EMERGING MARKET ECONOMIES

GROUP ASSIGNMENT

RUSSIA
THE SUPERPOWER OF A BYGONE ERA

Soham Biswas – C024

Ankita Dey – C046
Riti Saha – C055
Subhadeep Barkataki – I007
Roopsa Pal – I015
THE MACROECONOMIC INDICATORS OF THE COUNTRY TO ANALYZE THE
HEALTH OF THE COUNTRY

Russia's overall gross domestic product (GDP)1 is $1.719 trillion, making it the world's 12th largest
economy. Russia is one of the BRICS (Brazil, India, China, and South Africa), a group of five emerging
markets that includes Brazil, India, China, and South Africa.

Despite the recession of 2014, harsh sanctions, and political isolation, Russia maintains a low external
debt load and strong foreign reserves. It has gone a long way since the demise of the Soviet Union,
which was marked by a ‘command economy,' in which the government devised the country's economic
strategy and allocated all of its resources. Russia now has a mixed economy, with certain features of a
typical ‘market economy,' in which economic activity is driven by supply and demand, and just a few
vestiges of its command economy.

The service industry, the industrial sector, and agriculture are Russia's three largest industries.

• Service: With 62 percent of GDP, the service sector is the most important. However, once
agriculture suffered a setback in the post-Soviet era, this industry started picking up. Finance,
tourism and hospitality, retail commerce, arts and culture, healthcare, and real estate are all
examples of this area.
• Industry: Mining, construction, manufacturing, water, gas, and electricity are all part of the
industrial sector, with fuel and energy being one of Russia's primary exports. This industry
accounts for about 32% of the country's GDP. The industry's prosperity is largely owing to
Russia's abundance of natural resources such as oil, natural gas, platinum, and gold.
• Agriculture: Agriculture accounts for 4% of Russia's GDP, and comprises activities such as
fishing, agricultural production, and cattle, to mention a few. Rice, maize, wheat, potatoes,
tomatoes, apples, and other Russian products are available. Despite contributing only a modest
fraction of GDP, it employs over 10% of the Russian population.

MACROECONOMIC INDICATORS

ECONOMIC GROWTH AND SLOWDOWNS

Russia’s GDP per capita in USD

 • As we know Russia has a huge source of natural resources. It is one of the largest exporters of
oil & natural gas. Therefore, its economy depends on oil prices and on global commodity
cycles.
• In 2014, the Russian economy was hit by two big shocks, just averting recession with 0.6
percent growth. The steep drop in oil prices in the third and fourth quarters of 2014 was the
first shock. Crude oil prices finished 2014 at less than USD 60 per barrel, after oscillating
within a narrow band near USD 105 per barrel from 2011 to 2013. The second shock came in
the form of economic sanctions imposed as a result of geopolitical tensions, which dampened
investor interest in Russian ventures. Capital flight and rising inflation have exacerbated
Russia's economic difficulties, with the GDP shrinking at its worst rate since 2009, 3.7
percent in 2015. This is the reason we see a drop in GDP per capita during the 2014-15 era.
• On March 6, only two weeks after global financial markets went crazy because of the
COVID-19 epidemic, Russia initiated an oil price war with Saudi Arabia, which provided yet
another diversion. The drop of oil prices exacerbated Russia's financial difficulties. On top of
the coronavirus reduction, the reduced oil price will produce a substantial drop in GDP. Brent
oil has dropped in price from $60 per barrel at the start of 2020 to about $25 per barrel now.
This again explains the fall in GDP per capita in 2020.

LABOUR MARKET

Unemployment rate - Russia

• Russia's economy, like most others, is centred on the Services and Industry sectors, with the
agriculture sector playing little to no part in the production of gross domestic product. As a
result, just two industries employ the great bulk of the workforce. Russia, on the other hand, is
one of the world's major wheat exporters, ranking third after the United States and Canada.
• On job quantity metrics, Russia does pretty well (Fig 1 in appendix). The employment rate is
higher than the average for OECD nations. Unemployment is being reduced through flexible
labour market regulations, inadequate unemployment insurance, and the continued economic
recovery.
• In terms of employment quality, Russia is towards the bottom. Earnings quality is at the bottom
of the OECD, owing in part to poor labour productivity as a result of the economy's low capital
base.
• In terms of labour market resiliency (Fig 2 in appendix), Russia outperforms the OECD nations.
This is primarily due to insufficient unemployment insurance, which forces people to find new
jobs quickly, which is still feasible given to labour market flexibility.
 • Russia's secondary school system is generally competent, ranking higher than the OECD
average. Only 23% of children score below Level 2 in PISA or do not attend secondary school,
compared to 31% on average in OECD nations, laying the groundwork for a future highly
trained workforce.

• Dependence of inflation rate on oil prices: Since August 2015, when it peaked at 15.8%
(Fig 3 in appendix), inflation has been quickly declining. Central Bank lending rates have
been decreased in tandem with the decrease in inflation. Russian bonds and stocks are
outperforming other developing market bonds and equities, and a slight rebound in oil prices
has boosted economic optimism.

• Exchange rate type: rate Bank Rossii unpegged the ruble from a dual-currency (US dollar and
euro) basket band on November 10, 2014, putting an end to two decades of exchange rate
restrictions and transitioning Russia to a free-float exchange rate regime. The Central Bank also
halted its regular ruble interventions, but stated that it would continue to intervene in support
of the Russian currency if financial stability was threatened.

• Exchange rate dependency on oil: The price of oil, which, together with gas, is Russia's
primary commodity export, drives the Russian ruble's fluctuations. On January 21, 2016, the
ruble plummeted to an all-time low of 82.4 RUB per USD, as oil prices plunged to levels not
seen in almost a decade. Since January 2016, it has steadily stabilised between 60 and 70 RUB
per USD as the economy has rebounded and oil prices have creeped back up. (Fig 4 in appendix
gives the Balance of payment over the years)

• FDI inflows & obstacles: Given the country's development and economic potential, the
percentage of FDI in GDP remains modest, and working capital investments account for a large
portion of overall FDI. Russia has implemented economic changes in recent years, but
administrative issues, corruption, and concerns about the region's stability remain key
obstacles.

• FDI inflow sectors: As we see (in fig 5 from appendix), the main sector for FDI inflows is
mining and quarrying. This again shows how Russia depends on its natural resources for its
economic growth.

• Debt: Russia's government spending watchdog, said that the country's debt is 19 trillion rubles
($257 billion) at the end of 2020, accounting for 17.8% of GDP. This is due to increased
expenditure to combat the epidemic and decreased tax income.

Russia’s economy depends on its huge source of natural resources. Every macroeconomic indicator is
affected by oil prices around the world. Whenever there is a fall in oil prices (in 2014 or in 2020), the
indicators show negative trends while an increase in oil prices has a positive effect on these indicators.

EXAMINING THE GOVERNMENT POLICIES OF THE COUNTRY WHICH

PROMOTE INVESTMENTS

It was the Tsars in the 1800s who first encouraged industrialization and opened the economy to foreign
direct investments, establishing high protective tariffs against ports in order to be more prosperous than
their European counterparts. Before the emancipation of the peasants in 1905 heavy taxes were brutally
extracted from them to be funnelled into industrial investment and procurement of western industrial
equipment to increase productivity. As the feudal system in Russia continued through the 19th century,
the process of industrialization and institution building was slowed down in the future years. There was
however a significant industrialization reform in early 1890s under finance minister Sergei Witte who
helped attract FDI for railroad growth, petroleum industry (2nd largest in the world) development and
development of modern manufacturing. However, there was poverty, inequality and fragile institutions
& infrastructure.
Economic Progress under Socialism

In 1917 the Tsars were overthrown after 2 decades of political and social turmoil and the Bolshevik
wing of the Socialist Democratic power with Vladimir Lenin taking the lead marking the birth of the
Soviet Union in 1922. With the slogan of “Peace, land and bread” he turned the control of factories to
the worker committees. Although by 1921 the economic conditions in Russia were very poor due to
being cut off by war, being cut off from international trade and borrowing. To revive the economy Lenin
introduced the New Economic Policy (NEP) which revolved around free markets, socialism and
capitalism. This is the time when War Communism came into being with new policies which legalized
small scale manufacturing and private trade as well as stopped forceful requisition of agricultural goods.
But due to this the agricultural production increased more rapidly than the industrial production leading
to a fall in prices of agricultural goods and rise in prices of industrial goods.
In 1924 after the death of Lenin the group with industry-led growth mindset gained power and
introduced measures such as price controls on agricultural goods, elimination of private trades and
market-based prices. All this did not help the rising industry goods prices and ultimately, they were
discredited.
In 1927 Joseph Stalin came into power with his brutal new methods and policies of industrial led growth
by investment and forced increase of industrial labour force. He favoured a centrally planned economy,
artificially fixed prices and top-down control on economic behaviour. The most brutal part was
collectivization where millions of peasants were accused of being wealthy (kulaks), thus jailed,
executed or exiled as punishment. The others were forced to merge land for collective farming, raising
the percentage of collective farmers from 1.7% of agricultural population to 93.5%. The market led and
spontaneous forces were disparaged and centrally led economic development was encouraged. Each
farm and production enterprise were directed on exactly how much to produce and for whom, at what
prices and at what inputs. Investments were focused on capital goods industries as a large armaments
industry and heavy industrial base was needed to counter the presumed threat of the United States. As
a result of all this the production of consumer goods lagged behind heavy industry, leading to a crash
of the thriving agrarian sector leading to famines and millions of deaths. On the contrary, during the 50-
year rule of Stalin, the Soviet Union emerged as a superpower through the policies of collectivization
and industrialization. Industrial production increased 137% and national income by 87%. Regulating
wages and production, forcing increase in urban population, industrial labour force through brutal
collectivization, technological improvement in heavy industries like aircraft, chemicals etc. all resulted
in economic growth. Although the Great Purge and the brutal methods adopted by the government in
the countryside had a huge human cost through trials, accusations, punishments and executions. In 1941
Germany entered the Soviet Union but they quickly battled the forces through increased focus on
production of military equipment, military production jumping to 55% from 15% and thus defeating
Germany in 1945. It also initiated the Cold War with United started due to its stockpile of thermonuclear
weapons. Stalin’s rule left behind a culture of terror and suspicion in the future developments of politics,
institutions and social interactions of the country.

Under Nikita Khrushchev between 1956-64 we saw a power shift from industrial ministries to ministries
of geographical regions initiating reform of improving agricultural output through territorial
decentralization. He increased the levels of utilization of existing resources and increased in fixed
investment, household consumption under campaigns such as Virgin Land and ‘plow-up’ utilizing
unused and fallow land. Detonation of atomic weapons, thermonuclear weapons, launch of the first
satellite, Sputnik (1957) made the Soviet Union revered in the world and gave testament of
technological progress under Socialism. There were creation of special trading zone of socialist
countries (Committee of Mutual Economic Assistance) and increase in external trade as well as military
aid. Although initial results were bright in 1962 this led to food shortages, land degradation and poor
harvests.

Brezhnev between 1970-82 introduced policies focused around expanding the middle class, fixed
rewards for labour. The “little deal'' was initiated with diminished material rewards and reduced
demands on workers which ultimately led to decline in rate of economic growth. Thus, he attempted to
drive growth through rapid investments programs but the ROI on investment had diminished and soon
identified that factor productivity had to be increased through scientific and technological revolution
along with focus on intensive growth. Military power also declined and the government was making
huge expenditures on military power. The economy had entered an era of stagnation. The shortages and
government inertia led the population towards leveraging black markets, initiating the term svyazi
which meant leveraging networks and connections for personal gain. Food was referred to as being
taken or getting instead of buying. As everyone was exploiting networks for personal gain the state
weakened and there was a rise of the Red Dictators who were the managers of state-owned enterprises.
Yuri Andropov (1982-85) tried to weed out corruption and return discipline to the system in order to
increase economic growth. Police organized raids in places of public entertainment to jail and fine
workers absent from work place, alcohol sales were reduced, freedom of workers was restricted etc. All
this showed short term rapid increase of growth out of the previous prevalent recession.
After decades of claims since the revolution in 1917 that a socialist economic system was better than a
capitalist system on both moral and economic grounds, finally in 1988 Gorbachev started to look for
ways out of the economic deterioration as clearly shown by the country’s per capita income.
Gorbachev had three main aspects to the new strategy:
• Allowing greater openness to discuss Soviet problems (glasnost)
• Greater democratization to make Soviet people part of the process of change
• A radical restructuring of economic relationships (perestroika)
For the Soviet Union to reach a high level of future growth, between 1986-88 Gorbachev introduced
economic reforms that reduced centralization in decision making, increased investment and focus
on research and development. His initial economic reforms were around tightened discipline, same
as Andropov. Though initially conservation he started leaning into openness through glasnost by
reducing state control over intellectual, cultural and religious activities. Artists were no longer
suppressed, and this new freedom of expression brought in increased awareness of corrupt, inefficient
practices along with reduced faith in Communist Party and Socialist Government. By allowing freedom
of expression and influx of foreign media Gorbachev opened himself up to criticism from both ends of
the spectrum. It came to notice that the prevalent policies, price and system discouraged innovation, did
not encourage production efficiency through adoption of technology, with no incentive to produce at
lower rates there was no eagerness to reduce the cost of input materials. Since 1970 the economic
growth rates of the Soviet Union were declining, internal stability as well as external military stability
seemed ambiguous to maintain, Gorbachev acknowledged that the government through the years had
failed to understand the need of transformation to intensive methods of development instead of focusing
on inputting additional labour and material resources to production. Some of the reasons for declines in
growth were stated as: lack of discipline, unprecedented expenditure on military resources,
overexpansion of capital stock, diminishing returns due to overutilization of natural resources,
separation of research institutes from firms, overemphasis of research on military, a controlling
and very complex economy etc.
Gorbachev’s strategy came through a dramatic economic restructuring called Perestroika revolving
around reintroduction of mixed free market and planned economy. There were two important aspects:
Law on State Enterprises: Intention was to make enterprises more self-financed and self-managed,
lesser targets were set by the state, funds were at the firms’ discretion to allocate, and overall reduced
restrictions on private enterprises. Minimum labour standards, tax policy and product pricing were still
regulated by the state. The Red Dictators thus further grew wealth. In 1990 20000 enterprises were
permitted to even trade internationally.
Law on Cooperatives: Increased autonomy of producers and sellers, cooperatives could transfer profits
to cash and send on consumer goods, wholesale prices were set free with control only on retail prices,
banking system was transformed and commercial banks were allowed to extend credits to firms with
interest. This was thus often used as vehicles to siphon state funds.
Apart from this there was greater investment in research and development of the defense industry which
led to increased budget deficit and expanded money supply.
Gorbachev’s reforms failed miserably which increased shortages and rising prices, reduced industry
and agricultural output. Revenue from energy production which was a key source fell and the combined
loss of revenue deterred the country from importing necessary consumer goods like clothes,
automobiles etc. This led to a massive inflation scenario where in 1991 prices of basic foodstuff
doubled. This led to fall of the Soviet Union in the hands of KGB and rise of the Russian Federation as
an independent country in 1992 under the leadership of Yeltsin

The New Russian Federation: Shock Therapy

The country was moving from communism to a market economy. It had the following problems: food
and consumer goods shortages, rising inflation, weak institutions, huge national debt, lack of financial
and legal infrastructure. Yeltsin set out to lay down new reforms with the help of ministers of
departments, external consultants and Harvard professor Jeffrey Sachs and his team known as the
Harvard Boys. They believed in Shock Therapy which meant aggressive action to remove decades of
communism through focus on price liberalization. In 1992 all price restrictions were lifted and the state's
monopoly on private property was abolished. This led to rapid rise of inflation up to 1500% and fall of
GDP by 43% between 1991-98. Although this as a statistical illusion and inflation normalized when
accessibility of state credit was limited in 1994 reforms. This had severe social consequences like
inflation, unemployment, bankruptcy, factory closures. 50% of the Russian population was forced into
poverty and life expectancy reduced.

The next reform was the voucher system under Chubais and Shleifer to privatise all enterprises in
Russia. This would give owners incentives to make investments profitable and thus lead to the rapid
improvement of industry. In 1992 every citizen including children were given vouchers of 10,000 rubles
to provide equal access to state owned enterprises during auctions as most citizen savings were depleted
due to hyperinflation. Voucher funds arose, people exchanged vouchers for money given the economic
conditions. The government sold assets at a significantly low market value (18% of the industry at
below $12 billion), massive business empires were formed as Red Dictators had the wealth and means
to collect vouchers.
There was an influx of gang behaviour and organized crime among the business owners to protect their
private property as the government had no obligation, coining the term kryshya or roof against attack
which led to the rise of the Russian mafia.
In 1995 a new type of strategy was adopted by the Yeltsin government where Vladimir Potanin, the
chairmen of a leading private bank offered a solution to fiscal problems of the country with the objective
of increasing popularity of Yeltsin before the 1996 elections. Some Russian banks would offer the
government a large loan for one year, with collateral kept being the 29% share in state owned enterprises
of the oil and mining sector. This led to making the business leaders multibillionaires.
The new government that rose in 1996 was based on personal greed, oligarchic, corporatist with
monopolized property rights and semi-criminal relationships. They could not repay the debts and sold
the shares of most valuable Russian enterprises. Seven men held 50% of the country's wealth and all
enterprises fell in the hands of the oligarchs. The businessman had become more powerful than the
government with no tax generating assets or a functioning tax collection system.
In 1998 Russia defaulted on domestic debt and announced a foreign debt moratorium which led to fall
of ruble value by 75% and inflation increase by 100%, a crackdown on crime and corrupt
businessmen were also initiated that year.
 Rise of Vladimir Putin
In the 2000s Presidential elections Vladimir Putin came into power. Soon after he appointed seven
new unelected officials presiding over 98 regional governments who were former members of KGB.
He ordered tax investigations into all oligarchs. He aimed at re-defining a line and relationship
between state and government. He gave an ultimatum to the oligarchs where they would not be
confiscated of their wealth and status if they follow rules set by the state like by taxes, stay out of
politics, refrain from using the media empire to attack politics etc. Most of the oligarchs obliged to
this demand and stayed wealthy, the others were reprimanded and striped of their wealth.

IDENTIFY THE RISKS AND OPPORTUNITIES PRESENT IN THE COUNTRY

WHICH WOULD AFFECT INVESTMENTS

Risks of doing business in Russia

Some Russians argue that international investors place too much emphasis on Russia's vulnerabilities
while neglecting similar concerns in other economies. Russia, for example, is docked points for
repealing many of the glasnost-era freedoms, but China's repression is ignored. Russian indignation is
undoubtedly justified, but Russia still faces significant risks:

An aging population and brain drain

Russia's population is on average 38.5 years old, and the birth rate is much below replacement. This
position begs the question of whether Russia will have sufficient workers to support its seniors, as well
as sufficient workers and customers to support a more diverse economic base.
Aside from the falling birth-rate, Russian scientists and engineers have a long history of emigrating to
other nations in search of greener pastures.
However, if Russia's economy improves, people will have more confidence in the future, which will
increase birth rates (the government already provides a bonus to women who have a second child) and
reduce migration.

Corruption and crime

Russia, like many former Communist countries, has a long history of corruption because it was the only
way to get things done. Foreign investors are scared off by the corruption. Furthermore, after the Soviet
government disintegrated, Russia had a period of lawlessness, with organised criminals filling the hole
in many cities.
The government is working to fix the problem, and if investors detect a genuine shift, Russia will
become a more appealing destination to do business.

Reliance on one key industry

Oil and gas are the lifeblood of the Russian economy. This is beneficial because the global demand for
carbon-based fuels is enormous and expanding. The Russian economy, on the other hand, is directly
subject to price swings due to its limited concentration. Furthermore, the world's oil and gas reserves
will be depleted at some point. The absence of economic diversification in Russia poses a significant
long-term concern.
On the plus side, Russia's economy has the potential to be more diverse. It features a diverse spectrum
of natural resources and terrain, as well as a talented population. Diversification is necessary.

Intellectual property rights

Although measures have been attempted to make the procedure easier, establishing intellectual property
rights in Russia remains a time-consuming process. A specialised court for intellectual property rights
has been established inside the Russian Federation's commercial courts as of February 1, 2013

Starting a business
According to a survey by the World Bank and the International Finance Corporation (IFC), starting a
firm in Russia takes an average of nine procedures and around 23 days. Furthermore, it costs on average
2.3 percent of per capita income, with Surgut being the most difficult and St Petersburg being the easiest
places to start a firm.

Construction permits
The number of stages required to obtain a construction licence varies substantially by city; in
Novosibirsk, only 16 are required, compared to 47 in Moscow. As a result, the time it takes to obtain
permissions varies greatly, from a year in Moscow to five months in Surgut.

Registering property
Property registration in Russia is quite inexpensive, with registration fees that are among the lowest in
the world and far below the OECD average. However, the process takes an average of four procedures
and 35 days to complete.

Getting electricity
In Russia, obtaining electricity is a time-consuming process that might take anywhere from four months
to a year, depending on the location. Design clearance is a particularly difficult stage, requiring multiple
visits to government offices and taking anywhere between 30 and 120 days.

Punctuality
Businesses often find it difficult to adjust to Russia's polychronic culture, which has a more relaxed
attitude toward punctuality. Many meetings will deviate from the linear agendas utilised in other
countries, potentially disrupting inter-company contacts.

Undeveloped infrastructure
The infrastructure of Russia is mainly centred on Moscow, with the majority of the country's economic
transit networks flowing from the capital. Rail is frequently used in commercial transportation, yet it is
not well connected into global transportation systems. Air links are still underdeveloped for such a huge
country, making inter-country travel difficult.

Protectionism
In the midst of a challenging economic environment, an EU investigation indicated a "staggering
increase" in protectionist policies as governments seek to defend national businesses from international
competition. Russia was one of the worst offenders, according to the report, with Moscow failing to
meet its future responsibilities to the World Trade Organization.

Opportunities of doing business in Russia are:

Russia's developing and strengthening consumer economy, with a market of over 140 million people,
is turning into a prime place for investment after a long and exciting past. Many sectors of Russia's
economy provide business prospects, and the government and the Foreign Investment Advisory Council
offer considerable support to businesses (FIAC).

Stable and Growing Russian Economy

Russia boasts one of the most dynamically developing and attractive economies in the world. Since
1999, GDP growth has averaged 6.8% per year and reached 8.1% in 2007 (compared to 4-5% average
world economic growth). Thanks to the strengthening rouble, in dollar terms the 1999-2007 GDP
growth was an astounding 26% per year, far outstripping international growth rates.

Egalitarian Attitude
In business, Russians often hold values that favour equality, reciprocity, and mutual profit, and a "deal"
is frequently viewed as a chance for equitably shared benefit. In Russia, personal relationships are also
quite important. When doing business in Russia, it's worth taking the time to build strong ties first, as
these are more likely to serve as a solid foundation for future business conversations.
Large and Educated Consumer Market
Russia's captive market of approximately 140 million people with gradually rising wages has enormous
potential. Furthermore, Russia's strong educational system is known for creating highly skilled workers
and sophisticated consumers. The achievements of Russian art, music, literature, and architecture
demonstrate the Russian people's talent.

Unique Geographical Location

Russia's vast geographical presence outnumbers that of any other single country. Russia, which
connects Europe and Asia and borders the continent of North America, has good access to sea, road,
and rail links, as well as several major airports. Russia's strategic location is bolstered by the country's
huge natural resources, which include mineral reserves, coal mines, natural gas, and timber.

The above chances for doing business in Russia can be extremely beneficial to international
organisations. Utilizing these advantages necessitates the development of effective solutions for
navigating Russia's physical, political, and cultural complexity. On all levels, this necessitates a
thorough understanding of Russian business and social culture.

CONCLUSION

The Reserve Fund and the National Wealth Fund are two sovereign wealth funds in Russia that are
meant to assist the government in times of crisis. Since 2014, Russia has depleted more than half of its
Reserve Fund, which may be replenished if oil prices remain strong. If this does not happen, Russia
may be forced to use its National Wealth Fund in the future. Furthermore, poverty is rising, despite the
Russian government's assurance that its aim of halving poverty to 6.6 percent by 2024 is achievable. 10
Poverty has a cascading effect on the economy, as it decreases expenditure and denies the government
much-needed income.
Inflation is also on the rise, outpacing forecasts. In January 2019, it increased from 3.4 percent in
October 2018 to 4.3 percent. Sanctions, export controls, and security limitations imposed by the United
States, the European Union, and a number of other countries may be damaging to Russia's long-term
prosperity. However, some Russian economists believe that while these policies may limit development
prospects, overall macroeconomic stability will not be jeopardised.
 APPENDIX

Fig 1: Labour market performance of Russia

Fig 2: Framework Condition in Russia

Fig 3: Inflation rates

Fig 4: Russia Balance of payments

Fig 5: Sectors of FDI inflows

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The macroeconomic indicators of the country to analyze the health of the country

Russia's overall gross domestic product (GDP)1 is $1.719 trillion, making it the world's 12th largest
economy. Russia is one of the BRICS (Brazil, India, China, and South Africa), a group of five emerging
markets that includes Brazil, India, China, and South Africa.

Despite the recession of 2014, harsh sanctions, and political isolation, Russia maintains a low external
debt load and strong foreign reserves. It has gone a long way since the demise of the Soviet Union,
which was marked by a ‘command economy,' in which the government devised the country's
economic strategy and allocated all of its resources. Russia now has a mixed economy, with certain
features of a typical ‘market economy,' in which economic activity is driven by supply and demand,
and just a few vestiges of its command economy.

The service industry, the industrial sector, and agriculture are Russia's three largest industries.

Service: With 62 percent of GDP, the service sector is the most important. However, once agriculture
suffered a setback in the post-Soviet era, this industry started picking up. Finance, tourism and
hospitality, retail commerce, arts and culture, healthcare, and real estate are all examples of this area.
Industry: Mining, construction, manufacturing, water, gas, and electricity are all part of the industrial
sector, with fuel and energy being one of Russia's primary exports. This industry accounts for about
32% of the country's GDP. The industry's prosperity is largely owing to Russia's abundance of natural
resources such as oil, natural gas, platinum, and gold.
 Page 2
Agriculture: Agriculture accounts for 4% of Russia's GDP, and comprises activities such as fishing,
agricultural production, and cattle, to mention a few. Rice, maize, wheat, potatoes, tomatoes, apples,
and other Russian products are available. Despite contributing only a modest fraction of GDP, it
employs over 10% of the Russian population.

MACROECONOMIC INDICATORS
ECONOMIC GROWTH AND SLOWDOWNS

Russia’s GDP per capita in USD

As we know Russia has a huge source of natural resources. It is one of the largest exporters of oil &
natural gas. Therefore its economy depends on oil prices and on global commodity cycles.
In 2014, the Russian economy was hit by two big shocks, just averting recession with 0.6 percent
growth. The steep drop in oil prices in the third and fourth quarters of 2014 was the first shock. Crude oil
prices finished 2014 at less than USD 60 per barrel, after oscillating within a narrow band near USD 105
per barrel from 2011 to 2013. The second shock came in the form of economic sanctions imposed as a
result of geopolitical tensions, which dampened investor interest in Russian ventures. Capital flight and
rising inflation have exacerbated Russia's economic difficulties, with the GDP shrinking at its worst rate
since 2009, 3.7 percent in 2015. This is the reason we see a drop in GDP per capita during the 2014-15
era.
On March 6, only two weeks after global financial markets went crazy because of the COVID-19
epidemic, Russia initiated an oil price war with Saudi Arabia, which provided yet another diversion. The
drop of oil prices exacerbated Russia's financial difficulties. On top of the coronavirus reduction, the
reduced oil price will produce a substantial drop in GDP. Brent oil has dropped in price from $60 per
barrel at the start of 2020 to about $25 per barrel now. This again explains the fall in GDP per capita in
2020.

LABOUR MARKET

Unemployment rate - Russia

Russia's economy, like most others, is centred on the Services and Industry sectors, with the Agriculture
sector playing little to no part in the production of gross domestic product. As a result, just two
industries employ the great bulk of the workforce. Russia, on the other hand, is one of the world's major
wheat exporters, ranking third after the United States and Canada.
On job quantity metrics, Russia does pretty well (Fig 1 in appendix). The employment rate is higher than
the average for OECD nations. Unemployment is being reduced through flexible labour market
regulations, inadequate unemployment insurance, and the continued economic recovery.
In terms of employment quality, Russia is towards the bottom. Earnings quality is at the bottom of the
OECD, owing in part to poor labour productivity as a result of the economy's low capital base.
In terms of labour market resiliency (Fig 2 in appendix), Russia outperforms the OECD nations. This is
primarily due to insufficient unemployment insurance, which forces people to find new jobs quickly,
which is still feasible given to labour market flexibility.
Russia's secondary school system is generally competent, ranking higher than the OECD average. Only
23% of children score below Level 2 in PISA or do not attend secondary school, compared to 31% on
 Page 3
average in OECD nations, laying the groundwork for a future highly trained workforce.

Dependence of inflation rate on oil prices: Since August 2015, when it peaked at 15.8% (Fig 3 in
appendix), inflation has been quickly declining. Central Bank lending rates have been decreased in
tandem with the decrease in inflation. Russian bonds and stocks are outperforming other developing
market bonds and equities, and a slight rebound in oil prices has boosted economic optimism.

Exchange rate type: rate Bank Rossii unpegged the ruble from a dual-currency (US dollar and euro)
basket band on November 10, 2014, putting an end to two decades of exchange rate restrictions and
transitioning Russia to a free-float exchange rate regime. The Central Bank also halted its regular ruble
interventions, but stated that it would continue to intervene in support of the Russian currency if
financial stability was threatened.

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Exchange rate dependency on oil: The price of oil, which, together with gas, is Russia's primary
commodity export, drives the Russian ruble's fluctuations. On January 21, 2016, the ruble plummeted to
an all-time low of 82.4 RUB per USD, as oil prices plunged to levels not seen in almost a decade. Since
January 2016, it has steadily stabilised between 60 and 70 RUB per USD as the economy has
rebounded and oil prices have creeped back up. (Fig 4 in appendix gives the Balance of payment over
the years)

FDI inflows & obstacles: Given the country's development and economic potential, the percentage of
FDI in GDP remains modest, and working capital investments account for a large portion of overall FDI.
Russia has implemented economic changes in recent years, but administrative issues, corruption, and
concerns about the region's stability remain key obstacles.

FDI inflow sectors: As we see (in fig 5 from appendix), the main sector for FDI inflows is mining and
quarrying. This again shows how Russia depends on its natural resources for its economic growth.

Debt: Russia's government spending watchdog, said that the country's debt is 19 trillion rubles ($257
billion) at the end of 2020, accounting for 17.8% of GDP. This is due to increased expenditure to combat
the epidemic and decreased tax income.

Russia’s economy depends on its huge source of natural resources. Every macroeconomic indicator is
affected by oil prices around the world. Whenever there is a fall in oil prices (in 2014 or in 2020), the
indicators show negative trends while an increase in oil prices has a positive effect on these
 Page 2
indicators.

Examining the Government policies of the country which promote investments

It was the Tsars in the 1800s who first encouraged industrialization and opened the economy to
foreign direct investments, establishing high protective tariffs against ports in order to be more
prosperous than their European counterparts. Before the emancipation of the peasants in 1905 heavy
taxes were brutally extracted from them to be funneled into industrial investment and procurement of
western industrial equipment to increase productivity. As the feudal system in Russia continued
through the 19th century, the process of industrialization and institution building was slowed down in
the future years. There was however a significant industrialization reform in early 1890s under finance
minister Sergei Witte who helped attract FDI fro railroad growth, petroleum industry(2nd largest in the
world) development and development of modern manufacturing. However there was poverty,
inequality and fragile institutions & infrastructure.
Economic Progress under Socialism
In 1917 the Tsars were overthrown after 2 decades of political and social turmoil and the Bolshevik wing
of the Socialist Democratic power with Vladimir Lenin taking the lead marking the birth of the Soviet
Union in 1922. With the slogan of “Peace, land and bread” he turned the control of factories to the
worker committees. Although by 1921 the economic conditions in Russia were very poor due to being
cut off by war, being cut off from international trade and borrowing. To revive the economy Lenin
introduced the New Economic Policy(NEP) which revolved around free markets, socialism and
capitalism. This is the time when War Communism came into being with new policies which legalized
small scale manufacturing and private trade as well as stopped forceful requisition of agricultural
goods. But due to this the agricultural production increased more rapidly than the industrial
production leading to a fall in prices of agricultural goods and rise in prices of industrial goods.
In 1924 after the death of Lenin the group with industry-led growth mindset gained power and
introduced measures such as price controls on agricultural goods, elimination of private trades and
market based prices. All this did not help the rising industry goods prices and ultimately they were
discredited.
In 1927 Joseph Stalin came into power with his brutal new methods and policies of industrial led
growth by investment and forced increase of industrial labour force. He favoured a centrally planned
economy, artificially fixed prices and top down control on economic behaviour. The most brutal part
was collectivization where millions of peasants were accused of being wealthy (kulaks), thus jailed,
executed or exiled as punishment. The others were forced to merge land for collective farming, raising
the percentage of collective farmers from 1.7% of agricultural population to 93.5%.The market led and
spontaneous forces were disparaged and centrally led economic development was encouraged.
Each farm and production enterprise was directed on exactly how much to produce and for whom, at
what prices and at what inputs. Investments were focused on capital goods industries as a large
armaments industry and heavy industrial base was needed to counter the presumed threat of the
United States. As a result of all this the production of consumer goods lagged behind heavy industry,
leading to a crash of the thriving agrarian sector leading to famines and millions of deaths. On the
contrary, during the 50 year rule of Stalin, the Soviet Union emerged as a superpower through the
policies of collectivization and industrialization. Industrial production increased 137% and national
income by 87%. Regulating wages and production, forcing increase in urban population, industrial
labour force through brutal collectivization, technological improvement in heavy industries like aircraft,
chemicals etc. all resulted in economic growth. Although the Great Purge and the brutal methods
adopted by the government in the countryside had a huge human cost through trials, accusations,
punishments and executions. In 1941 Germany entered the Soviet Union but they quickly battled the
forces through increased focus on production of military equipment, military production jumping to
55% from 15% and thus defeating Germany in 1945. It also initiated the Cold War with United started due
to its stockpile of thermonuclear weapons. Stalin’s rule left behind a culture of terror and suspicion in
the future developments of politics, institutions and social interactions of the country.

Under Nikita Khrushchev between 1956-64 we saw a power shift from industrial ministries to ministries
 Page 3
of geographical regions initiating reform of improving agricultural output through territorial
decentralization. He increased the levels of utilization of existing resources and increased in fixed
investment, household consumption under campaigns such as Virgin Land and ‘plow-up’ utilizing
unused and fallow land. Detonation of atomic weapons, thermonuclear weapons, launch of the first
satellite, Sputnik (1957) made the Soviet Union revered in the world and gave testament of
technological progress under Socialism.Their were creation of special trading zone of socialist
countries (Committee of Mutual Economic Assistance) and increase in external trade as well as
military aid. Although initial results were bright in 1962 this lead to food shortages, land degradation
and poor harvests.

Brezhnev between 1970-82 introduced policies focused around expanding the middle class, fixed
rewards for labour. The “little deal'' was initiated with diminished material rewards and reduced
demands on workers which ultimately led to decline in rate of economic growth. Thus he attempted
to drive growth through rapid investments programs but the ROI on investment had diminished and
soon identified that factor productivity had to be increased through scientific and technological
revolution along with focus on intensive growth. Military power also declined and the government was
making huge expenditures on military power.The economy had entered an era of stagnation.The
shortages and government inertia led the population towards leveraging black markets, initiating the
term svyazi which meant leveraging networks and connections for personal gain. Food was referred
to as being taken or getting instead of buying. As everyone was exploiting networks for personal gain
the state weakened and there was a rise of the Red Dictators who were the managers of state owned
enterprises.
Yuri Andropov (1982-85) tried to weed out corruption and return discipline to the system in order to
increase economic growth. Police organized raids in places of public entertainment to jail and fine
workers absent from work place, alcohol sales were reduced, freedom of workers was restricted etc.
All this showed short term rapid increase of growth out of the previous prevalent recession.
After decades of claims since the revolution in 1917 that a socialist economic system was better than a
capitalist system on both moral and economic grounds, finally in 1988 Gorbachev started to look for
ways out of the economic deterioration as clearly shown by the country’s per capita income.

Matched Sources :

Industrial development and economic growth - the United ...

‫ ﺑﻮﺍﺳﻄﺔ‬M Kniivilä · 169 :‫ — ﺗﻢ ﺍﻗﺘﺒﺎﺳﻬﺎ ﻓﻲ ﻋﺪﺩ‬Along with accelerated growth, poverty rates have
declined in many countries. ... economic growth and industrialization with decreased
inequality, even if.
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https://www.un.org/esa/sustdev/publications/industrial_development/3_1.pdf (https://www.u
n.org/esa/sustdev/publications/industrial_development/3_1.pdf)
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Gorbachev had three main aspects to the new strategy:

Allowing greater openness to discuss Soviet problems (glasnost)
Greater democratization to make Soviet people part of the process of change
A radical restructuring of economic relationships (perestroika)
For the Soviet Union to reach a high level of future growth, between 1986-88 Gorbachev introduced
economic reforms that reduced centralization in decision making, increased investment and focus on
research and development. His initial economic reforms were around tightened discipline, same as
Andropov. Though initially conservation he started leaning into openness through glasnost by
reducing state control over intellectual, cultural and religious activities. Artists were no longer
suppressed, and this new freedom of expression brought in increased awareness of corrupt,
inefficient practices along with reduced faith in Communist Party and Socialist Government. By
allowing freedom of expression and influx of foreign media Gorbachev opened himself up to criticism
from both ends of the spectrum. It came to notice that the prevalent policies, price and system
discouraged innovation, did not encourage production efficiency through adoption of technology,
with no incentive to produce at lower rates there was no eagerness to reduce the cost of input
materials. Since 1970 the economic growth rates of the Soviet Union were declining, internal stability as
well as external military stability seemed ambiguous to maintain, Gorbachev acknowledged that the
government through the years had failed to understand the need of transformation to intensive
methods of development instead of focusing on inputting additional labour and material resources to
production. Some of the reasons for declines in growth were stated as: lack of discipline,
unprecedented expenditure on military resources, overexpansion of capital stock, diminishing returns
due to overutilization of natural resources, separation of research institutes from firms, overemphasis
 Page 2
of research on military, a controlling and very complex economy etc.
Gorbachev’s strategy came through a dramatic economic restructuring called Perestroika revolving
around reintroduction of mixed free market and planned economy. There were two important
aspects:
Law on State Enterprises: Intention was to make enterprises more self-financed and self-managed,
lesser targets were set by the state, funds were at the firms discretion to allocate, and overall reduced
restrictions on private enterprises. Minimum labour standards, tax policy and product pricing was still
regulated by the state. The Red Dictators thus further grew wealth. In 1990 20000 enterprises were
permitted to even trade internationally.
Law on Cooperatives: Increased autonomy of producers and sellers, cooperatives could transfer
profits to cash and send on consumer goods, wholesale prices were set free with control only on retail
prices, banking system was transformed and commercial banks were allowed to extend credits to
firms with interest. This was thus often used as vehicles to siphon state funds.
Apart from this there was greater investment in research and development of the defense industry
which led to increased budget deficit and expanded money supply.
Gorbachev’s reforms failed miserably which increased shortages and rising prices, reduced industry
and agricultural output. Revenue from energy production which was a key source fell and the
combined loss of revenue deterred the country from importing necessary consumer goods like
clothes, automobiles etc. This led to a massive inflation scenario where in 1991 prices of basic foodstuff
doubled. This led to fall of the Soviet Union in the hands of KGB and rise of the Russian Federation as an
independent country in 1992 under the leadership of Yeltsin
The new Russian Federation: Shock Therapy
The country was moving from communism to a market economy. It had the following problems: food
and consumer goods shortages, rising inflation, weak institutions, huge national debt, lack of financial
and legal infrastructure. Yeltsin set out to lay down new reforms with the help of ministers of
departments, external consultants and Harvard professor Jeffrey Sachs and his team known as the
Harvard Boys. They believed in Shock Therapy which meant aggressive action to remove decades of
communism through focus on price liberalization. In 1992 all price restrictions were lifted and the
state's monopoly on private property was abolished. This led to rapid rise of inflation upto 1500% and
fall of GDP by 43% between 1991-98. Although this as a statistical illusion and inflation normalized when
accessibility of state credit was limited in 1994 reforms. This had severe social consequences like
inflation, unemployment, bankruptcy, factory closures. 50% of the Russian population was forced into
poverty and life expectancy reduced.

The next reform was the voucher system under Chubais and Shleifer to privatise all enterprises in
Russia. This would give owners incentives to make investments profitable and thus lead to the rapid
improvement of industry. In 1992 every citizen including children were given vouchers of 10,000 rubles
to provide equal access to state owned enterprises during auctions as most citizen savings were
depleted due to hyperinflation. Voucher funds arose, people exchanged vouchers for money given the
economic conditions. The government sold assets at a significantly low market value ( 18% of the
industry at below $12 billion), massive business empires were formed as Red Dictators had the wealth
and means to collect vouchers.
There was an influx of gang behaviour and organized crime among the business owners to protect
their private property as the government had no obligation, coining the term kryshya or roof against
attack which led to the rise of the Russian mafia.
In 1995 a new type of strategy was adopted by the Yeltsin government where Vladimir Potanin, the
chairmen of a leading private bank offered a solution to fiscal problems of the country with the
objective of increasing popularity of Yeltsin before the 1996 elections. Some Russions banks would offer
the government a large loan for one year, with collateral kept being the 29% share in state owned
enterprises of the oil and mining sector. This led to making the business leaders multibillionaires.
The new government that rose in 1996 was based on personal greed, oligarchic, corporatist with
monopolized property rights and semi-criminal relationships.They could not repay the debts and sold
the shares of most valuable Russian enterprises. Seven ment held 50% of the country's wealth and all
enterprises fell in the hands of the oligarchs. The businessman had become more powerful than the
 Page 3
government with no tax generating assets or a functioning tax collection system.
In 1998 Russia defaulted on domestic debt and announced a foreign debt moratorium which led to fall
of ruble value by 75% and inflation increase by 100%, a crackdown on crime and corrupt businessmen
were also initiated that year.
In the 2000s Presidential elections Vladimir Putin came into power. Soon after he appointed seven new
unelected officials presiding over 98 regional governments who were former members of KGB. He
ordered tax investigations into all oligarchs. He aimed at re-defining a line and relationship between
state and government. He gave an ultimatum to the oligarchs where they would not be confiscated
of their wealth and status if they follow rules set by the state like py taxes, stay out of politics, refrain
from using the media empire to attack politics etc. Most of the oligarchs obliged to this demand and
stayed wealthy, the others were reprimanded and striped of their wealth.

Identify the risks and opportunities present in the country which would affect investments

Risks of doing business in Russia

Some Russians argue that international investors place too much emphasis on Russia's vulnerabilities
while neglecting similar concerns in other economies. Russia, for example, is docked points for
repealing many of the glasnost-era freedoms, but China's repression is ignored. Russian indignation is
undoubtedly justified, but Russia still faces significant risks:

An aging population and brain drain

Russia's population is on average 38.5 years old, and the birth rate is much below replacement. This
position begs the question of whether Russia will have sufficient workers to support its seniors, as well
as sufficient workers and customers to support a more diverse economic base.
Aside from the falling birthrate, Russian scientists and engineers have a long history of emigrating to
other nations in search of greener pastures.
However, if Russia's economy improves, people will have more confidence in the future, which will
increase birth rates (the government already provides a bonus to women who have a second child)
and reduce migration.

Corruption and crime

Russia, like many former Communist countries, has a long history of corruption because it was the only
 Page
way to get things done. Foreign investors are scared off by the corruption. Furthermore, after the
Soviet government disintegrated, Russia had a period of lawlessness, with organised criminals filling
the hole in many cities.
The government is working to fix the problem, and if investors detect a genuine shift, Russia will
become a more appealing destination to do business.

Reliance on one key industry

Matched Sources :

2-Business Studies-XI (1 to 25) Coral 12.cdr - edudel

Business is an economic activity and therefore, its purpose is to show economic
results. The economic objectives of business are follows:- (i) Earning profit : ...
3%
http://edudel.nic.in/welcome_folder/SupportMaterial2019_20/XI/English%20Medium/11_sm_bus
inessstudy_eng_2019_20.pdf (http://edudel.nic.in/welcome_folder/SupportMaterial2019_20/XI/
English%20Medium/11_sm_businessstudy_eng_2019_20.pdf)
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Risks of doing business in Russia

Some Russians argue that international investors place too much emphasis on Russia's vulnerabilities
while neglecting similar concerns in other economies. Russia, for example, is docked points for
repealing many of the glasnost-era freedoms, but China's repression is ignored. Russian indignation is
undoubtedly justified, but Russia still faces significant risks:

An aging population and brain drain

Russia's population is on average 38.5 years old, and the birth rate is much below replacement. This
position begs the question of whether Russia will have sufficient workers to support its seniors, as well
as sufficient workers and customers to support a more diverse economic base.
Aside from the falling birthrate, Russian scientists and engineers have a long history of emigrating to
other nations in search of greener pastures.
However, if Russia's economy improves, people will have more confidence in the future, which will
increase birth rates (the government already provides a bonus to women who have a second child)
and reduce migration.

Corruption and crime

Russia, like many former Communist countries, has a long history of corruption because it was the only
way to get things done. Foreign investors are scared off by the corruption. Furthermore, after the
Soviet government disintegrated, Russia had a period of lawlessness, with organised criminals filling
the hole in many cities.
The government is working to fix the problem, and if investors detect a genuine shift, Russia will
 Page 2
become a more appealing destination to do business.

Reliance on one key industry

Oil and gas are the lifeblood of the Russian economy. This is beneficial because the global demand for
carbon-based fuels is enormous and expanding. The Russian economy, on the other hand, is directly
subject to price swings due to its limited concentration. Furthermore, the world's oil and gas reserves
will be depleted at some point. The absence of economic diversification in Russia poses a significant
long-term concern.
On the plus side, Russia's economy has the potential to be more diverse. It features a diverse spectrum
of natural resources and terrain, as well as a talented population. Diversification is necessary.

Intellectual property rights

Although measures have been attempted to make the procedure easier, establishing intellectual
property rights in Russia remains a time-consuming process. A specialised court for intellectual
property rights has been established inside the Russian Federation's commercial courts as of February
1, 2013

Starting a business
According to a survey by the World Bank and the International Finance Corporation (IFC), starting a
firm in Russia takes an average of nine procedures and around 23 days. Furthermore, it costs on
average 2.3 percent of per capita income, with Surgut being the most difficult and St Petersburg being
the easiest places to start a firm.

Construction permits
The number of stages required to obtain a construction licence varies substantially by city; in
Novosibirsk, only 16 are required, compared to 47 in Moscow. As a result, the time it takes to obtain
permissions varies greatly, from a year in Moscow to five months in Surgut.

Registering property
Property registration in Russia is quite inexpensive, with registration fees that are among the lowest in
the world and far below the OECD average. However, the process takes an average of four procedures
and 35 days to complete.

Getting electricity
In Russia, obtaining electricity is a time-consuming process that might take anywhere from four
months to a year, depending on the location. Design clearance is a particularly difficult stage,
requiring multiple visits to government offices and taking anywhere between 30 and 120 days.

Punctuality
Businesses often find it difficult to adjust to Russia's polychronic culture, which has a more relaxed
attitude toward punctuality. Many meetings will deviate from the linear agendas utilised in other
countries, potentially disrupting inter-company contacts.

Undeveloped infrastructure
The infrastructure of Russia is mainly centred on Moscow, with the majority of the country's economic
transit networks flowing from the capital. Rail is frequently used in commercial transportation, yet it is
not well connected into global transportation systems. Air links are still underdeveloped for such a
huge country, making inter-country travel difficult.

Protectionism
In the midst of a challenging economic environment, an EU investigation indicated a "staggering
increase" in protectionist policies as governments seek to defend national businesses from
international competition. Russia was one of the worst offenders, according to the report, with
Moscow failing to meet its future responsibilities to the World Trade Organization.
 Page 3

Opportunities of doing business in Russia are:

Russia's developing and strengthening consumer economy, with a market of over 140 million people, is
turning into a prime place for investment after a long and exciting past. Many sectors of Russia's
economy provide business prospects, and the government and the Foreign Investment Advisory
Council offer considerable support to businesses (FIAC).

Stable and Growing Russian Economy

Russia boasts one of the most dynamically developing and attractive economies in the world. Since
1999, GDP growth has averaged 6.8% per year and reached 8.1% in 2007 (compared to 4-5% average
world economic growth). Thanks to the strengthening rouble, in dollar terms the 1999-2007 GDP
growth was an astounding 26% per year, far outstripping international growth rates.

Egalitarian Attitude
In business, Russians often hold values that favour equality, reciprocity, and mutual profit, and a "deal"
is frequently viewed as a chance for equitably shared benefit. In Russia, personal relationships are also
quite important. When doing business in Russia, it's worth taking the time to build strong ties first, as
these are more likely to serve as a solid foundation for future business conversations.

Large and Educated Consumer Market

Russia's captive market of approximately 140 million people with gradually rising wages has enormous
potential. Furthermore, Russia's strong educational system is known for creating highly skilled workers
and sophisticated consumers. The achievements of Russian art, music, literature, and architecture
demonstrate the Russian people's talent.

Unique Geographical Location

Russia's vast geographical presence outnumbers that of any other single country. Russia, which
connects Europe and Asia and borders the continent of North America, has good access to sea, road,
and rail links, as well as several major airports. Russia's strategic location is bolstered by the country's
huge natural resources, which include mineral reserves, coal mines, natural gas, and timber.

The above chances for doing business in Russia can be extremely beneficial to international
organisations. Utilizing these advantages necessitates the development of effective solutions for
navigating Russia's physical, political, and cultural complexity. On all levels, this necessitates a
thorough understanding of Russian business and social culture.

CONCLUSION

The Reserve Fund and the National Wealth Fund are two sovereign wealth funds in Russia that are
meant to assist the government in times of crisis. Since 2014, Russia has depleted more than half of its
Reserve Fund, which may be replenished if oil prices remain strong. If this does not happen, Russia
may be forced to use its National Wealth Fund in the future. Furthermore, poverty is rising, despite the
Russian government's assurance that its aim of halving poverty to 6.6 percent by 2024 is achievable.
10 Poverty has a cascading effect on the economy, as it decreases expenditure and denies the
government much-needed income.
Inflation is also on the rise, outpacing forecasts. In January 2019, it increased from 3.4 percent in
October 2018 to 4.3 percent. Sanctions, export controls, and security limitations imposed by the United
States, the European Union, and a number of other countries may be damaging to Russia's long-term
prosperity. However, some Russian economists believe that while these policies may limit
development prospects, overall macroeconomic stability will not be jeopardised.

Matched Sources :
 Page 4
[Solved] Cultural Diversity and Understanding Global Systems
As a consequence, the time it takes to obtain permits varies greatly, from a year in
Moscow to five months in Surgut. Property registration

https://www.coursehero.com/tutors-problems/Project-Management/32877131-Cultural-Divers
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ity-and-Understanding-Global-Systems-Cultural/ (https://www.coursehero.com/tutors-probl
ems/Project-Management/32877131-Cultural-Diversity-and-Understanding-Global-Systems-
Cultural/)

Top 10 challenges of doing business in Russia | TMF Group

Russia was among the worst offenders; the report concluded that Moscow was not in
compliance with its future obligations to the World Trade Organization. 4%
https://www.tmf-group.com/en/news-insights/business-culture/top-challenges-russia/ (http
s://www.tmf-group.com/en/news-insights/business-culture/top-challenges-russia/)

Benefits of Doing Business in Russia - Communicaid

Mar 3, 2010 — Since 1999, GDP growth has averaged 6.8% per year and reached 8.1% in
2007 (compared to 4-5% average world economic growth).
3%
https://www.communicaid.com/cross-cultural-training/blog/benefits-of-doing-business-in-r
ussia/ (https://www.communicaid.com/cross-cultural-training/blog/benefits-of-doing-busin
ess-in-russia/)