatic turnaround in the current account. the economy revived quickly during the first quarter of 2010 and posted a growth rate of over 3%. The Russian economy continues to suffer setbacks in the form of low oil prices. During 1999–2007. The Russian economy has been growing by 6–7% per year during 2000–07 and the GDP surpassed the pre-crisis level of 1991. touching around 8% in 2007 but fell back to 6% in 2008. The growth rate however is expected to recover to positive terms in 2010. However. The reforms implemented by the government have led to closer integration with the world economy. The economy’s successful run since 1999 came to an end in 2008 with the mounting economic crisis. due to global economic crisis. the country had one of the highest growth rates. from a deficit of around 0. Diversifying the structure of the economy and improving the market's institutional environment are the two main reforms that the country is currently implementing. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 16 . and the economy went into recession with a negative rate of 8% in 2009. a lower inflow of capital and tighter credit conditions coupled with bad corporate debt. allowing it to recover from a crisis situation. However. Large scale government expenditure and the devaluation of the ruble have posed fresh challenges to government finances and the balance of payments.PESTLE analysis Economic analysis Overview Russia liberalized its economy in the 1990s and reaped huge benefits. Strong current account surplus Russia has maintained a current account surplus position since 2000. the efficiency of state regulation is being raised and human capital assets are being developed through responsible social policies. with an ever-increasing economic growth for nearly nine years. Mutual relations between government agencies and business organizations are becoming more transparent.
The government’s intent to join hands with other Asian nations to conduct exploration in Middle East nations. 2002–13 8.9 billion in the first quarter of 2010. During global economic crisis. the current account surplus stood at around 7% of GDP. A year later.6 million in 2007 to more than 6. the government has initiated measures to reduce unemployment. may also cause a hit to domestic employment in the country.0 4. up from $9. A strong and consistent current account surplus implies a very strong international trade in the country.0 Rate of unemployment (%) 6.0 Source: Datamonitor DAT AMONITOR Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. recording an unemployment rate of 8. the current account surplus increased by 250% to $33. in March 2010.4% in 2009.1 million people in February 2009. the rate at which it is growing is a cause for concern.0 2.7 billion in the same quarter in 2009.0 5.0 3.0 10.4 million in 2009. It is expected that the unemployment rate would go beyond 9.0 2. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 17 .PESTLE analysis GDP in 1999.0 Number of unemployed (millions) 12.0 4. Figure 2: Unemployment in Russia. Although.0 1.0 6.7% by 2013. Current challenges Unemployment The rising unemployment level in Russia is currently posing a challenge to the government. instead of Russia.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year Total unemployment Rate of unemployment (%) 8.0 7. According to Central Bank of Russia.4 million. The number of unemployed people rose from 4. The country’s current account surplus came down from around $102 billion in 2008 to around $47 billion in 2009. unemployment reached a maximum of 7. In 2008.0 0.0 0. unemployment totaled 6.
and despite the economic slowdown.3 billion in Q4 2009 which gives good indication that the capital markets are picking up in the country. The FDIs into Russia grew from $55 billion in 2007 to more than $70 billion in 2008. Russia is better placed in terms of external reserves than many other countries that are fighting the economic crisis. This has helped in arresting the flight of the ruble. the CBR changed its ruble policy by introducing “mini devaluations” against the basket. of around 1% per step. Furthermore. It was reported that around a third (37%) of the $140 billion foreign debt of the banking sector matures after mid-2011. the deficit reached 5.9% of GDP in 2009. Future risks Decreasing budget surplus The budgetary balance in Russia has been decreasing in the past few years due to increased social expenditure. the slowdown has exerted pressure on government finances. Furthermore. Although the country's foreign exchange reserves fell from $575 billion in July 2008. the foreign investments in to the country have not fallen. The total depreciation to the basket since November 2008 reached around 34% by February 2009. Japan’s investments in the Russian economy doubled to $8. Future prospects Comfortable foreign exchange reserves Russia’s foreign exchange reserves on December 31. An increasing deficit is largely due to Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. However. faced with a rapidly falling trade surplus. The Russian banking sector has been one of the most fragmented banking sectors of the world with many localized banks in place. because of which sector ran into crisis during 2008–09 as the supply of foreign refinancing dried up and the interbank Russian Ruble interest rates doubled in a matter of months.5% of GDP in 2007.3 billion in 2009 in spite of the difficulties of the crisis period. With large scale government expenditure along with a fall in oil prices. 2009 stood at $439 billion. the net capital inflow amounted to $10 billion in the first quarter of 2010 against a net capital outflow of $8.5% of GDP in 2006 to around 5. according to the Economic Development Ministry. is highly dependent on foreign money. This was mainly due to effective government support to revive economy out of recession which has gained foreign trust. During 1999–2009.6 billion. In November 2008. it managed three devaluations per week and four by mid-January 2009. The Central Bank of Russia (CBR) has intervened in the market to stabilize the value of the ruble. The government along with the central bank has to clearly formulate policies to restrict the dependency on foreign funds of the economy. the collapse in the world market price of oil destroyed market confidence in the Ruble. Furthermore. Furthermore. a consistent share of banking sector growth has been due to high borrowing from abroad.PESTLE analysis Dependence on foreign money The Russian economy historically has been dependent on two external factors. The budget balance decreased from around 7. Growing foreign investments Despite the dire economic situation. All these factors apparently make the financial sector open to risk. which will be the first deficit in a decade amounting to $79. It gained speed in following weeks and by December 2008. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 18 . in particular.1% of GDP in 2008. the government managed a surplus of 4. As a result there has been low trust. One being the price of oil and the other is the status of international financial markets. poor supervision and relatively small share of foreign banks. the interbank market. for which the sector has to ready funds.
it suffered a setback because of its excessive dependence on oil for its export income. Although. lower oil prices will also reduce export revenues. the trend is not expected to be consistent. The country’s central bank had expected a deficit in 2008. At the same time. The scenario will have an adverse impact on the balance of payments. its magnitude has declined. In 2008. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 19 . but due to the gradual devaluation of the ruble.PESTLE analysis increased unemployment. Although the measure was successful in lowering imports. It is expected that the decrease in tax revenue will further put pressure on the budget balance. it went up in first quarter of 2010 to $33 billion from $9 billion last quarter 2009. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. Though Russia has continued to post a current account surplus. It is dependent on imports for most of its consumer and capital needs. which depreciated about 34% against the dollar-euro bi-currency basket. pension and healthcare expenditures. Adverse balance of payments Russia has failed to develop itself into a well diversified economy. the current account balance stood at around 7% of GDP. The country’s current account surplus came down from around $102 billion in 2008 to around $47 billion in 2009. it posted positive figures.
with under-qualified doctors and corrupt officials undermining the quality of treatment. Russia faces a severe demographic challenge resulting from low birth rates. The largest increase was recorded in the public sector. Moreover. poor medical care. it is inefficient. Though the system is well decentralized in the country.PESTLE analysis Social analysis Overview The social welfare system in Russia went through turmoil after the fall of the USSR. Table 5: Analysis of Russia’s social landscape Current strengths ▪ Improvement in real income and wage levels ▪ Educated population Future prospects ▪ Revamp of social security benefits ▪ National welfare fund ▪ Tax benefits to healthcare and education Current challenges ▪ High AIDS rate ▪ High mortality rate Future risks ▪ Widening income inequality and rising poverty ▪ Increasing spread of the AIDS epidemic Source: Datamonitor DAT AMONITOR Current strengths Improvement in real income and wage levels During 2000–08. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 20 .5% during the same period. with growth in real wages up by around 17% compared to previous periods.8% in first quarter of 2009. the disposable income grew by 4. The same trend continued in 2008. Almost all sectors of the economy reported an increase in real wages of more than 10%. and a rising AIDS problem. with a growth rate of 41% over 2007. The average monthly dollar wage increased to around $694 in the first four months of 2010. the average real wages again grew by 3. during the 2007–08 surpassed the real GDP and productivity growth. Besides tackling the economic crisis. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. with the average real wages and real disposable incomes in the first four months increasing by 13. the real wages declined by 1. rising unemployment and poverty are still some of the challenges. A weak healthcare system is one of the biggest challenges faced by Russia currently. The average monthly dollar wage increased to around $650 in the first four months of 2008.4% at the end of first quarter of 2010 and real disposable income grew by over 4%. retail trade and construction sectors. Furthermore. Although. The growth in real wages. increased economic growth in Russia stimulated an increase in real incomes and wages of the working population.8% respectively compared to the same period in 2007. the government also needs to implement urgent measures to meet the challenges emerging from low birth rates and a shrinking working age population. The human capital quality of Russia also compares unfavorably with other nations at the same level of development.1% and 11.
One of the strongest facets of the Russian education system is that a majority of the schools are in rural areas compared to urban areas. Furthermore. It is also expected that the population will fall by 30% by 2050. More than 500. It is reported that the AIDS rate is 0. These positive signs and the government's continued focus will. The government will also boost financial support for the disabled and World War II veterans. It is estimated that this could increase in coming years as the government is not taking necessary steps to control the disease.000. The AIDS rate is growing in Russia. the Russian government announced that it will consider tax breaks for private enterprises in the education and healthcare sectors and expects to benefit from an eastward shift in investment. To this end.000 primary and secondary schools and more than 82. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 21 .4% for the total population. Future prospects Revamp of social security benefits In May 2008. the Russian government announced an increase in social security benefits. and it was more than 1% in Russia. coupled with a poor healthcare system and rapidly deteriorating AIDS situation. It is estimated that there have been more than 60. in the long-term. the government has increased pension payments by 15% since August 2008. The country has more than 70. then. with country registering 49.000 pre-schools. The death rate in 2009 was an estimated 16 deaths per 1. It is expected that the due to increased debt and the tax burden in developed countries. the population has declined by six million since 1992 to an estimated 140 million in 2009. Currently. and 55. further enhance social development in Russia. according to the health department. Furthermore. Furthermore. supply constraints of labor are expected to become a major impediment to economic growth. Tax benefits to healthcare and education In January 2010. not only shows the low level of healthcare services in the country but also poses the problem of a decreasing labor force. and also provide them with housing and other basic amenities. The government reported that it would continue with this strategy until 2011. As a result.000 Russians have contracted the infection. the foreign investment flows would be increasingly towards eastern Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. healthcare and housing programs.PESTLE analysis Educated population Russia has one of the most highly educated populations in the world. Current challenges High AIDS rate Russian society reflects unfavorable trends of both the developed and developing worlds. The high mortality rate.000 registered AIDS cases in 2009. making education accessible to all areas of the country. The high literacy rate signifies that there is a large educated workforce in the economy.000 HIV cases in 2007. child tax exemptions for individuals will be increased from $26 to $35 and the revenue accrued would be allocated to education. at 99. The country is challenged with an ageing population.3% of adult population in Western Europe. Russia’s demographic crisis is considered more serious than that of Western Europe. the literacy rate in Russia is one of the highest in the world. High mortality rate High mortality and morbidity among the Russian working population have become a huge challenge to economic and social development.000 in 2008.
7 million citizens were below the poverty line as of third quarter of 2009. the desired result has not yet been achieved. Between January and March 2008. Increasing spread of the AIDS epidemic The emergence of an AIDS epidemic is a real possibility in the near future. Some predictions suggest that up to 5% of the population could be infected within the five year period of 2007–12.7 million in 2009) to fight the disease. According to the estimates released by the Russian federal AIDS center. the Gini coefficient was 0. the government intends a plan of a full profit-tax exemption for private businesses linked to human capital.56 billion. and credit originations.PESTLE analysis countries. Along with rising income inequality. National welfare fund The Russian government reported a national welfare fund of around $33 billion in April 2008. The prolonged existence of such conditions is expected to give rise to a social crisis. The living conditions of Russians are set to deteriorate with the economic slump. This would not only increase the social infrastructure in the form of new investments but also will provide more access to healthcare and educational facilities. If the experience of Sub-Saharan Africa is any kind of indicator.000 in 2008. and has come despite the government’s increased expenditure of around RUB400 million ($13. According to the Russian Statistics Service. sovereign bonds of chosen developed countries. However. unofficial sources claim that more than a third of the Russian population is living in poverty. According to the Federal State Statistics Agency (Rosstat). which would be beneficial to Russia. For instance. the economic impact of AIDS on Russia could be devastating.000 HIV cases in 2007 and 55. 19. the equivalent of $91.29 when the Soviet Union collapsed.77 trillion. Future risks Widening income inequality and rising poverty Income inequality in Russia has widened in the post-liberalization period.42 at the end of 2008. Moreover. foreign banks. Russia registered 49. the government reported earnings of $290m which has been put to use for social development.000 by the end of 2009. the National Welfare Fund reached RUB2. the difference between the 10% richest and 10% poorest among the population in Moscow was 42 times in 2008 (compared to 41. In addition. the figure is expected to have reached over 60. compared to 0. As of January 1st. Given the current weaknesses of the health infrastructure and the recent sharp increases in the usage of intravenous drugs. Russia also faces a severe housing shortage. income inequality has been sharper in the cities of Russia. 2010. It is reported that revenue generated from these sources would be used to develop the social infrastructure of the country.6 times in 2005). poverty is also on a rise in Russia. with about 7% sharing living space with other households and one in two people having less than 10 square meters (108 square feet) per capita. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 22 . With the view of attracting more investment into the social sector. which is 14% of the population. This amounts to an over 12% increase compared to 2007 and 2008. The national welfare fund is being judiciously invested into foreign currency bonds. there could be a potentially disastrous escalation of infection rates.7 times in 2006 and 38. Despite an increase in investment to combat the disease. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. such as healthcare and education. The national welfare fund represents long-term motivated planning by the Russian government to bring social change in the country.
The government had allocated more than $11 billion for the Russian space agency for the period 2006–15. with a lack of proper resources and funding. Nevertheless. Furthermore. the government announced that it is investing RUB1. the country is beginning to position itself as the next destination for IT sector investments. The Arctica satellite constellation will monitor the weather and environment of the North Pole. the science and technology system in Russia is weak.5 billion rubles (around $50 million) to flag off a unique satellite system to monitor climatic changes and survey energy resources in the Arctic region. For example. the country does not have enough patents registered in its name. the country lacks expertise in fundamental research. Japan. It is also a revenue-generating body for the government. Although Russia is part of the G8. However. and has always provided a regular flow of funds for the development of advanced space technologies. Russia plays a key role in developing space technologies. in April 2010. India and China. provide telecommunications over the hard-to-access areas and ensure safe air traffic and commercial shipping in the region. This has become more prominent in recent years. Mir. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. is playing a vital role in helping international space programs. Table 6: Analysis of Russia’s technology landscape Current strengths ▪ Advanced space technologies Current challenges ▪ Poor performance on patents ▪ Weak science and technology systems Future prospects ▪ Increasing presence of IT sector ▪ Increasing number of skilled workers ▪ Military technologies helping the farming sector Future risks ▪ Piracy and poor infrastructure Source: Datamonitor DAT AMONITOR Current strengths Advanced space technologies Russia has historically been known for creating some of the most advanced space technologies in the world. Furthermore.PESTLE analysis Technological analysis Overview Russia has historically been known for its excellence in space technologies and is one of the most successful countries in terms of its implementation of many space programs. the Russian space station. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 23 . with Russia taking up commercial launching activities and starting a space tourism program. Along with several international treaties with the US. pinpoint hydrocarbon deposits on the Arctic shelf.
Increasing number of skilled workers Russia is slowly emerging as one of the countries with the highest number of skilled workers in S&T areas.PESTLE analysis Current challenges Poor performance on patents For many years. Russia has been performing badly in terms of registering patents for the technologies it develops. The chief problems of the system include language barriers. It is expected that this number will rise to 45 million by 2020. The figures were as low as 204 patents in 2008. This provides a strong base for future technological development and R&D in the country. political obstacles and differences among scientific bodies. weak co-ordination of activities. which then form into rain or snowflakes.691 patents for the same period. Russia is witnessing a great increase in the sales of computers due to the government investments in several IT-based programs in the country. These factors provide strong incentives for international vendors to invest in Russia. a special aircraft will carry liquid nitrogen and silver compounds (dry powder cement) and spray it over certain parts of the clouded sky.8 billion in 2009. which registered over 93. a lack of active presence in international meetings. Russia’s share in tradable international patents has also remained low. When this combination touches a cloud. Future prospects Increasing presence of IT sector Although Russia has historically been a significant producer of oil. this is particularly significant when compared to the US. This unique technology is soon Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. the US had around 35 million skilled workers out of 300 million people in 2007. There is huge potential for IT spending by Russia's traditional industries to make their conventional systems of operations IT compliant. In comparison. the French and German markets grew with CAGRs of 7. This is largely due to efforts being concentrated completely on space and military technologies. Weak science and technology systems The science and technology (S&T) system in Russia has been falling short of international standards mainly due to the structures of the old Soviet system exerting control over scientific streams. it will accumulate particles of the cloud. It is expected that the total size of the Russian IT market will increase to around $18 billion by 2012. which is considered to be one of the most advanced technologies capable of artificially producing rain. Adding to these reasons. discrepancies in intellectual property rights and policies. The Russian software market generated total revenues of $3. the country is now going through a diversification process. corruptive practices further deteriorate the system from harmonious functioning. Comparably. signifying a better ratio. representing a compound annual growth rate (CAGR) of 20. The country's poor performance in terms of patents has been a worrying factor for the government's science agencies.2% and 5. According to government sources. Military technologies helping the farming sector The Russian military and air force have created a cloud-dispersal aircraft in 2008. The country's IT market is presently the fastest-growing in the Central and Eastern Europe region.9% for the period spanning 2005–09.2% respectively. Under this. Furthermore. Russia has around 30 million skilled workers out of 140 million population. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 24 .
With the government streamlining funds more towards social and military development. According to the International Intellectual Property Alliance (IIPA). which indicates that there is rampant piracy in the country. Furthermore. This is one of the worrying factors that prevent many foreign investors from starting any exclusive R&D centers in Russia. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. it was reported that business software losses due to piracy amounted to more than $2.3 billion in 2008. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 25 . Russia continued to be on the priority watch list of IIPA. Future risks Piracy and poor infrastructure Russia is considered to have one of the highest rates of piracy. Russia reportedly had piracy rates of 68% in business software in 2008.PESTLE analysis going to be commercialized and is considered to be of great importance for both domestic and other international droughtprone areas. there have not been any significant efforts to build the scientific infrastructure of the country. Another factor impeding investment is that although there has been economic growth. there are no sign of any efforts towards the future up-gradation of the scientific infrastructure and patent laws in Russia.
Table 7: Analysis of Russia’s legal landscape Current strengths ▪ Conducive FDI policies ▪ Easy immigration policy Future prospects ▪ Judicial reforms ▪ International co-operation for legal assistance Current challenges ▪ Weak judicial system ▪ Unfair competitive practices Future risks ▪ Slowdown of structural reforms Source: Datamonitor DAT AMONITOR Current strengths Conducive FDI policies The Russian government has put in place policies which favor foreign direct investment (FDI). The liberal immigration laws brought in many foreign workers. Local laws are also being amended to suit the needs of foreign investors. Russia has also agreed to various legal assistance programs from many countries to solve its domestic and international legal issues. which have made the system unreliable. and special tourist regions to encourage foreign investment. The jump in FDI in Russia before the economic crisis set in is reflective of the impact of such policies. unfair competition practices are hampering the entry of FDI into Russia. In addition. both federal and regional governments are establishing special economic zones and high-technology parks.75 billion. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. FDI inflows for 2004 were $28. the country has set a long list of legal reforms during 2008. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 26 . It was reported that the number of legal foreign workers in Russia reached eight million at the end of March 2008.PESTLE analysis Legal analysis Overview The Russian judicial system has suffered from corrupt officials and practices. This led to the availability and provision of employment opportunities for foreign workers in various industrial sectors of Russia. Easy immigration policy After the end of Soviet rule. The 1991 Investment Code guarantees foreign investors rights equal to those of Russian investors. to lure foreign investors. especially from the EU. which are expected to improve the country’s judicial system. an increase of 20% from the previous year. Russia’s labor efficiency decreased with a corresponding fall in population for many years. However. but reached $70 billion in 2008. Moreover. while the 1999 Law on Foreign Investment also follows this principle of equal treatment. The immigration laws play a vital role for FDI and in Russia they are presently adding to its strength.
Russia created competition laws and bodies based on the laws prevailing in western countries. Unfair competitive practices After the Soviet era. According to the Russian ministry of justice. International co-operation for legal assistance Russia is extending its relationships with the international community to gain legal assistance in various civil and criminal cases. on a number of occasions. is keen on implementing judicial reforms in the country. the judicial system is also under-funded. This is mainly due to the influence and corrupt practices of large monopolies which wield power among the authorities. The selective application of these laws often results in the restriction of competition. Many foreign investors have experienced problems executing judicial rulings and obtaining approval on contractual agreements. along with the judicial heads and ministry of justice. many criminal organizations in Russia have gained access to sensitive information from companies and used it against them. In some situations. Future prospects Judicial reforms The present government. and court decisions are often difficult to implement. These unfair practices have become a barrier to investment in Russia. smaller companies with less influence face tough competition laws. the EU allocated E3 million for measures intended to boost the efficiency of the enforcement of court rulings in Russia. Russian authorities tend not to follow a consistent approach to competition. The president has also considered an immediate course of action to implement a special training and education program for all of the judges to discourage them from indulging in corrupt practices. Also. Furthermore. Russian competition policy often differs from the norms familiar to foreign firms in the western world. the agreement has already been co-ordinated at the level of judicial bodies and is passing coordinating procedures in the legal institutions of the countries. in December 2009. The new law stringently addresses issues related to damages borne by the citizens and compensations regarding the violations of their rights. the president. Furthermore. As part of this. This makes judicial processes in Russia highly inefficient. headed by Dmitry Medvedev. reached a consensus on the implementation of a new law. understaffed and extremely slow in implementing decisions. experienced discrimination in obtaining licenses from local authorities. In one such move.PESTLE analysis Current challenges Weak judicial system Russia’s judicial system is still relatively weak and unpredictable. Furthermore. The president held a special meeting in July 2008 to procedurally implement a phased reform of the judicial system. Foreign investors have been forced to pay several fees by local governments and have been offered less favorable terms to develop their projects. foreign investors have. the country is also entering into other similar Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. Corruption is rampant among law-enforcement bodies and judges. The implementation of these reforms is expected to bring in positive changes in the Russian judicial system. There are also extended court sessions and judicial delays for many cases. As a result. the country entered into a legal assistance program with Japan in mid-2008. however. leading to the failure of products. exacerbating the situation. Furthermore. local interest groups have influenced authorities. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 27 . In practice.
The Russian governance system has been accused of a lack of transparency. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. Moreover. If the legal regime continues to remain unreliable. Future risks Slowdown of structural reforms following economic crisis Although the investment climate in Russia has improved following liberalization. Since the Russian government has begun to intervene to support various sectors. there are apprehensions that the functioning of government entities will lose transparency even further. the slow pace of structural reforms has continued to irk foreign investors. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 28 .PESTLE analysis legal assistance treaties with China. India and Sri Lanka. it will dissuade investors from entering Russia. no adequate steps are being taken to increase clarity and consistency in the Russian tax laws and administration. These programs are expected to bring in more positive changes to the judicial system in Russia.
a Russian oil container carrying about 4. four ships sank to the bottom. the government is planning to introduce an environmental security system to address this problem.000 tons of fuel oil was wrecked in a storm. and federal agencies (resource development and service provision). as the region is home to thousands of migratory birds that nest along the waterways during winter. In November 2007. There have been many cases in the past where spillages from sea containers have resulted in the pollution of sea waters.000 tons of sulfur. implementation and supervision. Current challenges Spillages causing environmental hazards Russia is one of the most important contributors of oil to world markets and transports most of its produce through seaways. The systems are headed by a three-tier executive federal governance body comprising federal ministries (charged with developing state policies). Table 8: Analysis of Russia’s environmental landscape Current strengths ▪ Environmental management systems Current challenges ▪ Spillages causing environmental hazards ▪ Lack of resources to tackle environmental problems Future prospects ▪ Environmental security system ▪ International co-operation ▪ Increased investment in global environmental facility Future risks ▪ Deteriorating water quality ▪ Difficulties with environmental monitoring Source: Datamonitor DAT AMONITOR Current strengths Environmental management systems Russia’s environmental management systems are well equipped with various levels of controls and streamlined monitoring systems. However. The country has also agreed upon various international environmental agreements to take up conservation activities. including two vessels each carrying 2. Furthermore. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 29 .PESTLE analysis Environmental analysis Overview Although an environmental management system exists in Russia. which Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. Endangered species such as the Dalmatian pelican and the great black-headed gull were seen coated in oil. The devastation in the wake of the storm was staggering. causing a massive spillage into the Black Sea. Fish caught in the Kerch Straight were deemed unsafe to eat. federal services (supervision and control functions). a lack of resources to tackle environmental problems is preventing Russia from effectively implementing environmental protective measures. This system is presently playing a vital role in co-ordinating various conservation activities in Russia. The three-tier system enables effective policy making.
Furthermore. Russia attaches great importance to GEF’s activities and has co-operated with it since 1992. and the creation of an effective system for ecological security in the country. Lack of resources to tackle environmental problems The biggest environmental problem facing the Russian government is its inability to tackle huge environmental issues that may arise due to military and other toxic wastes. the country agreed to co-operate with China on a variety of environmental activities. Although the country is a participant in many activities conducted by GEFI. This will bring adequate resources Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. There is also some concern that the current pollution charges may be abolished and replaced by an ecological tax which will go to general revenue support. The system is expected to effectively deal with man-made pollution and provide solutions to new environmental problems and challenges. These environmental pacts will further the cause of environmental protection in Russia. These kinds of incidents are leading to degradation of the marine environment around the Russian coast. The federal funds available for the disposal of solid fuel missiles are not sufficient for conducting any cleaning programs. established in 1991. the country also joined hands with the Iranian government to conduct research on the Caspian Sea. This co-operation is mainly designed to boost cleaning-up activities in areas which are affected by toxic waste in both countries. Increased investment in global environmental facility The Global Environmental Facility (GEF). International co-operation Russia is extending and participating in various international co-operation agreements related to different aspects of the economy. Under the new agreement both Russia and China have made great progress in environmental co-operation and have pledged to boost their co-operation in the coming years. The government is simultaneously going to introduce an exclusive sector for clean technology and is set to draw measures to minimize environmental consequences resulting from oil pipeline and offshore hydrocarbon projects. it has never financially supported the organization. there is also a scarcity of trained local staff in the country to implement environmental regulations. In February 2010. helps developing countries to finance projects and programs to protect the global environment. in the beginning of 2008.PESTLE analysis threatened the livelihoods of locals. In February 2009. Russia invested about $270m in GEF. Strict measures will also be taken for the disposal of waste accumulated over years of economic and military activities. In June 2008. The main tasks outlined by the government include the implementation of environmental decisions consistently and completely. The Russian government has entered into similar agreements with Indonesia. Japan and the Czech Republic to develop various technologies designed to improve environmental protection and conservation. However. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 30 . Future prospects Environmental security system The Russian government is planning to set up an effective security system to prevent pollution and man-made environmental disasters. the government has not taken any proactive decisions to prevent such spillages and the possibility of such instances reoccurring is posing a serious environmental challenge to Russia. However. resulting in a decrease in funds for environmental protection. up to 300 tonnes of oil was spilled into the sea in the west Cork coast.
PESTLE analysis to the organization in the coming years to successfully run 24 projects dealing with issues like biological diversity. the quality of drinking water is especially poor. This has led to regular intestinal infections affecting around 3. However.000 people every year in the country. the levels were even higher. Hydromet receives an annual environmental performance report from the GDNR but no details on performance at the enterprise level. Hydromet. This has led to an inefficient system of monitoring. For example. In these areas. Difficulties with environmental monitoring In Russia. There have not been any reforms to co-ordinate the activities of the two organizations. a federal body accountable for the collection of data on different environmental conditions. The deterioration has been especially noticeable in water protection zones close to cities. Future risks Deteriorating water quality The quality of water in Russia has been deteriorating for many years now. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 31 . with insufficient amounts of the accurate data compared to the amount required for effective reporting. international waters and ozone depletion taken up by various governments. the information collected by the GDNR itself is not fully shared with the sub-national regions and Hydromet. and the General Department of Natural Resources and Environment Protection (GDNR) are responsible for environmental management systems. For rural non-piped sources. which is leading to difficulties in monitoring the environment. climate change. The last reported government public health data indicated that 20% of drinking water samples from piped sources did not meet chemical quality standards and 9% did not meet bacteriological standards. Furthermore. there is no consensus between the GDNR and Hydromet for the circulation of information on a routine basis. It is expected that the water quality is going to further deteriorate in Russia in the coming years. with 31% and 28% falling below chemical and bacteriological standards.
The aggressive stance maintained by Russia in its foreign relations has not gone down well with its neighbors in the west. Former President Vladimir Putin. The war has adversely affected Russia’ relations with the west. At the end of a fierce. Towards the end of the century it became increasingly apparent that the country's economy could not match up to the completive capitalist economies of the West. to seize power from the provisional government which took over after the failure of monarchy. Initially. Russia also engaged itself in another standoff after it cut the gas supplies to Ukraine. The economic challenges that the country faces have assumed paramount significance. as Russian support increased for the Georgian breakaway region of Abkhazia.year civil war. The first few months of Dmitry Medvedev’s presidency was dominated by the Russia-Georgia war. ruled by an ineffective authoritarian monarchy. with President Obama assuming power in the US. with the ruling party Communist Party of the Soviet Union (CPSU) at the helm. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. overcame a number of potential crises and pitfalls throughout his presidential career. combined with the stress of the war effort. Russia was ruled by autocratic rulers. Social and economic modification programs implemented during the 1860s and 1900s failed to tackle Russia’s vital problems. He won the presidential election with a popular vote of more than 70%. In 1914. Vladimir Putin was appointed as the prime minister of Russia. and eventually the state edifice collapsed. The country then withdrew from the war and commenced a radical transformation of the social and economic order. Lenin. Byelorussia. disrupting supplies to southeastern Europe too. the two nations have agreed to co-operate in areas of mutual interest. allowed the radical Bolshevik Party. the union embraced Ukraine. After successfully completing three terms as president. who achieved victory in the 2000 elections on the back of his brutal but politically popular suppression of the separatist movement in Chechnya. Russia became a participant in World War I due to its rivalry with Austria. Putin handed over the office to Dmitry Medvedev in May 2008. Russia entered into a 70 -year period of one-party rule and came to be known as the Soviet Union. This. as the investment grade for Russia has been lowered. and three Transcaucasia republics. Evolution Pre-1991 During the 19th century. the country went through a rapid period of industrialization and achieved victory in World War II at a terrible human cost. four. Entering into World War I made matters even worse for the country. garnering three quarters of the total votes cast. leading to further protests from Georgia. Russia seized the power from the monarchy in 1917. Russia subsequently recognized the territories of South Ossetia and Abkhazia. However. During seventy years of communist rule which followed. resulting in a widening of the economic gap between Russia and Western Europe. In 2004.Political landscape POLITICAL LANDSCAPE Summary Russia entered the 20th century in a quasi-feudal condition: its economy was in disarray and its government corrupt. led by Vladimir I. bringing down the Soviet system in 1991 and plunging Russia into a seven year economic crisis (1991–98). he was re-elected as the president of Russia with a significant majority. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 32 . With the support of communist agitators like Lenin and Trotsky. Soon after.
in 1998. This resulted in the president making a hasty decision to sack the then prime minister. and social spheres. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 33 . political. Yeltsin oversaw a disorganized makeover that ended the domination of communism but brought irregular reforms in the economic. Furthermore. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. the Russian ruble collapsed and the government gave a notice of intention of default on foreign debts. Economic reforms were destabilized by corruption and confusion as Russia supposedly moved towards a free-market system. Russia became independent after the collapse of the Soviet Union and was renamed the Russian Federation.Political landscape Figure 3: Russia’s political events timeline Source: Datamonitor DAT AMONITOR 1991–2000 In 1991. Vladimir Putin was appointed as the prime minister and eventually became the president after Yeltsin’s resignation in 1999. During his nine year tenure in office (1991– 2000). Boris Yeltsin was elected as the first president of newly christened country. 1998. Although the constitution of 1993 made the executive the dominant branch of government. Yeltsin contended the legislative branch over many issues. This was followed by the sacking of two more prime ministers during March– August. In December 1998.
since that time relations have continued to worsen. However. Putin was reelected overwhelmingly in 2004 as well. media freedom decreased drastically. which began in the 1990s. Russia’s ongoing conflicts with the Republic of Chechnya. who sought to restore Russia’s regional power while maintaining relations with the West. Although the country was developing fast economically. Putin stepped down and Dmitri Medvedev was elected as the new president. soured to some extent over issues such as the expansion of the North Atlantic Treaty Organization. A new concentration of executive power began with the presidency of Vladimir Putin (elected in 2000). During these years. Although the government’s relationship with the west became increasingly strained for some time. Russia signed a law suspending the country's participation in the 1990 Conventional Armed Forces in Europe (CFE) treaty that limits the deployment of heavy military equipment across Europe. and opposition to the US led war against Iraq in 2003. Russia also supported the US decision to shelve controversial missile defense bases in Poland and the Czech Republic. the government also signed treaties with Germany and China for gas supply. In 2008. In July 2009. 2005 onwards During the first six years of Putin’s presidency.Political landscape 2000–04 International ties with the West. The new strategic arms agreement was signed between the US and Russia in April 2010. President Medvedev and Barack Obama reached an outline agreement to cut back their countries' stockpiles of nuclear weapons. political relationships with Chechnya were deteriorating quickly and the suicide attacks on the government agencies were prevalent. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 34 . political opposition became greatly fragmented. it was reinvigorated in 2006 when Putin hosted a meeting of the G8 nations. In 2007. The first few months of his presidency found him engaged in a military conflict with Georgia and a standoff with Ukraine over gas supplies. and the government was able to shift the center of economic influence from a group of autonomous entrepreneurs to state-controlled enterprises and allies. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor.
the State Duma has an authoritative role of primary deliberation of all legislation. Former president Vladimir Putin has utilized this structure to increase the power of his office and control the government. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 35 . the power is well centralized in Russia. he has brought the Russian economy into the growth path. Members serve the respective houses for four -year terms. autonomous regions. He was earlier the Chief of Staff under Vladimir Putin until 2005. the constitution of 1993 describes the three branches of government as the executive. a sanctioned branch of government under the Soviet system. oblasts (provinces). The houses of the bicameral legislative branch have a weak opposition because of their constitutional arrangement and the non-existence of opposition parties. has shifted gradually as an independent authority. divided into republics. In the Russian political system. Furthermore. Vladimir Putin was Russia’s president for more than eight years from December 1999 until May 2008. and territories. when he became the first deputy prime minister of the Russian government. Among the responsibilities allotted between the two houses. the president has superseding powers as head of the armed forces and the Security Council. These powers include the authority to appoint a broad mixture of government officials without effective oversight or verification. The judiciary. Although the Federation Council has the authority to appraise and force compromise on legislation. In May 2008. Legislative branch of government The Federal Assembly of Russia comprises two houses: the Federation Council (178 members) and the State Duma (450 members). he intends to fight against the laws which undermine and hamper modern development. His main focus is set to protect civil and economic freedom. 2008. Putin was nominated by the later to be the prime minister. autonomous oblasts. Source: Datamonitor DAT AMONITOR Structure of government Russia is a democratic federation of 89 sub-national jurisdictions. At the national level. After choosing Dmitri Medvedev as the presidential candidate. Putin could not run for a third term. To his credit. On the whole. Dmitri Medvedev took over the office of the president. Due to constitutionally mandated term limits.Political landscape Structure and policies Key political figures President: Dmitry Medvedev Prime Minister: Vladimir Putin Figure 4: Russia – Key political figures Dmitri Medvedev was elected President of Russia on March 2. in reality its role has principally been as a counseling Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. legislative. Putin is currently holding office as the prime minister. and judiciary.
Vladimir Putin. and since May 2008. the Federation Council was fabricated in such a way that it contained the heads of government and the legislative leaders of the 89 sub-national jurisdictions of Russia. 49 oblasts (provinces). Furthermore. Vladimir Putin. amendments in the constitution require two -thirds of the vote in the Duma. the president is the head of state with a maximum of two four-year terms. freedom to elect and controlling mass media. The independent regions and oblasts are elements of larger sub-national jurisdictions. 10 autonomous regions. however. UR gained most of its momentum due to its popular leader. the Liberal Democratic Party of Russia (LDPR) won 40 seats. Vladimir Putin (the then president of Russia) gathered substantial public support to amend the constitution. the then president. All the nominations require approval by the State Duma. the president appoints the prime minister. The last held presidential elections were in March. and Just Russia (JR) won 38 seats. The chief executive of all 89 jurisdictions is the governor who was previously elected through popular vote. six territories. The president also issues decrees that go into effect without the parliament’s approval. However. the highest judicial body. in case a second vote is taken within three months. the Russian parliament voted in favor of a bill to extend the next president's term of office from four to six years. In November 2008. They comprise 21 republics. This allowed Putin to seek a third term in the presidential office. Structure of legislature Key political parties United Russia (UR) United Russia is one of the largest political parties in Russia and is currently the ruling party of the country. 2008. There are several regional governors and city mayors in Russia. increased his control on the Federation Council by replacing ex-officio membership with a process of appointment by the president. The Duma can vote for no-confidence on an existing government. The elections were last held in December 2007. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 36 . in 2006. Administrative divisions and local governments Russia is segregated into 89 sub-national jurisdictions and each jurisdiction has two spokespersons in the Federation Council. Dmitri Medvedev won the presidential race with more than 70% vote. However. A number of other high level presidential nominations. UR was formed in 2001. In the 1990s. in which United Russia won 315 seats. In December 2004. Executive branch of government In Russia. require no approval from the legislative branch. but the president has the powers to ignore the vote and dissolve the Duma. one autonomous oblast. In 2000. the Communist Party of Russian Federation (CPRF) won 57 seats. the president took over the right to appoint the governor. however.Political landscape and reviewing body. and two cities (Moscow and St. However. Petersburg) with separate oblast grades. as the result of a merger between two anti-communist parties: Fatherland-All Russia and the pro-government Unity Party of Russia. composition. and nomenclature. the jurisdictions differ broadly in size. The party follows a conservative democratic stand point with policies focusing mainly on improving the economy and living conditions. the president may dissolve the Duma if it fails three times to confirm a nominee for the prime ministerial post. The party is very centralized in its structure and is sometimes referred to as ‘the Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. who is head of government and the Central Bank of Russia. he has held the position of president of Russia. In Russia. and the chairman of the Constitutional Court.
presidential party’ by the press. UR has won the general elections continuously since 2000 and won the 2007 elections comprehensively by garnering 315 seats in the State Duma. Communist Party of Russian Federation (CPRF)
The CPRF has it roots in the traditional Communist Party of the Soviet Union (CPSU) and the Bolshevik Party. It claims to follow pure Russian patriotism and officially follows the doctrines of Marxism-Leninism. The party was formed in 1993 by Gennady Zyuganov. Though it had a slow start in the 1993 elections with only 12.4% of the votes, slowly it grew to 22% in 1995, and 24% in 1999. However, the party won only 13% and around 11% of the votes in the 2003 and 2007 parliamentary elections. Liberal Democratic Party of Russia (LDPR)
The LDPR was founded in 1989 by Vladimir Zhirinovsky, intended as a party which focuses particularly on democratic and centrist ideologies. The LDPR considers itself to be in opposition to the communist party. The LDPR has never been in power and has had a minimal share of votes in all the elections. In the 1993 elections the party had 23% of the votes. In 1995 and 1999, this decreased to 11% and 6%. Although in 2003 it gained some additional votes (12%), in 2007 the vote share fell to 8.8%.
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Composition of government
Currently, UR holds the most number of seats (315), followed by the CPRF (57), the LDPR (40), and Just Russia (JR) (38).
Figure 5: Distribution of seats by political parties in the Duma, 2007
Others 8% JR 8%
Key policies Economic
Russia went through a tough period during the 1990s, with continuous negative growth for seven years. There were no sufficient reforms in place and, as a result, the country's economy suffered. After Vladimir Putin took over as the president in 1999, the economy began to recover and has been continuously making efforts to integrate itself into the world economy. Under many reforms that were adopted, the tax system has been streamlined to enhance compliance and reduce chances for corruption. Deregulation of business licensing and registration arrangements has been another important focus for recent reforms. Again, this is expected to reduce the scope for bribery and corruption, and should also enhance tax compliance by making it less costly for firms to enter the ‘formal’ economy. Property rights have been strengthened through changes in land ownership rules.
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The need to diversify the economy and reduce the dependence on the energy sector has been explicitly recognized, and is reflected in a number of measures taken by the authorities recently. These measures include changes in tax rules and tax breaks to promote innovation-related activities and the creation of special economic zones and technology parks to boost the manufacturing and IT sectors, respectively. To bolster exports, subsidized credits for exporters have been proposed. Since the later part of 2008, the Russian stock market collapsed as the Russian economy was hit by the world financial crisis. In October 2008, the Russian parliament approved a $68 billion package to help banks hit by the global credit crunch. The government moved to devalue the ruble, to avoid a run on the ruble and bank deposits. The country managed to maintain 6% growth in 2008, however, the real GDP contracted by 8% in 2009. With the prevailing economic deterioration, the government has initiated policies to reduce budget deficit from 6% of GDP in 2009 to around 3% by 2012.
Most health indicators in Russia suggest a worrying decline in health outcomes during the 1990s. Due to the long and continued economic crisis over 1991–98, there was an increase in poverty and alcohol and drugs-related problems, and a virtual collapse of the public health system. This has translated into falling labor market participation rates and increased social costs, which further hampered growth and development. On the other hand, despite a dramatic decline in education expenditure during the 1990s, Russia’s large stock of human capital and its tradition of strength in applied scientific research are considerable assets and the government is making efforts to improve the education and health systems.
Following decades of confrontation with the West, Russia’s conversion to capitalism has seen its relationship with Washington markedly improve in recent years. This has been reflected in the extension of the G7 grouping to include Russia (and its subsequent renaming to G8), and the May 2002 partnership agreement between Russia and NATO. The improving relationship has been helped by strong Russian support for the US ‘war on terrorism’ in the wake of the September 11 attacks. Russia’s support for the US has reflected in part its own experience of fighting militant Islamists in Afghanistan and more recently to the breakaway Russian republic of Chechnya. Russia has been keen to foster stronger ties with the EU, which it sees as a bulwark against a US-dominated world. The signing of an agreement with Germany to build a gas pipeline under the Baltic Sea between the two countries in September 2005 further consolidated the ties between Russia and its western neighbors. However, many of the former Warsaw Pact countries queuing up to join the EU remain deeply hostile towards Russia’s own expansionist tendencies and strengthened strategic ties. Relations with China have also been strained. Russia has continued to support separatist regimes in Georgia and Moldova. In 2008, Russia maintained its aggressive stand by engaging in a military conflict with Georgia and subsequently recognized the territories of South Ossetia and Abkhazia. The hostilities continued for more than a week. Although the two sides signed a French-brokered peace agreement and Russia withdrew most of its combat troops, it still maintains forces around Abkhazia and South Ossetia. Furthermore, in another instance of Russia’s aggressive foreign policy, in January 2009, Russia stopped gas supplies to Ukraine. Subsequently, supplies to southeastern Europe were also disrupted for several weeks. Russian relations with the west have not been cordial due to such standoffs.
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However, in its bid to normalize relations with the west and the US, Russia halted its plans to deploy short-range missile in Kaliningrad enclave. This action was in response to the Russian government’s assessment of change in the US's attitude under President Barack Obama. The beginning of 2009 was marked with both sides coming closer to co-operate in areas of mutual interest. Russia has also announced the end of its "counter-terrorism operation" against separatist rebels in Chechnya.
Russia has a constant military reform agenda which includes streamlining all units and modernizing equipment. The Russian government has begun serious efforts to modernize its military. The focus has shifted toward practical training, and the government is introducing bills to improve the organization of the military. The government has increased its budget spending but that is not enough for its over-sized military. It is a legacy which has been maintained since the Cold War days and there have been few changes in the defense set-up. Troop discontent and low funding have hindered expansion of this program beyond individual units. Reforms would also reorganize the military districts and the status of the main branches. The Chechnya disagreement, which decreased in intensity in 2006, dented self-esteem throughout the military and exposed Russia's inability to adapt existing doctrine to non-conventional combat. Furthermore, Russia has many international customers for the purchase of its military equipment. Among all the countries, China and India have been the top customers for Russia’s military exports. In 2005, the military exports reached a new high of $6.1 billion. In 2005, Russia and China conducted a joint military exercises on the coast of China’s Shandong Province, and in 2006 plans were agreed on continued sales of advanced arms to China. India had earlier agreed to extend military co-operation with Russian forces after conducting large-scale bilateral naval exercises in 2003. In 2005 and 2006, Russian forces took part in various joint exercises with the military forces of Armenia, Canada, India, Kyrgyzstan, Sweden, Turkey, and the US. In early 2006, joint naval and antiterrorism exercises were conducted in the Ionian Sea to weigh up the inter-operability of the North Atlantic Treaty Organization (NATO) and Russian systems. In May 2007, Russia test fired a long-distance missile. This, according to former President Putin, marked a new arms race, as the US was planning to expand its missile defenses into Eastern Europe. Furthermore, Russia revived Soviet-era Atlantic navy exercises in neutral waters in the Bay of Biscay off the coast of France. This is indicative of Russia's demonstration of its new military might. President Putin took the territorial expansion policy to newer heights as Russia mounted an Arctic expedition and planted the Russian flag on the seabed at the North Pole. In July 2009, President Medvedev and Barack Obama reached an agreement to cut back their countries' stockpiles of nuclear weapons. Russia also supported the US decision to shelve controversial missile defense bases in Poland and the Czech Republic. The new strategic arms agreement was signed between the US and Russia in April 2010.
The World Bank report on governance uses voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law, and control of corruption as indicators for 212 countries and territories over the period 1996–2008. The study has been carried out by Daniel Kaufmann and Massimo Mastruzzi of the
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which are in the higher percentile of 50–75. The regulation over the private sector is still a matter of concern in the country. In this indicator. there is no comparable support for other public companies. with China in a lower percentile rank of 5. and the availability of free media. the quality of policy formulation and implementation. Furthermore. A low ranking indicates incompetence of policies and regulations for the private sector. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 41 . the other BRIC countries except for Brazil are in the same percentile as Russia. However. Russia lies far behind other BRIC countries that are in higher percentiles and have better implementation of rules. and the credibility of the government's commitment to such policies. Political stability and absence of violence measures perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means.7. However. Corruption remains one of Russia’s enduring weaknesses and the country is totally unsuccessful in controlling corruption in comparison to other BRIC countries. Control of corruption measures the extent to which public power is exercised for private gain. This situation has been exacerbated by the government's increased usage of judicial custody in recent times.0 percentile rank.4 percentile on regulatory quality in 2008. it ranks in a lower percentile in comparison to other BRIC countries which are in the 50–75 percentiles.6 percentile on rule of law in 2008. The quality of contract enforcement. For any country. the police. the courts. the issue of human rights has been highly contentious. Russia’s rank on this indicator has been impressive in comparison to other negative ranks which it received. with many restrictions and procedures for the private sector in place. the rule of law is somewhat ineffective in the country. including both petty and grand forms of corruption. However. In Russia. The country ranked in the 15. as well as the "capture" of state by elites and private interests. Russia is ranked higher than India.9 percentile on political stability and absence of violence in 2008. Rule of law measures the extent to which agents have confidence in and abide by the rules of society. a percentile score of 0 puts it at the lowest rank and 100 correspond to the highest rank. Russia ranked in the 19. Russia ranks very low due to its closed and controlled attitude towards the press. Government effectiveness measures the quality of public services. which are in the 25–50 percentile ranks.Political landscape World Bank Institute and Aart Kraay of the World Bank Development Economics Research Group. Regulatory quality measures the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development. Russia is behind Brazil and China. Among the BRIC countries Russia. As a result. Russia ranked in the 21. Russia ranked in the 31.8 in 2008. Voice and accountability measures the extent to which a country's citizens are able to participate in selecting their government. the quality of the civil services and the degree of its independence from political pressures. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. Russia is still far behind Brazil in this indicator which has implemented fair policies and is in the 58. including domestic violence and terrorism. and the likelihood of crime and violence are also assessed. freedom of association. This was mostly followed by the Medvedev government in the subsequent years. Russia ranked in the 42. which has a percentile rank of 16.9 percentile on government effectiveness in 2008. The government led by former President Putin broadly pursued consistent economic policies leading to stability in policy formulation and implementation. ranks below its counterparts like Brazil and India.5 percentile on control of corruption in 2008. as well as freedom of expression. Russia is still ahead of China in this particular category.6 percentile on the voice and accountability index in 2008. Russia ranked in the 23.
The successful run of the economy spanning for nearly a decade came to an end with the economic crisis. The industrial ministries from both the countries are also keen on further development of cooperation in general and farm engineering. Russia has shown scant regard for the peace deal with Georgia brokered by the French president. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 42 . the government has initiated policies to reduce budget deficit which was about 6% of GDP in 2009 to around 3% by 2012. With the prevailing economic challenges in the form of inefficient public spending. Despite the social and economic developments. the fallout has meant a lower investment grade for the economy. President Medvedev was successful in reaching an agreement in July 2009 with the US to cut back military grade nuclear weapons in both countries. and fixing the economic recession has become the first priority of the government. the government faces the challenge of rising unemployment and poverty. however. as well as in the chemical and steelmaking industries. Russia walked out of the Geneva discussion on Georgia held in May 2009 in support of South Ossetia and Abkhaz. Although. especially its assertive approach with its neighbors. In April 2010. the country managed to maintain 6% growth in 2008. The country's prospects became even brighter with the election of Dmitri Medvedev as the new president in 2008. with the deepening economic crisis. Russian foreign policies. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. and its continued support for separatist forces in Georgia and Moldova is likely create further instability in the region. The present government has to work through these challenges by improving the investment climate of the country. Ukraine and Russia signed an inter-governmental protocol on the supply of goods on industrial cooperation in 2010. Furthermore. The new agreement enforces plans for both the countries to cut arsenals of deployed nuclear warheads by 30%. These discussions and deliberations are making the country more industrial friendly in terms of international trade. The government has set goals to completely change the outlook of Russia by westernizing the country along the lines of Europe. The sides also signed protocols on cooperation in the aviation industry and on industrial policy. While supporting the US decision to shelve controversial missile defense bases in Poland and the Czech Republic. Russia’s long-term economic policy relies on the comprehensive modernization of key industries and infrastructure. has not found favor with the western world. the country also was successful in signing a new a new strategic arms agreement with the US in April 2010. the economy contracted by 8% in 2009. Moreover.Political landscape Outlook Russia is on course to further integrate itself with the world in future. The government’s decision to devalue the ruble in December 2008 provided respite to the economy.
the ruble quickly lost value and the social safety net. but the system remained relatively unchanged throughout the period. economic liberalization descended into asset-stripping and thievery on a massive scale. economic growth declined sharply. Industrial production more than halved between 1991 and 1998. which entered recession in 2009. particularly as Russia moves ever closer to World Trade Organization (WTO) membership after 12 years of negotiations. and. Following the collapse of the Soviet Union in 1991. During 1998–2008. The economy’s successful run which began in 1999 came to an end in 2008 as a result of the mounting economic crisis. while total labor force declined by 15%. the reform program led to the rise of the ‘oligarchs’: business magnates who are at the center of vast (and often corrupt) monopolistic business empires. 1991–2009 During the 1990s. output and investment levels collapsed. All economic activities were centrally planned and implemented at various lower levels. As a result. privatization of state assets went ahead before the establishment of legal systems to enforce property rights. consumption and investment. Misguided policy advice from the IMF and western countries led to privatization and deregulation instead of prioritizing institutional and legal reforms for achieving macroeconomic stability. the economic system itself ran in the same way as when it was established by the founders of Soviet Union. As a result. the Russian economy went through a long period of depression. until 1987. Meanwhile. Rather than creating a broad-based property-owning middle class. opportunities for corruption and petty bureaucracy—already prevalent during the Soviet era—expanded under the economy with a skewed set of mixed principles of anarchism and capitalism reigning during the immediate post-communism years. once one of the world’s most generous. touching around 8% in 2007.Economic landscape ECONOMIC LANDSCAPE Summary The 1990s are sometimes seen as 'Russia’s lost decade'. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 43 . the country had one of the highest growth rates. Evolution Soviet era (1922–91) The Russian economy was administered by the erstwhile Soviet Union for more than 62 years. The economy was completely centralized and the state had control over almost all means of production. but fell back to 6% in 2008. The global economic slowdown gripped the Russian economy. This nominal transfer without fundamental macroeconomic or policy changes resulted in the transformation of Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. The privatization programs taken up by the government transferred the control of the market to economic forces from the state. The Communist Party designed economic policy centrally for all of the soviet nations. Further economic liberalization is on the cards. For instance. There were changes during 1953 and 1987. Although reform efforts which aimed to replicate western-style capitalism were initiated. the government has shown an increased willingness to challenge the political and economic clout of the oligarchs by instituting legal and institutional reforms and improving tax collection. the programs were poorly sequenced and inadequate attention was paid to institutional reforms and the peculiarities of post-communist societies. During the Soviet rule the State Planning Committee formulated output targets for specific planning periods. Industrial production halved as wages fell sharply and the social safety net collapsed. totally diminished. During 1999–2007.
growth accelerated to around 7% in 2003 and 2004.6% in 2001 and 4. immediately after the economic changes took place. by a pick-up in investment flows in 2004. During 1999–2007. ordinary Russians struggled under increasingly harsh economic and social conditions.1% but fell back to 6% in 2008. A new elite—the ‘oligarchs’—consisting of powerful monopolists and politically connected business leaders. the country had one of the highest growth rates. The global economic slowdown gripped the Russian economy and since then the economy has been on a downward trend. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor.9% in 1998.7% in 1999 and 9% in 2000. Western investors and international institutions became increasingly jittery. At the same time. Following a decline of 1. However. Investment dollars which poured into Russia during the emerging markets boom of the 1990s suddenly looked risky following the East Asian financial and economic crisis in 1997.8% in 1990. and. which is dependent on oil exports with inadequate development of the industrial sector. The country’s fiscal and current account surpluses have also come under pressure following the meltdown. falling back to 4. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 44 . growth was mainly driven by the continuous expansion of domestic demand and income. the economic crisis has also exposed the vulnerability of the Russian system.3% in 2006. its external debt. Thereafter the growth rate showed a decline. driven largely by buoyant oil prices following the US invasion of Iraq. especially government debt. though maintaining payments on international bonds. triggering a major financial crisis in 1998. However. the economy recorded a much lower growth rate of 6%. The Russian authorities defaulted on $40 billion of ruble-denominated international debt. In 2008. GDP growth bounced back to above 5. appeared to be above the law and beyond the reach of the taxman. since 2006. completely dependent on political support to maintain their profitable positions. However the contingent appreciation of the ruble resulted in a GDP growth of 6. touching around 8% in 2007. In 2009.3% in 2002. Meanwhile. has been under manageable limits. to a lesser extent. In 2007. the economy went into recession recording a contraction of 8%. In 2005. the growth rose to 8.Economic landscape inefficient state monopolies into inefficient private sector monopolies. Prospects of the strengthening global oil prices fueled investor confidence and investment surged. The GDP growth was at a negative 2.
1990–2009 10 8 6 4 Growth rate (%) 2 0 1991 -2 -4 -6 -8 -10 Year 1993 1995 1997 1999 2001 2003 2005 2007 2008 2009 Source: Datamonitor DAT AMONITOR Structure and policies Financial system Overview Since 1991. the country devalued the ruble and stopped payment on its government debt. Although there were many policies implemented. As a result. Russia has made efforts to stabilize its economy through many macroeconomic stabilization measures. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 45 . the Russian economy was largely affected by the Asian Financial Crisis in 1998. Though the country has shifted from being a market based economy. the financial system portrays a socialistic picture. The government still has a significant amount of control on the banking industry and currency movements. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. creating a bigger financial crisis within the country.Economic landscape Figure 6: Evolution of GDP growth in Russia.
from cash equities to commodity futures. the bank was known as the State Bank of USSR. Non-life insurance sales proved the most lucrative for the Russian market in 2008. In comparison.1% respectively.41 million) in 2009 from RUB64. generating a gross premium income of $36. The Russian insurance market generated a gross premium income of $36. The Bank of Russia carries out its functions. to reach respective values of $266. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 46 . before it was renamed as the Bank of Russia. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor.1 million ($2. • • RTS Board – a quote driven market for unlisted stocks and bonds. with an anticipated CAGR of 14.6 billion by the end of 2013.4% for the period spanning 2004–08. The net profit of the RTS doubled in the year to RUB128.2 million) in 2008.5% and 2. The RTS index is the main benchmark for the Russian securities industry and is based on the exchange’s 50 most liquid and capitalized shares. regional and local government structures.Economic landscape Financial authorities/regulators Bank of Russia The Bank of Russia was established in 1990.6 billion in 2008. The most liquid stocks are traded using order-driven technology and are available for direct market access. which is expected to drive the market to a value of $71.6 billion and $244. The performance of the market is forecast to decelerate. despite sharp declines in the life insurance segment’s value since 2003. The Bank of Russia is also responsible for the rate of exchange and is the regulatory authority of the foreign exchange market. FORTS – a futures and options market with ruble settlement. The Bank of Russia formulates and implements monetary policies in the country.2 billion. independently from the federal. • RTS T+0 Market – a segment where trading is done exclusively by retail investors with full preliminary deposit of assets and ruble settlement. Its main objectives are to maintain financial stability and create conditions conducive to sustainable economic growth.2% for the five-year period 2008–13. which were established by the Constitution of the Russian Federation and the Law on the Central Bank of the Russian Federation (Bank of Russia). representing a compound annual growth rate (CAGR) of 18.9 billion in 2008. sales of life insurance generated a gross premium income of $728. In comparison. Until December 1991. over the same period. equivalent to 98% of the market's overall value. the French and German markets grew with CAGRs of 3. Insurance The insurance market in Russia has grown continuously for the last five years.9 million in 2008. The RTS has four divisions catering to different segments: • RTS Classic Market – the only stock market in Russia where trading can take place in rubles or any other foreign currency. The RTS stock exchange trades the full range of financial instruments. based on the Russian Republic Bank of the State Bank of USSR. Russian trading system stock exchange (RTS) The RTS was established in 1995 as the first regulated stock market in Russia.8 million ($4. equating to 2% of the market's aggregate income.
Another factor which caused this downtrend was the economic crisis in 1997–98. Performance GDP and growth rate During 1992–96. touching around 8% in 2007. the French and German markets will grow with CAGRs of 0. however.2% in 1992 and this negative trend continued until 1998. the first five years after the soviet rule. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor.4 billion in 2013. the country had one of the highest growth rates.2% and 3. it is expected that the country would record a growth of 3% by 2010. The major factors in this rise were rapidly expanding oil and gas sales. promised a strong budget and healthcare reforms and pressed ahead with a hike in social contributions in an address to parliament in mid-April 2010. During 1999–2007. to reach respective values of $267. the economy recorded a much lower growth rate of 6%. which continued until 2006. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 47 . Rossgosstrah and Ingosstrakh Insurance Company are the leading players with a share of 5. Russkiy Standart Strakhovanie has a further 16.3% respectively. In 2009.9%. However. Immediately after the crisis. over the same period. Prime Minister Vladimir Putin announced that the country’s recession is over. the global economic slowdown gripped the Russian economy too and since then the economy has been on a downward trend. respectively.Economic landscape Comparatively. In 2008. Key policies The Russian economy went through a severe phase of recession during 2009-10.8% share. In the non-life insurance segment.9% share of the Russian life insurance market. The GDP fell at a rate of 14.1% and 0. and improved investor confidence.The prime minister proposed that state money should be spent more wisely rather than increase the tax burden on the fragile economy and proposed fiscal reforms aimed at halving the budget deficit to 3% of GDP by 2012.9 billion and $248. the GDP began to expand with a 5.7% growth rate in 1999. SK Sogaz-Zhizn holds a 19. the country was severely hit by the global economic crisis and the economy contracted by 8%. government tax reforms. with economy contracting by 8%. Russia’s GDP went through a negative run due to the sudden transition in economic policies. However.
2002–13 500.0 8.8% is contributed by the agricultural sector.0 Source: Datamonitor DAT AMONITOR GDP composition by sector The services sector contributes nearly 58.0 -6.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year GDP GDP growth rate -10.0 0.8% to GDP.0 200.4% to GDP in Russia. This is followed by the industrial sector.0 250.0 $ billion 10.Economic landscape Figure 7: GDP and GDP growth rate of Russia.0 -8.0 Growth rate (%) 2. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 48 .0 0.0 4.0 350.0 300.0 150.0 -2.0 50.0 -4.0 400.0 6. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. which contributes 36.0 100.0 450. A minuscule share of around 4.
Though the share contributed by agriculture to GDP is low. 58. agricultural output fell during 2009 to RUB 1. Failure to effectively convert inefficient collective farms to private ownership after soviet rule has further hampered production. 36. 4. overuse of chemicals. and pork.8 trillion ($61 billion) from around RUB 2. During 2000–08. Grains remain the largest crop. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. The agricultural output declined by more than 9% in 2009. and vegetables. the farming resources were exhausted by policies like intensive farming. and unsuitable crop choice. beef and veal. However. Furthermore. only 32% of the country’s land area is used for agriculture.4% Source: Datamonitor DAT AMONITOR Agriculture Russia’s agricultural output is restricted by climatic and soil factors.8% Services . the rate at which the output had grown in Russia during 2001–08 is impressive. 2009 Agriculture. sunflower seed. The main livestock outputs are cow’s milk.Economic landscape Figure 8: Sector specific GDP in Russia. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 49 . Other key crops are sugar beets.8% Industry. occupying more than 50% of cultivated land. the agricultural output (based on current prices) grew at an annual average rate of around 18%. eggs. Moreover.1 trillion ($71 billion) in 2008.
0 2002 2003 2004 2005 Year Agricultural output Growth rate -15.500.0 25. The manufacturing and industrial infrastructure was decaying after the soviet rule.Economic landscape Figure 9: Agricultural output in Russia.500.0 500. the Russian industrial sector picked up pace after 1999. metallurgical. After a period which saw a fall in production.0 5. and machine-building products.0 Growth rate (%) 1.0 -10.0 2006 2007 2008 2009 Source: Datamonitor Note: Sectoral breakup given in local currency due to exchange rate fluctuations DAT AMONITOR Industry After 1991 Russia’s industrial sector relied heavily on defense and heavy manufacturing industries. communications and transportation equipment. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 50 .0 20.000.0 2.0 -5. 2002–09 2. The rising industrial avenues were energy-intensive industries. Due to the absence of subsidies and captive markets of the Soviet era.0 RUB billion 10.0 0. the industrial output decreased by 6%.000. The industrial output (based on current prices) recorded an annual average growth rate of around 22% during 2001–08. the industrial sector in the 1990s was not internationally competitive. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. a wide range of chemical.0 1. In 2009. and shipping.0 15.0 30. despite an obvious requirement for diversification.0 0.
0 20.0 30.0 10.0 6. advertising.000.000. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor.0 50.0 4.000.0 40.0 RUB billion Growth rate (%) 8.000.000. The sector contributed around 58.4% of GDP in 2009. yet it lags behind those of other countries that are at similar economic levels.0 2. Financial services growth had picked up in recent years.0 2006 2007 2008 2009 Growth rate Services Russia’s services sector has expanded rapidly since the Soviet era. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 51 .Economic landscape Figure 10: Industrial output in Russia. Services sector output recorded an average growth of around 22% during 2001–08.000.0 2002 2003 2004 2005 Year Industrial output Source: Datamonitor Note: Sectoral breakup given in local currency due to exchange rate fluctuations DAT AMONITOR -10.The services sector output declined by around 4% in 2009 in comparison to 2008.0 12.0 10.000.000. and tourism. Financial and retail services have expanded especially fast during 2000–07.0 0. 2002–09 16. Some of the important services sectors in Russia are retail.0 0. marketing and sales.0 14.
In 2009.0 20. the economic slowdown has put pressure on government finances.0 Growth rate (%) 15. The Russian Finance Ministry has reviewed the budget revenues for 2010 and made a new prognosis for next year. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor.0 RUB billion 15.0 30. Despite the economic slowdown.000.000.6 billion).0 20. In 2007. despite higher oil prices and an improved forecast of economic growth. resulting in improvements in tax collection. According to the government.1% of GDP in 2008. The tax system underwent a major overhaul in 2000–01. However.9 billion ($3.0 -5.2 billion).0 0. around 5. the treasury is expected to incur more loses due to strengthening the ruble than it receives because of rising oil prices.5 trillion ($256.9% of GDP. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 52 .Economic landscape Figure 11: Services output in Russia.000.0 0. 2002–09 25.9 billion) and expenditure of RUB9. It predicted that in 2010 revenues are expected to reach RUB92. In 2010.0 10. the 2011 budget has a planned income of RUB7.000.5% of GDP.33 trillion ($79. Russia registered a federal budget deficit of RUB2.4 trillion ($321 billion).0 10. In general. the government managed a surplus of 4. which is higher than 2009. Russia’s budgetary surplus reached 5. the budget will miss out on RUB173 billion of income.0 2006 2007 2008 2009 Growth rate DAT AMONITOR Fiscal situation The Russian economy recorded a growing budgetary surplus during 2001–07.0 25.000.0 5.0 2002 2003 2004 2005 Year Services output Source: Datamonitor Note: Sectoral breakup given in local currency due to exchange rate fluctuations -10.0 5.
The country’s current account surplus came down from around $102 billion in 2008 to around $47 billion in 2009. Improved competitiveness and higher oil prices facilitated a dramatic turnaround in the current account. its magnitude has declined. the current account surplus stood at around 7% of GDP.9 billion in the first quarter of 2010.5% of GDP in 2002 and 8. Although export growth remained strong. accounting for 6. a bounce back in import demand subsequently eroded the current account surplus to 8. Accelerated export growth and rising oil prices boosted net export earnings and the current account surged to a record high of 11% of GDP in 2005. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. up from $9.Economic landscape Current account The current account balance in Russia has maintained a surplus position since 2000. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 53 . The marked improvement in fortunes facilitated the stabilization of the ruble in international markets.2% of GDP. This surplus increased further during 2000 to 18% of GDP.5% of GDP in 1998 to a surplus of 12% of GDP in 1999. According to Central Bank of Russia. However. In 2008. Though Russia has continued to post a current account surplus. the current account surplus grew by 250% to $33. from a deficit of around 0.2% in 2003. increase in oil prices (to more than $30 per barrel for Russian oil) in 2004 saw the current account surplus widen to more than 10% of GDP.7 billion in the same quarter in 2009. The current account surplus was more than $76 billion in 2007.
both exports and imports fell during 2009 to $369 billion and $233 billion. The EU is followed by the Commonwealth of Independent States (CIS) countries.0 8.00 30.00 90. due to severe recession.3%) account for the remaining Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. respectively.0 50.0 Source: Datamonitor DAT AMONITOR Foreign trade After a period of economic transition during 1991–98.00 70. China (4. Among the CIS countries.00 20. 2001–08 110. while its trade links with the former Eastern Bloc countries and other parts of the former Soviet Union have become less significant in relative terms.00 80.00 100. Germany and Italy account for another 6. respectively. accounting for more than 50% of total trade.0 4. which constitute around 14% of the Russian trade. Exports as a percentage of GDP grew from a value of 18.00 2001 2002 2003 2004 Year Current account balance Current account balance as % of GDP 2005 2006 2007 2008 0. Similarly. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 54 . Russia’s export position improved after the ruble was devalued in 1998. the country started to record positive trade surplus. Ukraine is the biggest export destination and receives around 5% of total Russian exports. Russia’s trade with the West has grown significantly.0 Percentage 6.9% and 9%.00 12. imports increased from $34 billion in 2000 to $291 billion in 2008. The EU has emerged as the largest trading partner of Russia.0 10.2% of total Russian exports. From 2000 onwards. accounting for 12.2% in 2000 and stood at around 32% in 2007. On the export side.00 $ billion 60. the Netherlands was the biggest export destination in 2008.3% in 1994 to 44.Economic landscape Figure 12: Current account balance in Russia.00 0. taking advantage of the devalued currency.00 40.However.5%) and Poland (4. Since the collapse of communism. Exports increased from $103 billion in 2000 to nearly $471 billion in 2008.00 10.0 2.
Ukraine (6%) and Italy (4.0 400. China accounts for 12.0 200. In terms of imports. the international pressure for repayment has intensified because of Russia’s favorable trade balance and increasing foreign exchange reserves. the former Soviet Union’s outstanding debt of $67.0 100. The total foreign external debt stood at $540 billion in October 2008.9% of total Russian imports.0 0. but declined to $453 billion by the end of March 2009.0 2002 2003 2004 2005 Year Exports Imports Total trade DAT AMONITOR 2006 2007 2008 2009 Source: Datamonitor External debt In 1991. Among the CIS countries.5 billion was passed completely on to Russia.9%).4%). 2002–09 900.6%.1%) are the most important markets. Japan (6. followed by Germany which accounts for 12. By 1997. Figure 13: Russia’s external trade position.0 $ billion 500. Since 2001.Economic landscape exports. Russia prepaid its entire Soviet-era Paris Club debt of $22 billion in late 2006.0 700. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor.1%) are the other key markets. of which government debt was minimal at $28 billion.0 800. Banks' and other corporations' debts have added heavily to the total debt. additional borrowing had doubled that figure. and the US (5. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 55 . The total external debt by the end of 2009 amounted to around $369 billion.0 300. China (7.0 600. and Russia’s external lenders postponed the debt several times between 1995 and 2001.
the Netherlands. The FDI inflows for 2004 were $28. and overall economic uncertainty. the UK. laws restricting foreign banks from opening branches in Russia were not reformed. corruption. A significant development in the FDI arena was a $6.75 billion. The other attractive sectors are manufacturing.3 billion in 2008. As a result these restrictions still remained a significant hindrance to Russia’s accession to the World Trade Organization. In 2006 the inflow of FDI rose to $30. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. and France. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 56 .7 billion direct investment by British Petroleum in the Russian petroleum industry. Cyprus. Total FDI inflow rose to $70. more than one-third of the total foreign investment was from the US. under which foreign firms can obtain only minority ownership of any energy project deemed “strategic. During 1991–2001. The most lucrative sectors for FDI are the extraction industries which accounted for more than 50% of total FDI in 2007. the lack of production sharing agreements in the fuel sector. Germany. In 2006. retail industry and real estate services. the US.” However. with consumer goods and services and construction receiving the largest shares among the economic sectors. a new legislation on FDI was passed.8 billion.Economic landscape International investment position Foreign investments The level of foreign investment in Russia has remained low throughout the post-Soviet era mainly due to an unfavorable tax system. with the largest investments coming from Luxembourg.
2002–08 80 70.32 70 60 50 $ billion 40 30 20 10 0 2002 2003 2004 2005 Year 2006 2007 2008 7.89 Source: Datamonitor DAT AMONITOR Foreign exchange position The foreign exchange position in Russia has been steadily growing since 1998. 2009. in July 2008. This was mainly due to devaluation of the Russian ruble and subsequent increase in exports and trade balance. 2009.96 3.70 55. As of December 31.Economic landscape Figure 14: FDI inflow in Russia. The foreign exchange reserves increased from being around $76. the total foreign exchange reserves including gold amounted to $439 billion. However.44 29. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 57 .9 billion in 2003 to more than $314 billion in 2006.38 15. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. deteriorating economic conditions leading to the flight of capital from the country has led to a fall in foreign exchange reserves. reaching $575 billion. Furthermore. the reserves were more than $475 billion. they rose by more than $100 billion. At the end of December 2007. On May 1. the official reserves stood at $383 billion.07 12.
With prudent monetary policy measures taken by the CBR. inflation shot up again in 2008 and reached 13. However. S&P retained its long-term and short-term credit foreign currency obligations ratings of BBB+/A-2 from BBB/A-3 in 2009.7% in 2009 and it is expected to come down to 8. respectively.1%. with rates touching 15% and 13%. Furthermore. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 58 .Economic landscape Credit rating Standard & Poor's retained a stable outlook on Russia in April 2010. Monetary situation Inflation The level of inflation was very high in Russia during the years 2002 and 2003.9% by 2010. inflation was decreased to around 9% in 2006 and 2007. the downgrade is due to the risks arisen from a sharp reduction of the international reserves and investment flows. The estimate of the risk of translation and the conversion of foreign currency for Russian non-sovereign borrowers was decreased from BBB+ to BBB. which resulted in the rise of costs and problems with raising funds required to meet the needs for external financing. The long-term sovereign credit rating on national currency obligations was decreased from A-3 to BBB. it decreased to 10. The short-term national currency obligations rating remained unchanged (A-2). According to the ratings agency. The reason cited for this was government efforts to rescue the country's financial markets and the financial system. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. However. in April 2010.
8% from the previous month. Although total bank assets in Russia have recently shown an annual growth of close to 30%. the money supply (M2) increased by 2.25percentage points to 8. Banking sector There has been a rapid increase in banking and financial sector services in Russia during 2000–08.1 trillion.38 trillion to RUB 3.5 points to 12% in May 2009.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year Consumer price index Inflation Inflation (%) 10.0 50. The CBR last cut its refinancing rate by 0.0 0.0 400. In March 2010. It doesn't include deposits in foreign currency). is defined as total cash in circulation (outside banks) and balances in the domestic currency on accounts of resident non-financial organizations.0 16.0 Consumer price index 300. financial organizations (except for credit ones) and individuals. according to the Bank of Russia. Cash money in circulation (the M0 aggregate) decreased from RUB 4.0 4. they represent just 45% of GDP in 2008.25% per annum with effect from March 29.0 100. the M2.0 18.0 14.0 6. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 59 .66trillion to RUB 12. there were around 1.0 0.0 200. By the end of 2008.0 250. following a slowdown in consumer price growth.0 2.98 trillion during January–March 2010. 2002–13 450. (The money supply in national definition.0 8.0 350.0 12. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. the top 200 banks control 90% of the banking assets. however. while non-cash funds increased from RUB 11. 2010.0 Source: Datamonitor DAT AMONITOR Money supply and interest rate The CBR cut its key lending rate by 0.0 150.Economic landscape Figure 15: Consumer price index (CPI) and CPI-based inflation in Russia.000 banks in Russia.
which is dominated by Sberbank and a few strong regional banks (such as AKBars and Chelindbank).1% of workers were employed in the services sector. with the big state-owned banks (Sberbank. either through mergers (such as Uralsib) or acquisitions (Vneshtorgbank’s acquisition of Guta Bank).058.2%. The remaining 1.Economic landscape The proportion of the market held by the top 10 banks has remained more or less constant for several years. The employment scenario in Russia has been on a sluggish trend throughout 2000–08. only the 50–70 biggest banks are important to the functioning of the sector as a whole. The share of foreign-owned banks in the total assets of the Russian banking sector increased from 8% in 2002 to almost 20% in 2008. There has also been consolidation among local institutions. 2010. the Bank of Russia reported the number of banks to be 1. After enforcing the new regulation. when the employment grew by 3. The total employed people reached 71 million in 2008 from 65 million in 2001. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. it was seen that there were only 22 banks with capital lower than the minimal requirement. A new law governing the minimal amount of capital banks must hold was formulated on January 1. the number of employed came down to 69 million. This legislation requires banks to have capital of at least RUB 90 million ($3 million) and this would be raised to RUB 180 million from 2012. Foreign bank penetration in Russia has been low. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 60 . VTB and Gazprombank) having dominant positions. but is increasing. Even after going through severe financial crisis. The increasing number of M&A deals in the banking sector is not driven by the arrival of foreign players. it was reported that more than 57% of banking assets were state owned in the country. 31. and 10% in agriculture. At the end of 2009.9% in industry. However. In 2008 around 58. Employment Russia has a well-educated and skilled labor force spread across different sectors of the economy. In 2009. The highest amount of growth was seen in 2007. Many leading banks have been evaluating their entry into the Russian market.000 are mostly small or very small.
41 million) in 2009 from RUB64.0 Employment (millions) Growth rate (%) 1.00 70.0 2. The net profit of the RTS doubled to RUB128.00 69.9% by 2010 and may further come down to 7% by 2013.2 million) in 2008.5% in first quarter of 2010.0 -1. the Russian stock exchange indices have more than doubled from their lows at the end of February 2008. The improving financial markets along with improving GDP growth is a healthy sign for speedy recovery for the economy. During November 2009–March 2010. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 61 .4% in 2009 and it is expected to cross 9% by the end of 2011.1 million ($2. However it was seen that the GDP grew by 4.Economic landscape Figure 16: Employment in Russia.00 71. the Russian ruble has tended to strengthen slightly. the infrastructural weaknesses and low competitiveness of the Russian economy has led to insufficiently developed small and medium-sized businesses.0 -2.9% contraction during the same period in 2009. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. The country's excessive dependence on oil as an export commodity has also exposed the structural weakness of the economy.00 68. with GDP contracting by 8%.00 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year Total employment Source: Datamonitor 4. Unemployment will certainly be a problem in the country as it rose to more than 8.00 66. However. Moreover. 2002–13 72.00 67.0 -3.00 65.0 Growth rate DAT AMONITOR Outlook The Russian economy went through a severe recession during 2009. inflation will not pose a major problem for the Russian economy as it is forecast to come down to around 8. since the oil prices have hovered between $60–80 a barrel.8 million ($4. Fuelled by increasing liquidity in the domestic banking system and foreign capital inflows.0 0. compared to a 7.0 3.
However. The fertility rate stood at 1. Structure and policies Demographic composition Age and gender-wise composition Russia is the seventh most populous country in the world with a population of 140. a number of policies were changed.03 years. The total life expectancy is 66. paid vacations. with under-qualified doctors and corrupt officials undermining the quality of treatment. the economic shift pushed many Russians into poverty. with males living for 59. Furthermore. Russia faces a severe demographic challenge resulting from low birth rates. Russia introduced a new pension system in which a share of the statutory pension payments of employers was invested into pension funds whose earnings are earmarked for the pensions of workers (who were born after 1967). Evolution Social welfare was also neglected in Russia during Soviet rule. During the period of transition after its downfall. Furthermore. This was the result of incompatibility between the state supported social support programs and the needs of a new economic system. and medical care. and an increasing AIDS situation. from 1998 many enterprises started to provide an extensive social safety net for their workers. child allowances. In 2002. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 62 . Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. Though the system is decentralized in the country. Furthermore. many workers were required to delay their retirement as the post-Soviet pension system was not adequate to provide for retirees. which decreased the system’s capability. The human capital quality of Russia also compares unfavorably with other nations at the same level of development.Social landscape SOCIAL LANDSCAPE Summary The social welfare system in Russia went through turmoil after the disintegration of the USSR. the social system of the country was neglected. poor medical care. and there are about 106 males for 100 females in the country.41 in 2009. housing. As a result of this. However.33 years and females living for 73. During the 1990s.14years. A weak healthcare system is one of the biggest challenges faced by Russia currently. the government is making efforts to revamp the social welfare system with a set agenda for the coming years. it has been ill functioning. there was a declining ratio of employed workers to pensioners.0 million as of July 2009. including maternity leave. After a period of settlement. pensions for workers were funded by employers through a single social tax and direct assessment on selfemployed workers. The Russian population has been on a decreasing trend since the 1990s and the country’s aging population is beginning to increase.
The migration rate in Russia has been decreasing since 2004.5 5.8 6.4 3.4 2.2 4.2 4. In 2009. much lower than 1.2 6.7 5.7 5.5% in 2005 to 1.7 3.28 per 1.5 5.3 4.8 DAT AMONITOR Source: Datamonitor Urban/rural composition and migration Around 73% of Russians live in cities and towns.07 per 1.9 1. The majority of the population (63%) is atheist.2 5. A small group—around 2% of the population—belongs to Christianity.8 3.8 4.3 4.000 people.2 5. The Islamic population is slowly increasing in Russia with about 15% of the population being Muslims. The net migration rate came down by 7.8 2. while the remaining 27% live in rural areas.2 2. Religious composition The official state religion in the country is Russian Orthodoxy which is followed by 20% of the population.03 in 2006.5 3. Around one million residents of Russia come from other countries.4 6.0 5.000 people.5 3.9 4.9 3.Social landscape Table 9: Mid-year population by age (m) in 2009 Mid-year population by age Female Male 0–4 5–9 10–14 15–19 20–24 25–29 30–34 35–39 40–44 45–49 50–54 55–59 60–64 65–69 70–74 75–79 80+ 3.0 1.3 3. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. net migration rate stood at 0.1 6.2 3.2 4.5 3.1 0. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 63 .
System of education Under the Russian educational system. After secondary school. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. This kind of degree is linked to obtaining a blue collar job in the country. The Russian educational system confers both Bachelors (graduate) and Masters (post-graduate) degrees. students have an option to pursue a two year degree at a tradesmen school. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 64 . According to the 2002 census. The syllabus is generally standardized by the state across the universities and only 20% of it is structured by the universities. they can enter a university.Social landscape Figure 17: Major religions in Russia Russian Orthodox 20% Muslims 15% Atheists 63% Other Christians 2% Source: Datamonitor DAT AMONITOR Education Overview Russia traditionally has high numbers of educated populace. the literacy rate in Russia was 99. The Russian constitution guarantees the right to education with free preschool. The first three years constitute primary education and from then on it is secondary education. spanning from ages 6–15. elementary and vocational education. Conventionally.4%. The duration of degrees vary from four to six years. after the students obtain a certificate of complete secondary education. nine years of basic general education is compulsory. The PhD programs come under long post-graduate programs and they span between 2–4 years.
the pension fund. The death rate in Russia is as high as 16. There are four components of the budget that fund welfare activities and social welfare benefits at the federal level: these are the social insurance fund. Indeed. Various sections of society which benefit from the welfare programs are pensioners. railway employees. pregnant mothers. the government’s antipoverty measures have been destabilized by continuing inflation. high consumption of tobacco and alcohol has been recognized as important factors behind the low life Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. The Ministry of Social Protection is the regulatory authority handling welfare programs in Russia. who receive healthcare services through specialized health care centers. infants and children. With a motive to stem Russia’s demographic crisis. Performance Healthcare The Russian healthcare system is one of the most decentralized forms of healthcare systems.Social landscape Healthcare Healthcare services In Russia. There are also polyclinics in various parts of the country. the government was able to carry out large-scale anti-crisis measures without any cuts in social spending.81 deaths per 1. The actual social spending increased by over 27% in 2009 compared to that of 2008. with almost 10. 30% of the population receive primary healthcare services through work related clinics and hospitals. Currently. university staff. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 65 . the government has doubled child support payments to $55 per month and offered a one-time payment of $9. The main reasons for the high death rates are the prevalence of non-communicable diseases like heart attacks and cancer. Even though the country went through a severe economic crisis during 2009. In 2006. As a result there is an increasing trend of people turning towards the private sector for better treatment. families with more than one child. the Ministry of Economics undertook a fundamental overhaul of Russia’s state welfare system. the employment fund. Furthermore. the rate of deaths occurring due to traffic accidents is nearly twice that of Western Europe. and thus suffering from inadequate funding and corruption.000 people. the fund for social support. this has resulted in a major decline in the quality of treatment provided at various hospitals in the country. The Ministry focuses more on the needs of people who are retired or disabled. The healthcare services are provided through various channels in Russia. but adequate treatment depends on affordability. where all other sections of society can visit for healthcare services. and the fund for social support. The infant mortality rate is similarly high. Social welfare Social welfare policies Social security and welfare programs supply modest support for the most susceptible sections of Russia's population. However.06 deaths per 1. healthcare services are free in principle. Even after the Soviet era. and people with disabilities. Among these channels. This was mainly due to welfare agencies following a local agenda rather than a nationalized policy. Moreover. which sustains a number of social assistance programs. has also suffered from corruption scandals. and high level government officials. Another channel is for government servants like police. and traffic accidents.200 per year to women who had a second child. senior citizens. the healthcare system in Russia remained completely decentralized and this reduced the quality of healthcare services provided in the country.000 people.
2002–13 80. Furthermore.00 2.50 0.00 4.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year Healthcare expenditure Source: Datamonitor 0.0 20. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 66 .000 of which were officially registered. The low quality of air and water in many urban areas. endocrine disorders. Among children.50 2.0 70. diphtheria.50 Percentage (%) 50. and iodine deficiency.50 4.00 3.50 $ billion 40. and increased smoking and alcohol intake. meager nutritional supplies have led to a prevalence of anemia. 341.Social landscape expectancy of Russian males.00 1.15% of GDP as a part of healthcare expenditure and it is expected that it might be over 4. The government also put healthcare as one of the top five priorities of its policy. In 2006. Russia’s Federal AIDS Center confirmed 1.5 million cases of human immunodeficiency virus (HIV). during which time the government targets a healthcare spend of over 4% of GDP. The sector has begun to receive increased attention from the government. stomach ulcers.0 5.0 1. resulting in an increase in healthcare expenditure as percentage of GDP since 2005.00 Healthcare expenditure as % of GDP DAT AMONITOR Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. decreased healthcare and housing standards amplified communicable diseases such as tuberculosis.7% of GDP by 2013. As an effort to take appropriate measures against AIDS. In 2009.0 30. There are further plans to increase expenditure on public health by nearly 1. and cholera.0 3.5 times during 2009–13.0 0.00 10.0 60. the government spent around 4. in the early 2000s. Figure 18: Healthcare expenditure in Russia. the government allocated an estimated $115m to HIV and AIDS programs. aggravate the already existing poor health.
This brief is a licensed product and is not to be photocopied Published 05/2010 Page 67 .6% of GDP allocated in 2008. it is more equitable compared to the US or China. a natural divide between an affluent high class of rich people and low labor class was formed in Russia. the Gini coefficient was 0.7% for males and 99.Social landscape Income distribution Standard of living After the fall of Soviet Union. unofficial sources state that more than a third of Russian population is living in poverty.29 when the Soviet Union collapsed. 19. Russia’s literacy rate has reached a new high of 99. The Gini coefficient (a measure of income disparity. the country was faced with high corruption and crony capitalism. The literacy rate was 99. The education expenditure for 2009 was around 5% of GDP compared to 3. poverty is also on the rise in Russia. Despite the grave economic crisis during 2009. As a result.7 million citizens (14% of the population) were below the poverty line as of third quarter 2009. According to the Federal State Statistics Agency (Rosstat). Russia's Gini coefficient was 0. The living conditions of Russians are set to deteriorate with the economic slump.42 at the end of 2008.4%.2% for females. which is one of the highest in the world. According to the Russian Statistics Service. with about 7% sharing living space with other households and one in two persons having less than 10 square meters (108 square feet) per capita. Along with rising income inequality. with 0 meaning complete equity and 1 meaning extreme inequity) more than doubled during the first six years of the transition period (1993–99). Russia also faces a severe housing shortage. However. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. Education Literacy rate According to the 2002 census. Income inequality has been sharper in the cities of Russia. This shows that although the income is less evenly distributed than in some of the European countries. the government was still able to maintain a good level of spending on the educational sector. there was a transitional period during which the government established various policies to create a new economic system. During this time.
7% of GDP by 2013. it was seen that remuneration to workers in the public service increased by 8.0 1.0 20.0 Education expenditure ($ billion) 70. This move enabled the government to maintain a 5% of GDP spending for education in 2009. In March 2010.0 0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year Education Expenditure Expenditure as % of GDP 4. the quality of treatment and maintenance of different hospitals has been very poor and substandard. Despite the economic crisis during 2009. The government has also agreed to increase child tax exemptions from the existing $26 to around $35. This is uncommon compared to any other country’s healthcare system.0 5.0 Source: Datamonitor DAT AMONITOR Outlook The healthcare systems in Russia are highly decentralized and spread across the country. The insufficient government efforts caused health levels in the country to deteriorate further. It is expected that the healthcare expenditure would rise to 4.Social landscape Figure 19: Education expenditure in Russia. healthcare and housing programs. the Ministry of Health and Social Development announced that it has set a long-term agenda until 2017. The Russian government increased the social security benefits and welfare payments in May 2008.0 80. The government has raised all the pension levels by 15% from August 2008. the social spending did not come down in 2009. to wholly develop healthcare systems in Russia under a well structured phase-wise development plan.0 90.0 40. In December 2007.9 billion towards healthcare expenditure amounting to 4.0 60.0 6. The social expenditure rose by over 27% in 2009 in comparison to 2008. It was also seen that despite various pressures.0 10.5% since Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor.0 0.0 2. 2002–13 100.0 30.15% of GDP. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 68 . the additional tax money was allotted for education.0 Percentage (%) 3. the government was successful in allocating $48.0 50. Although the decentralization has increased access to healthcare services in Russia.
Social landscape August 2009. Nevertheless. These increasing efforts to improve the social development policy bode well for Russia’s social structure in the coming years. the government also needs to implement urgent measures to meet the challenges emerging from the country's low birth rates and shrinking working age population. the challenge of rising unemployment and poverty still haunt the Russian government. the implementation of policy still remains questionable. with high levels of corruption prevailing in the country. Besides tackling the unemployment and poverty issues. In addition. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 69 .
After 2002. is the primary scientific body driving space research in the country. the country received 204 patents. The Russian Federal Space Agency (RKA). the RKA still uses the technology and launch sites that belonged to the erstwhile Soviet space program. The RKA has been part of many space missions in the past. The Federal Service for Intellectual Property.Technological landscape TECHNOLOGICAL LANDSCAPE Summary Russia is renowned for its advanced defense technologies and military equipments. However. Although. with the least being 154 received in 2005. it received a very low number of patents. and Russia’s space station Mir plays a vital role in co-ordinating with the International Space Station on many space missions. During 2000–08. the government—together with the patent office—has taken up a project called strategy for science and innovation in the Russian Federation until 2010. Furthermore. with 239 patents. During the 1990s. Russia has to its credit many successful space missions. Structure and policies Intellectual property The country is among the G8 group. Although in the past the country spent most of its time and funds in building military equipment. Over a period of time the country has also become one of the leaders in space research and development. is also a country with high engineering skills. Russia. Patents and Trademarks (Rospatent) is a government body which exercises the functions of control and supervision of legal protection and use of intellectual property in Russia. The International Space Station receives significant technical support from the Russian space station ‘Mir” which was launched in 1986. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. Evolution Russia is historically known to be one of the technologically advanced countries in space research. for the creation of a balanced sector based R&D and effective innovation system. In 2008. with the establishment of the International Science and Technology Centre (ISTC) in 1992. The RKA was established after the dissolution of Soviet rule in 1992. as well as being advanced in space research. formerly known as the Soviet Space Program. the highest number of patents was received in the year 2001. however. the RKA took a new direction to enter into commercial satellite launches and space tourism. and also has co-operation agreements with the International Space Station. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 70 . it has entered into various other modes of research. there was a decrease in number of patents received. it has been successful in gradually moving over to IT sector development and related services. the country is unable to play a part in fundamental research in science and technology. This strategy is expected to bring in more funds and infrastructure into science and technology fields in Russia.
the Russian telecommunication network went through a major shift. By 2005 around Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor.000 inhabitants from 24.5. The country has several space pacts with the US and also the European Space Agency in the development of international space station. Due to increased delay and slow installation of conventional lines. These mutual co-operations have been running from 1993. Japan and South Korea. During this time there were about 60 regional capitals which offered modern digital systems.3 to 29. increasing the ratio of land lines per 1. Performance Opportunity sectors Telecommunications. Russia has also inked technological pacts with many Asian countries like India. Between 2002 and 2003. In 2007. This shift happened with liberalization in the licensing regime and the resultant plethora of licenses given to hundreds of companies to provide services. the fixed line service is still not provided completely. However. Russia and the US collaborated to form a new pact for a space program to find water on the surface of moon and Mars. China.Technological landscape Table 10: Patents received by Russia – 2000–08 Year Patents received 2000 2001 2002 2003 2004 2005 2006 2007 2008 185 239 203 203 173 154 176 193 204 DAT AMONITOR Source: Datamonitor Research and development Technology agreements/pacts Many of Russia's international agreements and pacts are held in space research and related areas. mobile phones accounted for almost 43% of the total telecommunications market. in 2004 around 54.000 rural communities lacked telephone service totally. the number of mobile phone subscribers doubled to 36 million and by 2005 it had reached 120 million. the lunar exploration neutron detector (LEND). but with India the technology pacts extend to different areas of information technology. use of mobile phones has increased significantly since 2000 in the country. This will be done through the help of the Russian space instrument. broadband and internet After the dissolution of the Soviet Union. Important developments took place during the late 1990s which included increased access to digital lines in urban areas and infrastructural improvements in all parts of the country. These pacts mainly cover the exchange of defense technologies. especially in the rural areas of the country. there was considerable growth between 2003 and 2005. Furthermore. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 71 . With widespread foreign investment.
and Yekaterinburg. Figure 20: Growth of fixed and mobile phones in Russia. The government has also supplied 10. Vladivostok. The insufficiency of hardware and the high rates of services have been major obstacles for any infrastructural development in the broadband sector.0 120. the number of users was more than 37. 2002–13 140. Irkutsk. there was rapid growth in internet use in the country. Krasnodar.000 public terminals in most regions to avail the usage of broadband.Technological landscape 60% of Russians had started using mobile phones. However. It is expected that the mobile phone market would soon reach saturation by 2013.0 40. after a period of revitalization of the sector during 2000–06.0 100.0 0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year Mobile phones growth Source: Datamonitor Fixed line growth DAT AMONITOR Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor.0 60. Nizhniy Novgorod. especially Moscow. In 2009.7 million: growth has been particularly remarkable in urban centers. Russia has been facing difficulties with the telecommunications and broadband infrastructure. The growth of mobile phones came down from around 62% in 2005 to around 8% in 2009.0 Growth rate (%) 80.0 20. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 72 . Novosibirsk.
Currently there is an ongoing transformation of the defense industry into consumer applications and the infusion of western technology through joint ventures with other countries. The wider objective is the growth of a ‘computer culture’. In 2005.0 80.00 0.00 0. then the country would soon find more avenues to develop more IT base products.0 -40.Technological landscape Figure 21: Internet users in Russia. inhabitants of the remote regions will be able to order computers at a set price of around $300–350. is intended to facilitate wider PC ownership among inhabitants of small cities.0 -20.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year Internet users Growth rate 10.0 40. If this is done by production of technologically advanced utilities. developed jointly with Russian Post. With average monthly earnings at around the $400 level.0 100. at least 10% below the lowest market prices. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. 2002–13 70.00 120.0 20.00 20. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 73 . the government approved laws to provide tax and other incentives for companies specializing in IT. the Russian government made IT a national policy priority.0 30. Intel and Microsoft.00 Growth rate (%) 60. Furthermore. This program. The Ministry of IT and Communications launched a new ‘computer for every home’ program in February 2007. and those in the rural areas. Russia has a large technological research infrastructure. For one.00 Source: Datamonitor DAT AMONITOR IT sector Russia has a comparative advantage in IT with its previous identity as one of the super powers.0 60. with an agenda to establish a series of IT oriented ‘techno-parks’.00 40.00 Internet users (millions) 50. The Russian technological institutions and universities have produced advanced military equipment for many years.
representing a compound annual growth rate (CAGR) of 20. generating total revenues of $895. In comparison. equivalent to 19.569.Technological landscape The Russian software market generated total revenues of $3. the French and German markets grew with CAGRs of 7. Research and development R&D expenditure The R&D expenditure in Russia has been considerably lower than many industrialized nations around the world.2 million and $37. To regain its former position in global science and technology.9% for the period spanning 2005–09.2% of the market's overall value.6 billion in 2009. Russia has made progress in formulating innovation policy and creating an innovation governance system in 2008. other BRIC countries like India and China allocate much higher percentage shares than Russia. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor.139. In comparison. In comparison.8 million in 2009.1% respectively.8 billion in 2009. central nervous system sales generated revenues of $1. the government has adopted a strategy to foster science and industry linkages. sales of network and database management generated revenues of $813. The R&D expenditure in 2009 amounted to $12. equating to 21.1 million. Pharmaceuticals The Russian pharmaceuticals market generated total revenues of $8.2% and 3. representing a compound annual growth rate (CAGR) of 18.091.6% of the market's overall value. equivalent to 23. The percentage share of R&D expenditure in GDP has consistently been around 1% in Russia.2% respectively.07% of GDP). the French and German markets grew with CAGRs of 3. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 74 .2% and 5. This was much lower compared to $17 billion allotted in 2008. General business productivity and home use applications sales proved the most lucrative for the Russian software market in 2009. Alimentary/metabolism sales proved the most lucrative for the Russian pharmaceuticals market in 2009. to reach respective values of $15.3% of the market's aggregate revenues. generating total revenues of $1.2 million in 2009. to reach respective values of $37. equating to 13.2 million.5% of the market's aggregate revenues.182.8 million in 2009. In comparison.6% for the period spanning 2005–09. In comparison. over the same period.6 million in 2009.306.3 billion and $22.6 billion (1. over the same period.
80 0. the country is set to begin a mission to Venus in 2015.0 8. The government is planning to invest $350 billion during 2008–13 into IT for enhancing the functioning of the education. space plasma physics. Furthermore. In 2010 and 2011 the country is also set to consecutively launch a fleet of three earth-orbiting astronomy observatory satellites. and space weather.00 Percentage (%) 0.00 2006 2007 2008 2009 2010 R&D expenditure as % of GDP DAT AMONITOR Outlook Russia has been on the forefront in global technologies related to space research. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 75 .0 R&D expenditure ($ billion) 14. Russia in the past has been instrumental in many successful space missions.0 4. During the late nineties it also entered into commercial satellite launch missions.60 0. Apart from being well versed in space technology. Furthermore.0 12.0 0. 2000–10 20.Technological landscape Figure 22: R&D expenditure in Russia. defense and power sectors.20 2. As a part of this initiative. Apart from advanced research capabilities.20 16.40 0. the country is gradually enhancing its capabilities in information technology and related areas.40 1.0 1.0 6.0 1. and laws were passed to provide tax and other incentives for companies specializing in IT. the country launched a series of IToriented ‘techno-parks' in 2009.0 18. The country has scheduled many space missions for the future. The Russian government is currently placing an increasing emphasis on IT as a device of reform in various economic sectors. the government announced in mid April 2010.0 10. Space research and technology in Russia has a wide reach in this area. planetary exploration. healthcare. that it would welcome the participation of companies from the US in projects linked to its future research and development center in the Moscow Region city of Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor.0 2000 2001 2002 2003 2004 2005 Year R&D expenditure Source: Datamonitor 0. with R&D in areas like high energy astrophysics.
The construction of the center may take three to seven years according to the government. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 76 . biotechnology. Prime Minister Vladimir Putin also ordered for forming of a unified plan for research into and development of armored vehicles of the future.Technological landscape Skolkovo. The future research and development center will focus on the energy. Furthermore. telecommunications. The unified plan of R&D includes areas such as power plants. aviation technologies and ammunition. armaments. IT. in December 2009. and nuclear industries.
the 'arbitrazhniy' or commercial court system with the High Court of Arbitration as the supreme body. and the Constitutional Court. Supreme Court is the highest court of authority for all civil. after the country joined the union in 1917. The Constitutional law was first passed in 1924 and later on amended in 1936 and 1977. Various codes like the civil code. Structure and policies Judicial system Structure of the system The Russian judiciary comprises the Supreme Court. The judges for these three courts are allowed to serve for life. In 1993. There was also a democratic element of having a jury system. However. with many laws originating from Russian legal tradition and Byzantine secular law. The president directly appoints judges of federal district courts. This system was reformed under the law of the Soviet Union. Russia adopted a new constitution. The judicial system was based on both British and French laws of judiciary. The ministry's responsibilities include the establishment of courts and the appointment of judges at levels below the federal district courts. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 77 . The legal system was developed under the traditional Western Civil law.Legal landscape LEGAL LANDSCAPE Summary The Russian legal system has a civil law system and is influenced by traditional European laws. and was distinguished from administrative functions of the state. criminal and administrative cases in Russia. civil and corporate legislation and labor code govern all major spheres of business activity. From then on judiciary became a part of legislative administration in Russia. the Constitutional Court and the High Court of Arbitration. selections of judges below the national level are still made by the chief executives of sub-national jurisdictions. This system was established based on two courts: the justices of peace and the other ordinary tribunals (these were adopted from the English and the French models respectively). The 1993 constitution provides for some degree of judicial reform by establishing an independent judiciary and specifying that justices may only be removed or their powers curtailed or terminated in accordance with the law. The judicial system in the Russian Federation is split into three branches. regional and federal level courts. The judicial system is also divided into a federal system and a system of local courts of the various 'subjects' of the Russian Federation. They comprise of the courts of general jurisdiction (of which the federal Supreme Court is the court of last resort). Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. Under these branches there are several districts. The judges for three branches are nominated by the president and appointed by the Federal Council. tax code. However. Evolution The judicial system of Russia was first established as a part of government reforms in 1864. after the erstwhile Soviet Union broke up. The Ministry of Justice was established in the same year making it the regulatory body administering Russian judicial system. The Ministry of Justice is accountable for appointing judges to regional and city courts. customs code.
The court is also authorized to hear criminal cases against members of the Federal Council of Russia and State Duma. Historically. Whenever there is a dispute between business entities. jury trials were accessible only in nine out of the 89 subnational jurisdictions. Domestic companies with local knowledge can now expand outlets or brands that offer consistent cash flow for foreign companies. Currently. The branches of these courts are called courts of arbitration and circuit courts of arbitration at regional level. legislations and regulations Russia is principally occupied by large industrial enterprises. the court also has the right to challenge individual acts passed under the Federal Assembly. There are 82 courts of arbitration in Russia. The court is also empowered to rule on infringements of constitutional rights. compared to developed market economies where more than 50% of shares is represented by SMEs. Supreme Court The Supreme Court of Russia is the highest court of authority for all the criminal. laypeople who usually complied with the judges' verdicts. including retail and media. with a small number of small and medium-sized enterprises (SMEs). including presidential decrees and the policies passed by the government. including those linking to a death penalty. the government is slowly easing regulations for SMEs by reducing tax and regulatory barriers to small enterprises. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 78 . Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. and to participate in any impeachment proceedings against the president. The court has many regional and district level branches under the name of charter courts. trial by jury may be allowed in specific kinds of cases. However. In reality. the case is taken for trial by the courts of arbitration. Foreign licensing in Russia has become widespread in a number of sectors in Russia. This also includes arbitration of disputes between Moscow and the regional and local governments. Trials and legislations Under the provisions of the constitutional laws of 1994. SMEs account only for 10–15% of the Russian GDP. staffed by almost 2. to inspect and scrutinize appeals from various government bodies. Apart from judicial powers in state administration. Legislation affecting business Industrial acts. civil and administrative cases. trial by jury has made negligible development in the conservative court system of Russia. Russia has mostly concentrated on developing large scale industries. It is also the court of last resort for all the cases heard in lower courts at district and regional levels.Legal landscape Constitutional Court The Russian constitution of 1993 authorizes the Constitutional Court to arbitrate disputes between the executive and legislative branches. High Court of Arbitration The High Court of Arbitration is the highest court for the resolution of economic and business disputes. This reform supersedes in part the older system of trial by judges and "people's assessors". This was done by introducing a simplified tax regime for small companies in 2003.000 disputes annually.000 judges addressing about 300. although other jurisdictions sought permission to introduce them. In 1995. the jury trial is only available in cases with serious crimes.
which are not considered securities. Until 50% of the shares distributed are paid for. As a result. The minimum capital is 1. The tax on company profits is made up of two rates: federal tax. the company may not carry out any transactions other than those connected with founding the company. Establishing operations as a foreign enterprise A foreign company looking at setting up operations in Russia can choose among the following options: Joint stock company (JSC) JSCs in Russia are of two forms: open JSCs and closed JSCs. This is significantly lower Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. the Competition Law limits mergers between companies where there is a possibility of a monopoly. many foreign companies have put a ceiling on their licensing agreements with Russian subsidiaries. A minimum of 50% of the shares to be distributed must be paid for within three months after the initial registration. The State Registration Chamber under the Ministry of Justice must recognize representative offices of foreign companies. The first refers to a company whose shares are openly traded and freely transferable. the drawbacks lie largely in the underdeveloped legal environment of Russia: the enforcement of ownership rights is still weak. representative offices and branches are not considered to be legal entities.Legal landscape This approach has reduced the uncertainty among foreign companies. which may either be established by a charter of the company or granted by a decision of the shareholders’ meeting.000 times the minimum monthly wage ($47) for an open JSC and 100 times minimum wage for a closed JSC.5%. Both forms must be registered with the tax authorities and accredited before commencing operations. providing them only with the rights to distribute their parents’ products or pay royalties to use the trademark in domestic production. They can also place their shares in predetermined circle of investors. Furthermore. An LLC is not allowed to have more than 50 members to have rights and obligations. An LLC does not issue shares. In line with its thrust for WTO accession. and a regional tax of 17. the charter capital is divided into contributions. and forged and pirated goods are widespread throughout the market. the LLCs need not be registered with the Federal Service for Financial Markets. As a result. Tax regulations Corporate profit in Russia is charged at a tax rate of 20%. the government has changed its focus to improve the judicial system and to develop stringent laws on copyright. A mandatory 5% legal reserve is to be maintained by the JSCs. However. Instead. trademarks and patents that comply with the WTO’s Trade-Related Aspects of Intellectual Property (TRIPS) agreement. Representative office or branch Under Russian company law. at a rate of 2. A closed JSC refers to a company where shares may be distributed to a limited circle of investors but most importantly to the founders. A representative office or a branch may carry out business activities on behalf of this entity.5% (with a possible incentive reduction of up to 4%). Limited liability company (LLC) The wholly owned subsidiaries of foreign investors are called LLCs in Russia. The liability of participants is generally limited to the amount of their original contributions. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 79 .
social tax. increase the pressure on companies in Russia. regardless of their citizenship. An important feature of the Russian labor law is its prescribed nature. regardless of their origin. Sales income is commonly the income from a corporation’s main business activities. levies and other taxes. 20% on royalties and income from leasing activities. Extensive documentation is required to dismiss an employee. 10% on income from international freight. For children younger than 16 years. there are a few other local taxes that are imposed on businesses. and transport tax. 35% on imputed interest on beneficial loans. additional overtime hours must be paid at least double the normal rate. The standard working week is of 40 hours. However. Non-residents are taxed at a flat rate of 30% on income sourced from Russia. However. etc). Withholding tax Russian-source income of a foreign enterprise may be subjected to withholding tax at source. Non-residents for tax purposes are individuals who spend less than 183 days in Russia in the calendar year. royalties. 36 hours per week. mineral extraction tax. while non-sales income is income from all other sources like dividends. Tax residents are taxed at a flat rate of 13% on worldwide income. Tax residents are taxed on most types of their worldwide income. which is one of the lowest individual tax rates in the world. Individual income tax In Russia. Students and schoolchildren younger than 18 years are not permitted to work more than 18 hours a week during the school or university year. The first two hours of overtime must be paid at a rate at least one and onehalf times the normal rate. Termination of employment is stringently governed by law. Employers who fall short of compliance with the labor code are subjected to civil. A wide-ranging new code was approved in 2001 and was implemented in January 2002. Russian labor laws apply to all enterprises and all employees. interest. foreign exchange gains. administrative. disciplinary and even criminal liabilities. Examples of such local taxes include unified social tax (UST). This brief is a licensed product and is not to be photocopied Published 05/2010 Page 80 . Overtime cannot exceed more than 120 hours per year. the Russian labor code is the main legislation governing workplace issues. individual income tax is charged according to the residential status of a person. Other local taxes Besides these national taxes. absenteeism Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. Withholding is possible up to 20% on interest on government securities.Legal landscape than that in most other neighboring countries. Taxable income in Russia is either sales income or non-sales income. and it is important for employers to have all necessary documents in order. along with the administrative procedures (such as registration requirements and tax audits). Non-residents are taxed only on Russian-source income. rents. Some of the reasons for a possible termination include liquidation of the employer. the maximum working week is 24 hours. compensation for losses and certain contributions and reserves. for teenagers aged 16–18 years and for workers engaged in dangerous work. are deemed to be liable for taxation. employee health problems. Labor law In Russia. property tax. Individuals who spend a minimum of 183 days in Russia in the calendar year. different tax rates apply to certain types of income received by Russian tax residents (9% for dividends. 15% on dividends.
construction and installation work for an enterprise’s own use. Currently there are rates applicable from 5% to 25%. 10% on certain food stuffs.3 is less than the world th rd Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. supervising court activity and monitoring various prisons. An employee may appeal against a dismissal in court within one month of receiving the dismissal notice. with noteworthy reforms being attempted in almost every sphere of law. Export duties are levied on goods and raw materials such as crude oil and natural gas. after which they are eligible to avail disability benefits from the social security fund. which has several branches in cities and provinces. This office is headed by the Ministry of Internal Affairs and Federal Security Service. and embezzlement or willful destruction of property. and scarce medicines. Duties as a rule are expressed as a percentage of the value of the goods imported. import duties are charged on the basis of the type of goods imported and their origin. The process of consolidating and rationalizing the legal framework of Russia's market economy remains ongoing. with major changes anticipated in a number of key areas. the government brought a statutory framework introducing modern standards of legislation. If the employee has been sick for more than a month. The transactions subject to VAT are sales of goods. In 1990. investigates crime and prosecutes offenders. carries out functions related to law enforcement. which are in turn refunded via the UST. The Federal Security Service is responsible for counterintelligence and also investigates organized crime and terrorism. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 81 . and penalties are imposed for late filing or payment. and imports. a payroll tax levied on all employers. VAT must be paid to the tax authorities on a monthly basis. It performs responsibilities like managing the court system.Legal landscape and stealing. The rates are ordinarily established in US dollars per unit or as percentage of value. The Ministry of Internal Affairs also manages all police agencies. The employees are entitled to sick pay if they provide the employers with a medical certificate. Furthermore. he has to provide a certificate from the commission of clinical experts. Furthermore. Russia’s index score of 50. Russia's judicial system is administered by the Ministry of Justice. In general. the social security charges are provided in the form of insurance and medical reimbursements (termed as sick pay). VAT is payable by all corporate businesses. work and services carried out in Russia. including representative offices and branch offices of foreign companies. Legal indicators Russia has been ranked in the 143 position in the Wall Street Journal’s Index of Economic Freedom 2010 and it ranks 120 in the doing business indicators of the World Bank for 2010. employees can receive sick pay for more than 10 months. Performance Effectiveness of the legal system Russia is in the midst of economic and legislative reforms. The General Prosecutor's Office (Procuratura). unemployment benefits and the state pension are paid out of social insurance and pension funds. Disability benefits. The different rates of VAT include 18% on domestic sales. The legal structure developed at a rapid pace during the 1990s. children’s goods. VAT and customs duty In Russia. Social security charges In Russia. The General Prosecutor's Office supervises the law enforcement agencies.
President Dmitri Medvedev drafted. In contrast.821 which is 43% more than in 2008. It was reported by the Russian Prosecutor’s office. th Outlook The legal regulations in Russia have been changing ever since the end of the Soviet rule.3. in April 2010. and 44. nine different stages are needed to start a business in Russia. In 2010.000 people were brought to civil liability which was again over 58% more than in 2008. According to Transparency International (TI). down 18 places from the 2009 rank of 88. Also. Out of the 180 countries surveyed in the 2009 in terms of the CPI. Despite the new rules.7% of per capita GNI. and non-implementation of reforms. over 263. it takes 30 days and 2. In Dealing with Construction Permits. the OECD average is 5. the country has not been successful in decreasing the corruptive practices in the country during 2009. Russia was in 146th place (down from 143rd place in 2007).000 breaches of the law on corruption were identified and 36. indicating a restrictive environment for business. The federal law on the prevention of corruption was adopted in 2008 and the federal laws outlining the procedures for conducting anti-corruption tests were passed in 2009.2out of 10 in terms of corruption perception index (CPI) in 2009. According to Doing Business 2010. In ‘Doing Business 2010’. In May and September 2009. freedom from corruption.7% of per capita gross national income to start a business in the country. Russia’s performance with respect to corruption has also worsened. In the Employing Workers index. which is the lowest standing in the last eight years. the country was ranked in the 109th place and in Protecting Investors. the Russian president issued decrees outlining the procedures for releasing.7 stages. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. compared to its 44th rank in 2007. The current government is determined to reduce the red tape that fuelled widespread corruption. lack of staff. 13 days. Increased public attention will be given to information about income and property that are now being submitted by all public servants and officials.3 in 2007. Russia ranks highly only in fiscal freedom. the country was ranked 182nd and the country was 45th in Registering Property. checking and publishing information on the property situation of public officials and their family members. Furthermore anti-corruption steps also include an obligation of the Russian presidential administration officials to publish their income and property statements in the near future. freedom from government intervention and investment freedom. As part of legal reforms. income and property statements will also be submitted by the administration officials and are due to be published by the end of the year. The main problems affecting the Russian judiciary and legal bodies are lack of funds. that the number of corruption cases opened in 2009 was 4. they have been ineffective in enforcing law in the country. Among the proposed measures to combat corruption is the harmonization of Russia's financial reporting standards with that of Europe and the US. Russia has scored 2. down by five places to 93. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 82 . Increased tightening on the legal front is expected to bring in greater transparency in governance and reduce corruption in the country. but does not score as highly in terms of property rights.Legal landscape average of 60. a national anti-corruption strategy to minimize corruption. Moreover. Although the country has assigned laws and law governing bodies. down from 2. Russia was ranked in the 106 position in the Starting a Business index.
Structure and policies Environmental regulations Overview The Ministry of Natural Resources of the Russian Federation is the regulatory authority for performing the role connected to state policy formulation. In 1989. In 1993.3 billion. After the disaster. the use. This brought in substantial changes in the public's outlook towards environmental conservation in Russia. large-scale industrial development. and alterations of existing commercial facilities. a sizeable green interest group arose in the late 1980s. which is considered to be the largest nuclear accident ever. even in 1996. Russia and the other Soviet republics reacted to the consequences of the Cold War by raising a defense-oriented. but only one-third of respondents articulated their willingness to forfeit economic advantages to improve the environmental situation. manufacturing of new technology and materials. less than 4% of the national budget group entitled "industrial construction. Furthermore. The ministry also is responsible for administration of the subsoil stock and forestry. Russia has also become the third largest emitter of carbon dioxide in the world. deforestation. a national poll positioned environmental pollution fifth among citizens' key concerns. issues related to environmental conservation were compromised. As a result of large military production there were many disasters in Russia leading not only to environmental damage but also to an increased human death toll due to accidents during production. violation of public health regulations. a scorched inland sea. citing polluted water supplies." in which environmental expenditures were included. and toxic urban air as reminders of the hunt for industrialization at any cost. following China and the US. and acid rains.Environmental landscape ENVIRONMENTAL LANDSCAPE Summary Russia has been suffering from the problems of environmental pollution for quite some time. the State Duma approved a law requiring environmental impact assessments for a wide range of construction and development projects. particularly in instances where the closing of a polluting plant threatened the livelihood of a town or city. the drastic drop in production has not been accompanied by corresponding reductions in pollution and contamination. conservation. and Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. and air pollution. In the 1990s. however. Nevertheless. Although the government is taking many measures in terms of environmental protection. Evolution The Soviet and Russian environmental conservation history has been by and large gloomy. Russia’s nuclear reactors and nuclear wastes pose major threat to the surrounding regions. large usage of natural resources. Seven decades of Soviet rule left decreased landscapes and marine ecological units. and management of natural resources. and the environmental situation in the country has not showed any signs of improvement. In 1995. Russia suffered from a deep socioeconomic crisis that lead to a decrease in industrial output by 50% with no sign of any upsurge. One such accident was the Chernobyl disaster. the use and preservation of water resources. Russia's total investment in environmental preservation was about $2. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 83 . due to the deteriorating economic situation and uncertainty in markets. revitalization. contaminated rivers. However. Contrary to the expectations and forecasts of many scientists and economists. Russians were also unaware of fundamental issues such as loss of biodiversity. the public were occupied in exceptional discussions on the dangers that the country’s environmental policies posed to public health. production-fixated economy in the middle of environmental destruction.
protection of other hydraulic structures. Fostering international co-operation and integration in environmental conservation. Encouraging public participation in environmental activities. and expansion and implementation of the climate policies. the Law on use of Atomic Energy and the Law on Protection and Use of Fauna. Directing investment towards environmental management and control. the operation and safety of multipurpose reservoirs and water-resources systems. Food and Rural Affairs (DEFRA) along with the Department for International Development (DFID) of the UK. The Department for Environment. is also implementing other initiatives like the promotion of energy efficiency and GHG emission reduction in glass manufacturing sector.Environmental landscape fortification of the stock of wooded forests. Policy Environmental regulations have been taken seriously only since 1991 in Russia. along with various European organizations. the Law on Conventional Shelf of the Russian Federation. Environmental protection and health The government has implemented several policies in the country to encourage environmental protection and health. An information exchange network would be crafted under the project to assist collaboration on implementation of the Kyoto mechanisms. the government. The main objective of this project is to improve water and wastewater services in 14 cities with a population Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. This is a five year program (2006–11) aiming at improving managerial and operational standards at water and wastewater utilities plants. As part of this initiative the Russian Regional Environmental Centre (RREC) has taken up a project to implement an awareness program among the public and policy makers on climate change and the Kyoto protocol. and reproduction. Incorporating advanced technologies to set standards for pollution control. and building institutional capacity to develop and implement climate change policies. Furthermore. is making efforts to implement policies protecting the country from the ill-effects of climate change. Furthermore. Furthermore. the use of wildlife resources and their habitat are all maintained and procedurally streamlined by the ministry. Since then. has implemented projects such as municipal water and wastewater management project (MWWP). Environmental actions Climate change and energy efficiency The Russian government. energy security programs. the country also ratified many international conventions during this period. Strengthening environmental monitoring systems. along with private partnerships. Building an effective compliance and enforcement system. several laws were passed such as the Law on Environmental Protection (1991). This brief is a licensed product and is not to be photocopied Published 05/2010 Page 84 . The government policy on environment focuses on the following areas: • • • • • • • Strengthening the legal and regulatory framework. the Law on Environmental Impact Assessment (1995).
This disagreement between state and public in this regard is a current problem for the government. and there have been some noteworthy achievements in the ecological efficiency of agriculture in the country. Moldova. The World Conservation Union division of Russia is currently running two projects under the biodiversity protection.000. The Northern Dimension Environmental Partnership (NDEP) is a partnership of the European Commission. conservation and development of the surface water resources in several regions of Russia. It recognizes that the climate system is a shared resource whose stability can be affected by industrial and other emissions of carbon dioxide and other greenhouse gases. fauna and ecosystems. the Baltic Sea and the Arctic Sea region. Forest governance and reduction of illegal logging is one of the projects aimed at improving legislation and interagency relations in Russia. such as climate change. The objective of the project is to provide support toward correcting defects in the legal framework related to forests and markets. Russia. The policy framework for the NDEP 2007 was approved in the EU-Russia Summit in 2006. Russian basic sciences (forestry. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. There are also other countries of former soviet rule that are part of the ENP. The countries are important partners in global. A system of protected areas has been functioning for about 100 years. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 85 . and Armenia. Russia only pledged to make a 10% to 15% reduction below 1990 levels by 2020 as part of a commitment to the Kyoto Protocol. Norway and Iceland. and other pollution issues in Baltic and Arctic regions. and several other projects on air contamination and sustainability of lakes spread across Russia. hunting. the government had already completed projects related to establishing corporate priorities in the field of environmental protection and health. its identification. The European Commission has contributed more than $47m towards non-nuclear projects under the NDEP Support Fund. European regional and sub-regional environmental issues.9 billion investments. This agreement aims to reinforce the exchange of ideas between the EU and its member states and the northern countries including Russia. but said that it would reduce emissions by 20% to 25% as part of an agreement on long-term cooperative action. with 192 countries having ratified the convention. No deal could be clinched in Copenhagen. Participation in global efforts/agreements/pacts European Neighborhood Policy (ENP) Under the EU-Russia strategic partnership. the EU and Russia also have a special agreement on the Northern Dimension which tackles the explicit challenges and opportunities arising in North-west Russia. NDPE grants have leveraged over $992m IFI loans and $1. NIB. flora. evaluation and monitoring of its status. fishery) have created conditions for sustainable use of biodiversity. Ukraine. They include Belarus. Biodiversity As one of the largest countries in the world. several EU Member States.Environmental landscape of about 300.100. Furthermore. however. The country has also rich traditions in the field of biodiversity conversation. Furthermore. it aims to regulate the poor coordination of state and public control over the consumption of forest products. during 2002–05.000 to 1. Copenhagen conference on climate change The United Nations Framework Convention on Climate Change (UNFCCC) sets an overall framework for intergovernmental efforts to tackle the challenge posed by climate change. Norway and international funding institutions (EBRD. The convention has a universal membership. sustainable development. agrarian. Russia boasts rich natural resources. the environment is also an important component among several other issues. Furthermore. World Bank) to catalyze and leverage environmental investments with a focus on North-west Russia. talks on a binding international climate change pact continue in 2010. EIB.
reduced tourism and investment. decreased labor productivity. rivers.In 2009. This is also resulting in the reduction of forest cover. Most of the industrial centers have poor air and water quality. However. Russia’s operational nuclear reactors are considered highly unsafe and some reactors are not scheduled for shutdown until after 2010. Particularly in Africa Kyoto Protocol to the Framework Convention on Climate Change (year of ratification/signature) Cartagena Protocol on Biosafety 1988 1988 1995 1995 1997 2003 2004 DAT AMONITOR Source: Datamonitor Performance Environmental impact Environmental pollution has had a substantial negative impact on Russia's economy. it is expected that the country will reduce its CO2 emission rate to around 0. overgrazing and unrestricted harvesting. On the other hand. Air pollution is largely caused by industrial clusters in the Kola Peninsula. Russia has been largely affected because of the Soviet-era industrial. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor. swiftly increasing vehicles using unleaded gas aggravate air pollution. These policies disregarded environmental protection and as a result many sectors of Russia are deemed environmentally dangerous. The Caspian and Black seas. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 86 . and agricultural policies. the Volga River. Furthermore. and Lake Baikal are areas significantly affected by pollution in Russia. Soil erosion is increasing in Russia due to harmful agricultural activities. 1988 Montreal Protocol on Substances that deplete the Ozone Layer Framework Convention on Climate Change Convention on Biological Diversity UN Law of the Sea UN Convention to Combat Desertification in Countries which Experience Serious Drought and/or Desertification. central Siberia. increased disposal of unsafe radioactive materials is polluting coastal water. and also decreased yield of natural resources.9% by 2013. Russia's carbon dioxide emissions rose by 1.Environmental landscape Table 11: International environmental treaties signed and ratified by Russia International treaty Year of ratification Vienna Convention for the protection of the Ozone Layer. and the Urals. energy. and terrestrial areas in Russia. It is leading to health-related budgetary pressure. the Sea of Azov.9%.
500 1.700 1. 2002–13 1. Caspian Sea being the world’s largest lake is one of the most polluted lakes in the world and both the governments are hoping to initiate measures to curb further deterioration.5 0. the government is also developing a “climate doctrine” aiming to introduce energy-saving technologies and to improve the energy efficiency of the entire economy.0 3. The Ministry of Natural Resources in Russia has completed an environmental code for the country.800 4. Furthermore. This environmental code is packaged with different measures implementing environmental protection at various levels. the Russian government announced that it would join the International Convention on Oil Pollution Preparedness. Dmitri Medvedev.750 Million metric tons 1.0 Growth rate DAT AMONITOR Outlook The Russian government is currently initiating various environmental agreements around the world to step up the environmental conservation efforts in the country and also contribute to the global efforts on various environmental issues. This brief is a licensed product and is not to be photocopied Published 05/2010 Page 87 .550 2. Russia is expecting to maintain its environmental targets going forward.600 1. The project also contains a proposal to combine all nature preservation functions in a single federal body.650 1. With many environmental programs arranged for the future.850 1.Environmental landscape Figure 23: Carbon dioxide emissions in Russia. has elevated the environment to one of the prime issues in government policy making.900 1.0 1. the country also joined hands with the Iranian government to conduct research on the Caspian Sea.5 3.5 1.5 Percentage (%) 2. This was followed by government’s decision in February 2010 to introduce a program to combat pollution in Baltic Sea. The Russian President. Russia: Country Analysis Report – In-depth PESTLE Insights © Datamonitor.400 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year Volume Source: Datamonitor 0.0 1.450 1. The code will promote the reduction of harmful impact on environment and upgrading production techniques on the basis of best available technologies. In July 2009. Furthermore.0 1. Response and Co-operation (OPRC Convention).
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