Country Profile: Russia

Russia was once famously defined by Winston Churchill as “a riddle wrapped in a mystery inside an enigma.” There once was a time when the world’s largest country was very reluctant to doing international business, and had policies and philosophies that were in contrast to those of most of the western world.

The year 1991 marked a defining moment in Rus­sian history, and it was a turning point in the world’s per­ception of, and ability to work with, Russia. That was the year in which (by the briefest of summaries) the Soviet Union collapsed and the country turned from commu­nism to a social capitalist government. Since then, Rus­sia has ventured out further and further into the global business market.

An overview

Russia is a global energy superpower. It has the largest natural gas reserves in the world, as well as eight largest oil reserves and the second larg­est coal reserves. It exports and produces more natural gas than any other country on Earth, and is the second largest exporter and producer of oil. Russia can also claim the title of fourth largest electricity generator and fifth largest producer of renewable energy, due to the country’s sophisti­cated hydroelectricity production. The Asian part of Russia also features a number of major hydro­power stations.

Russia is also the fourth largest nuclear en­ergy provider and was the first nation to develop a civilian nuclear reactor and to introduce a nuclear power plant. This type of energy is developing quickly in Russia, and the government aims to increase the total share of nuclear energy from 16 per cent to 23 per cent by 2020.

Economic development

The greater portion of economic development in the country has been due to the contribution of Moscow, with the city contributing most to the GDP. Since the year 2000, the middle class has grown from just eight million people to well over 55 million. In a country that endured a complete economic meltdown only a few decades ago, government implemented fixed capital invest­ments have averaged real gains greater than 10 per cent per year and personal incomes have increased significantly.

With Russia having been hit hard from the global economic crisis, it has a greater interest than ever in welcoming foreign investment, and the country is opening its doors to U.S. invest­ment, particularly in the high-technology sector (which would diversify its current overdepen­dence on oil and gas). State corporations have recently endeavoured to develop its nanotech­nology industry with the assistance of Silicon Valley companies.

Corruption

A worry of many investors seeking to work within Russia is corruption and the perceived failure of the Russian justice system to uphold the rights of investors and shareholders. A 2008 U.S. report estimated $300 billion a year is taxed illegally unto investments and repre­sents an obvious barrier to foreign participation in the Russian economy. According to a U.S.-based anti-corruption nongovernmental organi­sation called TRACE, 41 per cent of reported demands for bribes are from government of­ficials and employees, and 50 per cent are demands from law enforcement.

Instead of turning a blind eye to this pervasive issue, the government has launched some sig­nificant initiatives to start to reverse this trend and to mend the country’s reputation. Soon after the Presidential election, Dmitry Medvedev made tackling corruption a high priority. In 2008, he signed a new anti-corruption legislation package, which was viewed by international bodies as an important first step. The Investigative Committee of the Russian Prosecutor General has, since the start of 2009, investigated 106 cases and 12 cases involving bribes and damages totalling approximately $29 billion have been tried.

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