What is the current economic climate in Russia Essay

After Russian fiscal crisis in 1998 the prosperity period has returned to this part. Harmonizing to World Bank data the mean growing rate of GDP in 1999-2008 was 6,9 % it is more than double of growing rate of Euro Area. Today Russia is one of the largest economic system in the Europe continent and among the 15 biggest states in the universe[ 1 ]. Russian nominal GDP in 2009 was about 1.2 tr. EUR or about 1.6 tr. of US dollars we can state that it is about the same size as India, Canada or Spain. These take me to conclusion that Russia has to the full recovered after from the deep recession of 1890ss. See chart 1 and 2

* Source OECD functionary informations, IMF informations and writer computations.

In the period of 2000-2006 the growing of Russian economic system was chiefly driven by private ingestion. Old industrial capacities were able to function the ingestion degree due to increase of production measure in the same industry non by the edifice up new capacities. With the degree of FDI/GDP 20-22 % Russia made possible to regenerate equipment base in industries to do its merchandises more competitory in the universe market. The state of affairs changed after 2006 as FDI started to turn and play more of import function for the growing of Russian economic system. Having considerable portion in entire investings, FDI have large impact on sustainability of growing of the Russian economic system.

* Source www.worldbank.org

Beginnings of investings

As it was written above after 2006there was sudden addition in FDI to Russia, logicali inquiries pops up. Who is behind these investings? If we take a expression at the Table N

Then it will go obvious that most portion of the capital is coming through the “ revenue enhancement Eden ” states. I would instead reason that the portion of the capital is really Russian capital which was transferred to that states because of revenue enhancement issues.

Table shows us the investing exporters in to Russia. It is interesting to see that being a smallest state in EU Cyprus is the biggest investor with the portion of 19 % of entire investings in 2008 it means that Cyprus invests 1/5 of the entire investings in to the Russian economic system. It should be mentioned that Cyprus, Virginian Islands and Luxemburg are the states with low revenue enhancement rate so called offshore zones. In the same clip it could be concluded that many transnational companies keep their money in such states due to taxation issues and investing from that states in to the Russia does non intend that investor originate from at that place. As it mentioned above it even Russian companies keep their free money in offshore and frequently put them in to Russian economic system.

Other of import givers are Netherlands and UK and Germany, in comparing with investors from Cyprus or Luxemburg, this investors more tend to hold legal residence in mentioned states and their relationship with Russia are consequence of good politic and economic conditions between their states and Russia. Germany, Holland and UK form about 40 % of all investing to the Russian economic system. As it was mentioned today political and economical relationship between these states are in good degree. There are many German and UK MNE ‘s opening their Greenfields in Russian district as production in Russia means non merely inexpensive resources and labour force but it besides immense market and possibility to spread out to CIS states.

If we take a degree higher and look non donor states but donor parts it becomes obvious that chief investing giver for Russia is European Union as it invests annually more the 80 % of the entire capital inflowing in to Russian economic system. In the same clip it should be mentioned that Asian every bit good as Latin American + USA investings have non so large impact on Russian development Russian economic system. So in which sectors Russia is pulling these FDI ‘s?

Table N Investment influx in to Russian Economy by sectors in %

* Beginning: www.gks.ru -Federal province Statistics Service

Today it is normal inclination in many developing and developed states that portion of service sector is increasing quickly. Each twelvemonth more and more new services brought to the market and Russia is non exclusion. Russian Service sector is turning dramatically and pulling large portion of the investings. Harmonizing to Russian Federal Statistic Service the portion of Service sector in entire investings was 57,8 % in 2007 and it has positive inclination to increase. And it seems to be that most pulling for the foreign investors is the sweeping, retail and fix activities.

Manufacturing sector is on the 2nd dramas after service pulling about 25 % of Entire foreign direct investings annually. It should be mentioned that fabrication activities are really diversified in Russia get downing with production of nutrient and drinks stoping with chemicals and metal production. Different parts are rich with different natural stuffs and resources and give company possibility to exert the competitory advantage of utilizing these resources. Here we could advert that investings are traveling chiefly to metallurgy sector and residuary investings are distributed proportionately.

Mining and quarrying sector is one of the profitable sectors non merely in Russia but besides in all resource rich states. But statistic shows us some break down from positive tendency that continued until 2004. In 2005 investors decrease their investings to this sector more the dual times. It was impact of Yukos matter[ 2 ]. Investing are ever exposed to hazards allow it be economical, fiscal or political hazard, and if economical and fiscal hazard are in some degree predictable and surmountable, political hazard is unpredictable and has more serious effects. So after Yukos instance many investors unwillingly invested to this sector but due to development of statute law in favour of investors right the state of affairs is altering late and the investings volume in excavation and quarrying sector is retrieving.