The Russian Federaion is blessed to have plenty of natural resources of every kind. This includes rich agricultural land from which grain, livestock and potatoes are the main products. Land reform has been one of the most awkward problems facing Russia’s post-communist governments: much has been turned over to private ownership but a considerable proportion, especially in the more remote areas, is still owned collectively. Agriculture now accounts for 5% of total economic output while employing 13% of the workforce.
Russia has huge deposits of gas and oil– its major export earners – as well as coal and minerals including diamonds, gold, nickel, manganese, copper, iron ore and phosphates. More unexploited deposits have been located and there are undoubtedly more to be discovered, but they are often in areas (such as the permafrost-covered regions of Siberia and the Russian Far East) where exploitation is technically difficult and transport systems limited.
Energy products and heavy industry – production of metal goods, vehicles, construction materials and machinery – are the kernel of Russia’s industrial sector. Textiles and chemicals are also important industries. By contrast, Russia’s light industry – especially production of consumer goods– is paltry, accounting for just 2% of total industrial production.
The fastest growing part of the economy since the 1990s has been the service sector. Here, banking, insurance and property have developed from a base close to nothing, and services account for just over half of economic output. Both the service and industrial sectors have been hampered by the paucity of small and medium-sized businesses: this is a major flaw in the Russian economy.
The sheer diversity and size of the country has made economic reform in the Russian Federation a gargantuan task, especially by comparison with its former East European allies and the other 14 Soviet republics. The economy underwent significant contraction after 1990: Russian economic statistics are notoriously undependable but, by 1998, it is likely that GDP had declined by between 35% and 50%. That year, a combination of internal and external factors led to the virtual collapse of the economy which was staved off by large financial injection from the IMF (of the order of US$22 billion). Since then, the economy has undergone a significant recovery with average annual growth of 5% in the last 5 years (the current figure is 7.3%).
The Government has got on top of the hyper-inflation which caused alot of damage in the initial stages of the reform process. At 13.7%, current inflation is high by recent Western standards but not unmanageable. The official unemployment rate is 8.5%, with considerable underemployment.
Russia hosts a substantial ‘grey’ economy in which between 25% and 40% of the workforce are engaged to some extent. But there are some causes for optimism: the success of the Putin government in stabilising the economy has boosted up international confidence, especially given the difficult situation inherited from his predecessor, Boris Yeltsin. In what amounted to a firesale, the Yeltsin government sold off the major components of the Russian economy – including the vital gas and oil sector – at knock-down prices to favoured bidders. This process gave rise to the ‘oligarchs’, a small group of immensely rich individuals who – mostly by virtue of political contacts, good judgement and luck – now own the bulk of the Russian economy. (It is estimated that 20 conglomerates are responsible for 70% of Russia’s GDP.)
There is not much Putin can do about corporate ownership, but there are other areas where the government can make a difference. Perhaps the most significant of these is modernisation of the national infrastructure: the Russian Federation suffers from insufficient and poor-quality transport networks as well as an erratic and antiquated telecommunications system. Moreover, neither commercial law nor the taxation system are effective and functional, with the result that operating conditions for most businesses are difficult. Organised crime thrives in such an environment: billions of dollars of international aid have just simply disappeared. Moreover, the removal of exchange controls (as demanded by Western financial donors) has meant that there has also been a large legitimate relocation of money from Russia.
In May 2004, 5 former Soviet bloc states and the 3 ex-Soviet Baltic republics joined the European Union. This development, unimaginable 15 years ago – presents both dangers and opportunities for the Russian Federation. On balance, the Russian economy will most probably benefit from immediate proximity to the EU.
Russia’s trade patterns have gradually shifted towards Western industrialised nations. Apart from the former Soviet republics of Belarus, Ukraine and Kazakhstan, Russia’s main trading partners are Germany, Japan and the USA.
As a result of recent economic changes which have taken place in the Russian Federation, there are now many private companies in operation and international business relations have become active. The main business centres are St Petersburg, Moscow, Nizhny Novgorod, Novosibirsk and Vladivostock.
Office hours: Monday to Friday 0900hrs to 1800hrs.
The following organisations can offer advice:
The Trade Delegation of the Russian Federation, 32/3 Highgate West Hill, London N6 6NL, UK (tel: (020) 8340 1907 or 4491 or 3272; fax: (020) 8348 0112; e-mail: email@example.com); or
Russo-British Chamber of Commerce, 42 Southwark Street, London SE1 1UN, UK (tel: (020) 7403 1706; fax: (020) 7403 1245; e-mail: firstname.lastname@example.org). Moscow Office: Please contact the London office for up-to-date details (information supplied to members only); or
Ministry for Economic Development and Trade for the Russian Federation – Department for Economic Co-operation with Europe, 18/1 Ovchinnikovskaya nab, 113324 Moscow (tel: (095) 950 1779; fax: (095) 950 1780; e-mail: email@example.com); or
Chamber of Commerce and Industry of the Russian Federation, St. Ilyinka 6, 109012 Moscow (tel: (095) 929 0009; fax: (095) 929 0360; e-mail: firstname.lastname@example.org).
With every passing year an increasing number of seminars, conferences and symposia (including some for the tourist industry) take place in the Russian Federation. Information on conferences and incentives is available from Intourist Travel Ltd.