Russia

The Russian Federation ({{lang-ru|??????????? ??????????}}, transliteration: Rossiyskaya Federatsiya or Rossijskaja Federacija), or Russia (Russian: ???????, transliteration: Rossiya or Rossija), is a country that stretches over a vast expanse of Europe and Asia. With an area of 17,075,400 km² (6,595,600 mi²), it is the largest country in the world, covering almost twice the territory of the next-largest country, Canada. It ranks eighth in the world in population. It shares land borders with the following countries (counter-clockwise from NW to SE): Norway, Finland, Estonia, Latvia, Lithuania, Poland (only through Kaliningrad Oblast), Belarus, Ukraine, Georgia, Azerbaijan, Kazakhstan, China, Mongolia and North Korea. It also has maritime borders with the United States, Canada and Japan.

Economy

More than a decade after the collapse of the Soviet Union in 1991, Russia is now trying to establish a market economy and achieve consistent economic growth. Russia saw its comparatively developed centrally-planned economy contract severely for five years, as the executive and legislature dithered over the implementation of reforms and Russia's industrial base faced a serious decline. Moreover, an emergency livestock shortage in 1987, which triggered large-scale international aid, severely bruised the ego, as well as the economy, of the emerging Russian state.

Related Topics:
Collapse of the Soviet Union - 1991 - Market economy - Executive - Legislature

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After the breakup of the USSR, Russia's first slight recovery, showing the signs of open-market influence, occurred in 1997. That year, however,Asian financial crisis culminated in the August depreciation of the ruble in 1998, a debt default by the government, and a sharp deterioration in living standards for most of the population. Consequently, the year 1998 was marked by recession and intense capital flight.

Related Topics:
1997 - Asian financial crisis - Ruble - 1998 - Debt default

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Nevertheless, the economy mildly recovered in 1999. Then it entered a phase of rapid economic expansion, the GDP growing by an average of 6% annually in 1999-2005 on the back of higher petroleum prices, weaker ruble, and increasing service production and industrial output. The economic development of the country, however, has been extremely uneven: the capital region of Moscow contributes a third to the country's GDP having only a tenth of its population.

Related Topics:
GDP - 1999 - 2005 - Petroleum

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The rise of China has had much to do with the turnaround in the Russian economy. After the collapse of the Soviet Union Russia has been de-industrialised and while this has been embarrassing, it has also ensured that Russia no longer has to compete with the Chinese in this field. Russia has avoided the trap that Italy finds itself in, that is low cost manufacturing which no European nation can compete with China in. Instead Russia has become a large commodity exporter and the sharp increase in demand in commodities caused by China has changed the terms of trade dramatically in Russia's favour. The price that Russia receives for Gas, Oil and Timber has gone up while the price of manufactured consumer goods has gone down due to China's low cost manufacturing. Since Oil, Gas and Timber are fungible commodities, the increase in demand by China increases the price that Russia receives regardless of whether they sell it to China or Germany. Russia has also benefited in that the one area of industrial production where it has had an edge, military production is heavily demanded by China in it's showdown with the U.S. and since other European nations and America is unwilling to sell to China, Russia has an effective monopoly on the Chinese arms market. China's rise has been most beneficial for nations which are heavy commodity and service exporters while being heavy importers of manufactured goods. Australia fits this description perfectly and Russia has been close behind. The rise of few nations in history has had the effect that China has, and in the case of Russia, China happens to be a complementary economy. It is worth noting that the Russian economy in the last five years has been growing faster than any other in the developed world. Few could have predicted the utter collapse of the Soviet Union and it would take only the very brave to proclaim that the days of Russia as a global power is over. Barring any catastrophe, Russia will within twenty five years become the largest European economy overtaking even Germany.

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This recovery, along with a renewed government effort in 2000 and 2001 to advance lagging structural reforms, has raised business and investor confidence over Russia's prospects in its second decade of transition. Russia remains heavily dependent on exports of commodities, particularly oil, natural gas, metals, and timber, which account for about 80% of exports, leaving the country vulnerable to swings in world prices. In recent years, however, the economy has also been driven by growing internal consumer demand that has increased by over 12% annually in 2000-2005, showing the strengthening of its own internal market.

Related Topics:
2000 - 2001 - Natural gas - Timber

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The country's GDP shot up to reach ?1.2 trillion ($1.5 trillion) in 2004, making it the ninth largest economy in the world and the fifth largest in Europe. If the current growth rate is sustained, the country is expected to become the second largest European economy after Germany (?1.9 trillion or $2.3 trillion) and the sixth largest in the world within a few years.

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The greatest challenge facing the Russian economy is how to encourage the development of SME (small and medium sized enterprises) in a business climate with a young and dysfunctional banking system, dominated by Russian oligarchs. Many of Russia's banks are owned by entrepreneurs or oligarchs, who often use the deposits to lend to their own businesses.

Related Topics:
SME - Russian oligarchs

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The European Bank for Reconstruction and Development and the World Bank have attempted to kick-start normal banking practices by making equity and debt investments in a number of banks, but with very limited success.

Related Topics:
European Bank for Reconstruction and Development - World Bank

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Other problems include disproportional economic development of Russia's own regions. While the huge capital region of Moscow is a bustling, affluent metropolis living on the cutting edge of technology with a per capita income rapidly approaching that of the leading Eurozone economies, much of the country, especially its indigenous and rural communities in Asia, lags significantly behind. Market integration is nonetheless making itself felt in some other sizeable cities such as Saint Petersburg, Kaliningrad, and Ekaterinburg.

Related Topics:
Per capita income - Saint Petersburg - Kaliningrad - Ekaterinburg

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Encouraging foreign investment is also a major challenge. So far, the country is benefiting from rising oil prices and has been able to pay off much of its formerly huge debt. Equal redistribution of capital gains from the natural resource industries to other sectors is also a problem. Teaching customers and encouraging consumer spending is a relatively tough task for many provincial areas where consumer demand is primitive, although some laudable progress has already been made in larger cities especially in clothing, food, entertainment industries.

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The arrest of Russia's wealthiest businessman Mikhail Khodorkovsky on charges of fraud and corruption in relation to the large-scale privatizations organized under then-President Yeltsin has caused many foreign investors to worry about the stability of the Russian economy. Most of the large fortunes currently prevailing in Russia seem to be the product of either acquiring government assets particularly at low costs or gaining concessions from the government. Other countries have expressed concerns and worries at the "selective" application of the law against individual businessmen.

Related Topics:
Mikhail Khodorkovsky - Yeltsin

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However, some international firms are investing heavily in Russia. According to the International Monetary Fund (IMF), Russia had nearly $26 billion in cumulative foreign direct investment inflows during the 2001-2004 period (of which $11.7 billion occurred last year alone).

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