Economic Study of Russia

Economic Study Of Russia
Introduction:
The name Russia is derived from Rus, a medieval state populated mostly by the East Slavs. However, this proper name became more prominent in the later history, and the country typically was called by its inhabitants russkaya zemlya which could be translated as "Russian Land" or "Land of Rus People".
Russia, officially known as both Russia and the Russian Federation, is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects. At 17,075,400 square kilometers (6,592,800 sq mi), Russia is the largest country in the world, covering more than one eighth of the Earth's inhabited land area. Russia is also the eighth most populous nation with 143 million people.
S.R.Luthra Institute Of Management
ECNOMIC STUDY OF RUSSIA
GDP composition and major industries & sectors:

GDP Composition: Gross domestic product (GDP) refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living.
GDP Rates for last 5 years:
YEAR 2007 2008 2009 2010 2011
GDP RATES 8.535 5.248 -7.8 4 4.9
The Gross Domestic Product (GDP) in Russia expanded 2 percent in the year of 2011 over the previous year. Historically, from 2003 until 2011, Russia's average
quarterly GDP Growth was 1.22 percent reaching an historical high of 3.20 percent in December of 2006 and a record low of -4.20 percent in December of 2008. The Russian economy is commodity-driven. Payments from the fuel and energy sector in the form of customs duties and taxes accounted for nearly half of the federal budget's revenues. However, during the past decade, poverty and unemployment declined steadily and the middle class continued to expand.
Major industry and sectors: Russian industry sectors encompass a wide range of sectors, such as mining, energy, automotive, defense, manufacturing and communication. Moscow is the center for many manufacturing industries such as cars, steel and other heavy manufacturing industries. In 2010, Russias industrial production growth rate was estimated at 8.3%, having dropped 11% in 2009. At the start of 2011, the Russian economy was showing reasonable to strong resilience in all of its sectors. Russia has a range of mining and extractive industries. These include coal, oil, and gas extraction as well as the chemicals and metals industries. Russian enterprises take part in all forms of machine building from rolling mills to highperformance aircraft and space vehicles. Russian enterprises are involved in shipbuilding, manufacturing of road and rail transportation equipment, communications equipment, agricultural machinery, tractors, and construction equipment. Russian firms produce electric power generating and transmitting equipment, medical and scientific instruments, consumer durables, textiles, foodstuffs, processed food products, and handicrafts.
Currently Russian consists of the following competitive industries: oil and gas, mining, processing precious stones and metals, aircraft building, aerospace production, weapons and military machinery manufacture, electric engineering,
pulp-and-paper production, automotive industry, transport, road and agriculture machinery production, light and foodstuffs industries. Machinery construction:
Machine building is the leading industry in Russia, which is concentrated mostly in Moscow, St. Petersburg, the Urals, Volga region, and Westerns Siberia. It provides all other industries with equipment and machinery. The share of machine building in Russian economy is almost 30%. Machine building industries have a rather quite complex structure consisting of over 70 branches. The most important are electronics, computers, and robotics, instrument building, agricultural and transport machine building, railway cars manufacture, aircraft building, ship building etc. Chemical and petro chemical industry:
Russian chemical industry plays an important role in the economic development of the country. Chemical industry provides chemical raw materials mining (apatites and phosphorites, common and potassium salts, sulfur and several other products), basic chemistry and chemistry of organic synthesis. Basic chemistry includes production of mineral fertilizers, chlorine, sodium, sulfuric acid and other products. Chemistry of organic synthesis comprises production of synthetic rubber, plastics, synthetic resins, and chemical fibers. Fuel and energy:
Fuel and energy complex supplies fuel and electricity to all sectors of economy and ensures economy development. Products of fuel and energy complex are currently the main export of Russia. Fuel and energy complex is composed of mining and processing of various fuels and electric power production Metallurgical complex:
Metallurgy complex of Russia includes the extraction of metal ores, their enrichment, metal smelting, and production of roll stock. This industry includes ferrous and nonferrous metallurgy. More than 90% of the metal used in the national economy is ferrous metals with steel leading the way. In the steel industry there are
following types of enterprises: full cycle metallurgical plants, the ones producing pig iron, steel and roll stock, steel plants, ferroalloy production of iron alloys with chromium, manganese, silicon and other elements; light metallurgy - steel and roll stock production in the machine-building plants; direct ore reduction. Non-ferrous metals metallurgys volumes of production are significantly lower than those of in ferrous. But the price of its products is much higher. Among them are heavy non-ferrous metals (copper, zinc, lead, nickel, chromium), lightweight (aluminum, magnesium, titanium), alloys (used as an additive to steel - tungsten, molybdenum, vanadium), and precious (gold, silver, platinum). Copper ores have been mined in Russia in the Urals for a long time. The major center of mining and melting of copper ores is Norilsk. Lead-zinc ores are mined in the mountainous areas of Kuzbass and some - in North Ossetia. The largest aluminum plants are located in Bratsk and Krasnoyarsk. Together they provide about half of Russia's aluminum. Production of tin ore is situated in the Far East and Siberia, and metals melting - in Novosibirsk Agricultural complex:
Agro-industrial complex of Russian Federation consists of industries specializing in production of agricultural products, their processing and storage, as well as the ones supplying agriculture and processing industry with the means of production. Agriculture is the main part of agro-industrial complex. It is characterized by large-scale production. Agricultural lands make up 219.6 million hectares. Major agricultural crops are grain, sugar beets, sunflowers, potatoes, and flax. Among the crops cultivated in Russia are rye, wheat, barley, oats, corn, millet, buckwheat, rice, and legumes (peas, beans, soy beans, lentils). Overall production of cereals and leguminous plants puts Russia in the fourth place in the world (after China, USA and India). Crop farming provides about 40% of the gross output of agriculture; livestock more than 60%. Livestock is represented by dairy, meat and wool industries
Composition of import and export:
YEAR 2007 2008 2009 2010 2011 Trade relationship:
EXPORT (in billion) 355 472 303 398 426
IMPORT (in billion) 223 292 192 249 273
YEAR 2007 2008 2009 2010 2011
TRADE SURPLUS (in billion) $129 $180 $112 $152 $118
Trade:
After hitting lows in 2009, trade between the U.S. and Russia grew to $31.7 billion in 2010, an increase of 35% from 2009. U.S. imports from Russia grew 41% year over year to $25.7 billion while exports to Russia increased just 13% to $6.0 billion. The rapid increase in U.S. imports from Russia from 2009 to 2010 can be attributed to the low base year and nascent economic recovery in the United States, but also to the rising price of oil and other commodities. Oil and oil products represent over two-thirds of the value of all U.S. imports from Russia. Russia is currently the 37th-largest export market for U.S. goods. Russian exports to the U.S. were fuel oil, inorganic chemicals, aluminum, and precious stones. U.S. exports to Russia were machinery, vehicles, meat (mostly poultry), aircraft, electrical equipment, and high-tech products. Russia's overall trade surplus in 2009 was $112 billion--compared with $180 billion in 2008 and $129 billion in 2007. In 2010 the trade surplus increased to $152 billion and continued to grow in 2011 to reach $118 billion by July 2011 (versus
$96.4 billion at the same time in 2010), although import growth was beginning to outpace export growth. World prices continue to have a major effect on export performance, since commodities--particularly oil, natural gas, metals, and timber-comprise nearly 90% of Russian exports. Russian GDP growth and the surplus/deficit in the Russian Federation state budget are closely linked to world oil prices. Russia is in the process of negotiating terms of accession to the World Trade Organization (WTO). The U.S. and Russia concluded a bilateral WTO accession agreement in late 2006, and negotiations continue on meeting WTO requirements for accession. Both Prime Minister Vladimir Putin and the General Director of the WTO, Pascal Lamy, stated in early 2011 that they felt Russia would join within the year. According to the 2010 U.S. Trade Representative's National Trade Estimate, Russia continues to maintain a number of barriers with respect to imports, including tariffs and tariff-rate quotas; discriminatory and prohibitive charges and fees; and discriminatory licensing, registration, and certification regimes. Discussions continue within the context of Russia's WTO accession to eliminate these measures or modify them to be consistent with internationally accepted trade policy practices. Non-tariff barriers are frequently used to restrict foreign access to the market and are also a significant topic in Russia's WTO negotiations. In addition, Russias lax enforcement of intellectual property rights had led to large losses for U.S. audiovisual and other companies and is an ongoing irritant in U.S.-Russia trade relations. Russia continues to work to bring its technical regulations, including those related to product and food safety, into conformity with international Standards.
Inflation:
YEAR 2007
INFLATION RATE 11.87
2008 2009 2010 2011
13.28 8.80 8.78 5.21
What impact caused on 2007-08? Russia Positives: Very low sovereign debt; fiscal books are more or less balanced. High oil prices for now. Moderately paced recoveries have almost returned output levels to peak-2008. Households far less reliant on borrowing to finance consumption than in typical developed nations. Russia Negatives: Dependence of the budget on oil prices: In 2008, one of the main causes of the sudden collapse in industrial output was the draining of liquidity. Russian industrial groups had relied on Western financial inter-mediation for accessing capital. From August, this suddenly dried up as the crisis exploded and global investors scurried to the safe haven of US Treasury bonds. In the case of a global credit crunch, On the one hand, its macroeconomic fundamentals are very good, on the other hand, this was the same case in 2008 and widespread sentiments that Russia was a haven of stability patently didnt work out. After all in 2008 investors parked their savings in the bonds of countries perceived to be stable; above all, US bonds. This was because this was a primarily financial / banking crisis and sovereigns remained solvent. This calculus may be fundamentally different in the next crisis. Euro bonds are out of the question. No bond vigilantes have yet appeared for US Treasuries.
So only commodities are left as a major investment vehicle which benefits Russia), HOWEVER big sovereign defaults will force the world economy back into recession, lower oil demand, and relieve pressure on commodities leading to a collapse of their prices which is bad for Russia. Alternatively, prices may remain high if investors remain big on commodities. Dependence on credit for consumption: Credit based purchases were beginning to play a huge role in Russian consumption in 2007-2008; this was cut off and constitutes another main cause of the depth of its 2009 recession. This dependence on credit for consumption is already creeping back in 2011, though it has yet to reach the levels of early 2008.
Employment condition in Russia: Russia has paid a high social price for its rapid progress in the transition from communism. Under communism, economic growth was restrained but there was a very low level of inequality. Most workers made roughly the same income. Extremes of high and low incomes were rare. Since embarking on a market economy, Russia's rapid macroeconomic and political reforms created anxiety among the citizens who came to expect a modest but dependable lifestyle. Russia's abandonment of subsidies for Soviet-era industries permitted a steep industrial decline, throwing millions of citizens out of work. Today the Russian labor force is undergoing tremendous change. Although well-educated and skilled, it is mismatched to the rapidly changing needs of the Russian economy. Millions of Russian workers are underemployed. Unemployment is highest among women and young people. Many Russian workers compensate by working other part-time jobs. Russia's financial crisis had a severe effect on wages in the country. Many employees were helpless as ruble devaluation and price increases drastically eroded the buying power of their salaries. Meanwhile, both foreign and Russian companies, faced with their own challenges stemming from the crisis, resorted to pay cuts in order to maintain what staff they felt able to keep. As a result of the financial crisis, although nominal wages in Russia continued to climb, real wages in the country
continued to fall. The average nominal monthly wage in January 1999 was approximately 1,200 rubles. In January 2000, the nominal wage was roughly 1,575 rubles or about US$58 at the prevailing exchange rate at the time. According to official figures, real wages and real disposable income had fallen roughly 30 percent by the end of 1999 compared to 1997. According to a minimum wage law signed by President Putin in June 2000, the minimum wage increased to 300 rubles per month by mid-2001. In December 1999, the average monthly subsistence minimum was 943 rubles, or approximately US$36 at the prevailing exchange rate. Therefore, approximately one-third of Russia's population is living below the subsistence level. As of 1 February 2000, Russian pensions increased 20 percent. The minimum Russian pension is 410 rubles per month. The average pension is 650 rubles per month, which is still below the subsistence minimum. Although the Russian government has been using International Labor Organization (an arm of the United Nations) statistical methods to determine unemployment, officially reported unemployment levels in Russia, as with other official statistics, have often been lower than figures determined by the international community. Russia reported several years of very slowly growing unemployment, which temporarily peaked at 9.6 percent in the spring of 1997 before dropping to a low of 9 percent at the end of 1997. During this time, alternative estimates of unemployment suggested a combined unemployment and underemployment rate of between 12 and 15 percent. In 1998 unemployment levels resumed their climb. In the wake of Russia's financial crisis, both Russian and foreign companies resorted to layoffs and salary cuts. In November 1998, when the official unemployment rate was 11.6 percent, the Russian Ministry of Economy predicted that unemployment would grow 70 percent by 2001. In early June 1999 the Russian government reported that unemployment had reached 14.2 percent of the country's workforce, or 10.4 million people, the highest level ever officially reported by Russia. For much of 1999 the unemployment rate hovered at 12.4 percent, or 9.12 million people. Russia closed 1999 with an official unemployment level of 11.7 percent.
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Russia's well-educated but relatively inexpensive labor force has been a leading attraction for foreign firms. While in the early 1990s many Western firms initially found it challenging to find employees educated in Western business concepts and practices, there is a growing pool in Russia of individuals with Western business exposure, education, and experience. Russian law requires that wages be paid in rubles.
Infrastructure development:
The transportation infrastructure in Russia is underdeveloped. The transport
system is heavily Moscow-centered, Commercial transportation relies heavily on rail. Roughly 90 percent of commercial haulage is rail-based and insufficiently integrated into world transport systems. The Russian trucking industry is only minimally developed, and roads are not designed to carry heavy and long-distance truck traffic. The Russian railway system includes a total of 150,000 kilometers (93,210 miles) of broad gauge rail, making it one of the most extensive railway systems in the world. However, of this total only 87,000 kilometers (54,061 miles) is in "common carrier" service. The remaining 63,000 kilometers (39,148 miles) serve specific industries or are dedicated railways lines and are not available for common carrier use. About 30 percent of freight cars, 40 percent of passenger cars, and nearly half the locomotives are of such poor quality that they should be replaced immediately. The Russian waterways system is an important component of the transportation infrastructure. Total navigable routes in general use by the Russian River Fleet amount to 101,000 kilometres (62,761 miles). The Russian highway system includes a total of 948,000 kilometers (589,087 miles) of road including 416,000 kilometers (258,502 miles) that serve specific industries or farms and are not maintained by governmental highway maintenance departments. Of the total road system, only 336,000 kilometers (208,790 miles) are
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paved. Russia's great territorial expanses and rugged terrain have hindered the development of a nation-wide highway. Russia has some 630 improved airport facilities, 50 of which are capable of accommodating international flights. The country also has extensive oil and gas pipeline system, with some 48,000 kilometers (29,827 miles) of pipelines for crude petroleum, 15,000 kilometers (9,321 miles) designed for shipment of refined petroleum products, and 140,000 kilometers (86,996 miles) designed for shipment of natural gas. Russia's overall electricity production (1998) was 771.94 billion kilowatt hours (kWh). Of this amount, some 69 percent was produced through burning fossil fuel, 20 percent resulted from hydroelectric generation, and roughly 13 percent was produced at commercial atomic generating stations. Electricity consumption amounted to 702.71 billion kWh, while 21 billion kWh was exported and 5.8 billion kWh was imported. Russia's telecommunications system is in the midst of the global telecommunications revolution by 2000, there were over 1,000 companies licensed to offer communication services. During this period access to digital lines has improved, particularly in urban centers. Internet and e-mail services are now widespread and rapidly improving. In a few short years, Russia made significant progress toward building the telecommunications infrastructure necessary for a market economy.
SWOT Analysis:
Introduction:
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Russia is a country found in northern Eurasia and is the worlds largest country in terms of area. Massive changes have occurred to Russias economy since the fall of the Soviet Empire. The economy has changed from a state of socialist, controlled structure to a market based and globally integrated economy. Several economic reforms were made in Russia in the 1990s and these reforms led to privatization of most industries, defense and energy related sectors. However, Russias vulnerability to economic crisis increased due to over-reliance on commodity exports. This paper will give a detailed description of the SWOT Analysis on Russias Economy. Strengths: SWOT Analysis is a method used for strategic planning by analyzing the Strengths, Weaknesses, Opportunities and Threats that may arise in a project or venture. The objective of this SWOT Analysis is to enable Russia know the essential steps to take so that the country can achieve an economical stability. One of the key strengths is the fact that Russia has a reliable central planning and this has enabled the country to have one of the nest economies in the world. There is also growth in foreign currency exchange and improved international finances which have enable Russia to stabilize its economy to some extent. The other strength that the country has is the improved facilities such as institutions, investments, infrastructure and innovation. These facilities have greatly improved Russias economy (Wehrheim, 2003). It is also worth noting that Russia is rich in natural resources such as coal reserves and oil reserves which constitute a large portion of the countrys exports. This is one of the strengths that have enabled Russia to have an almost stable economy. Weaknesses: One of the key weaknesses that Russia has is the high rate of poverty and unemployment and this has greatly affected its economy. The other weakness and challenge to Russias economy is the countrys limited access to foreign financing. Moreover, the county also has a high rate of public expenditure and this may have
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detrimental effects on the economy. There is also the political risk in Russia which is also among the main weaknesses. Opportunities: One of the opportunities is the relation between Russia and India, IndoRussian Trade Relations. Both countries have formed a trade coalition and a joint study group to help in the formation of the roadmap or way forward for increasing the bilateral trade turnover. This memorandum of understanding between India and Russia may lead to signing of a Comprehensive Economic Cooperation Agreement. This may be the perfect opportunity for Russias economy to stabilize. Russia has a high proximity to export its energy resources to Europe and this is also among the main opportunities. Threats: It is evident that Russia has high public debts accounts and this is a key threat to Russias economy. The increase in debts is due to the drop in the stock market and also due to governance issues. The other threat is the increasing rate of unemployment that Russia is experiencing. The rate of unemployment has recently increased from 6.5% to 8.9%. The other key threats to Russias economy are the fluctuating prices of oil and US dollar. If the country does not guard itself from these fluctuating prices, the economy will be affected.
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Economic Study of Russia

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Economic Study Of Russia

S.R.Luthra Institute Of Management