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Business Profile
Economy: The Russian Federation is blessed by an abundance of natural resources of every description. This includes rich agricultural land from which grain, potatoes and livestock are the main products. Since economic reforms began in 1991, most agricultural land has been transferred to private ownership. But there remain problems with the land reform programme whose resolution is one of the present government’s economic priorities. Agriculture accounts for seven per cent of total economic output but remains an important employer: over a quarter of the labour force work in the sector.
Russia has huge deposits of oil and gas – its major export earners – as well as coal and minerals including gold, diamonds, nickel, manganese, copper, iron ore and phosphates. Further 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.
The large but declining heavy industrial sector produces a full range of vehicles, metal goods, construction materials and machinery. Textiles and chemicals are other important industries. By contrast, light industry, and notably the production of consumer goods, is comparatively weak. The fastest growing part of the economy throughout the 1990s has been the service sector, particularly banking, insurance and property which have developed from a very low base. Services now account for about half of economic output. Russia’s main trading partners are the ex-Soviet states of Kazakhstan, Belarus and Ukraine along with Germany, the USA, Japan and Switzerland. Russia took the lead in establishing the Customs Union of the Commonwealth of Independent States (CIS).
Overall, the economy has suffered serious decline as the painful process of reform has proceeded through the 1990s: total output has fallen by half since 1991. In 1998, a combination of internal and external factors led to the virtual collapse of the economy, which required a substantial financial injection by the IMF (of the order of US$22 billion). Since then, the economy has undergone something of a recovery. The accession of the Putin government, and the measures taken by it, has boosted international confidence, while relatively high oil and gas prices have swelled government receipts.
The nature of the Russian Federation itself, a vast geographical area with a hugely diverse economy, has made the reform process far more difficult to implement than in smaller Eastern European countries where it has passed off with, by and large, reasonable success. Some of the problems are fundamental. Perhaps the most significant of these is the inadequacy of the national infrastructure: insufficient and poor-quality transport networks, and an erratic and antiquated telecommunications system, undermine and inhibit internal and external commerce. Moreover, operating conditions for private business are far from ideal: commercial law is sketchy and frequently unenforced, while the banking and finance system is dysfunctional. Organised crime thrives in such an environment and Russian gangs are now among the world’s most active.
Since the discovery in 1999 that billions of dollars of international aid had been siphoned off by politicians, officials and their banking industry allies, the Putin government has also attempted to tackle corruption. Nonetheless, the overall impression is of a government which is simply overwhelmed by the immensity of the economic task facing it, and an economy which has perhaps been forced too quickly into adopting market mechanisms. There are some causes for optimism: the Government seems to have got on top of the hyper-inflation which caused so much damage, especially in the initial stages of the reform process. Inflation is now 16 per cent and falling. Unemployment, currently estimated at nine per cent, has also been in gradual decline. Annual GDP growth has been steady at five per cent for the last few years. In 2004, the three Baltic states and Poland will join the EU, providing opportunities for the Kaliningrad enclave, which belongs to Russia (a free trade zone is the most likely outcome).
Business: As a result of recent economic changes which have taken place in the Russian Federation, there are now many thousands of private companies in operation and international business relations have become active. The main business centres are Moscow, St Petersburg, Nizhny Novgorod, Novosibirsk and Vladivostock. Office hours: Mon-Fri 0900-1800.
Commercial Information: 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; fax: (020) 8348 0112; e-mail: info@rustradeuk.org; website: www.rustradeuk.org); or Russo-British Chamber of Commerce, 42 Southwark Street, London SE1 1UN, UK (tel: (020) 7403 1706; fax: (020) 7403 1245; e-mail: mail@rbcc.co.uk; website: www.rbcc.co.uk).
Moscow Office: Please contact the London office for up-to-date details (information supplied to members only); or Ministry for Economic Development and Trade – Department for Economic Co-operation with Europe, 18/1 Ovchinnikovskaya nab, 113324 Moscow (tel: (095) 950 1779; fax: (095) 950 1780; website: www.economy.gov.ru); or Chamber of Commerce and Industry of the Russian Federation, ul. Ilynka 6, 103684 Moscow (tel: (095) 929 0334; fax: (095) 929 0355; e-mail: tpprf@rbcnet.ru).
Conferences/Conventions: With every passing year an increasing number of conferences, seminars 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 (see Contact Addresses section for details).
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