Russia Economy

Compared to 2014, Russia saw a drop in GDP of -3.8% in 2015 and a marked worsening of growth forecasts over the next two years. After years of positive macroeconomic data (excluding 2008, the year of the global crisis), the reasons for this recession scenario are due to both structural aspects and contingent factors. In fact, to the complexity of an unfinished economic transition, excessive dependence on the energy sector and severe infrastructural, production and development deficiencies, there are the strong repercussions of the collapse of the oil price in 2015 and the sectoral sanctions imposed by West to Russia due to tensions in Ukraine.

After the collapse of the USSR in 1991, Russia’s real GDP fell by 12% and the deficit reached 26% of GDP: a profound economic crisis accompanied the transition from a planned economy to a market economy. Despite the numerous reforms enacted, such as fiscal, welfare and private property reforms, as well as a privatization process that occurred rapidly in the 1990s, the 1998 economic crisis slowed down these processes and liberalization remained unfinished.

The state maintains control of the leading sectors of the economy, first and foremost the oil sector (think of the expansion of the subsidiary Rosneft with respect to Yukos), but also the banking and armaments sector. Since Putin’s first presidency in 2000, the government has pledged to promote greater transparency and economic freedom, including through the fight against the ‘oligarchs’, a group of businessmen who built their fortunes in the 1990s. The campaign, however, proved to be selective and aimed at hindering the activities of Boris Berezovsky and Vladimir Gusinsky (two businessmen with media influence) and of Mikhail Khodorkovskij, one of the main shareholders of Yukos, who appeared to have political ambitions. The latter was arrested in 2003 and sentenced to eight years in prison for fraud and tax evasion. In December 2010, Khodorkovsky was again convicted of the theft of oil along with Platon Lebedev, also a former Yukos shareholder. Both were released from prison respectively in December 2013 and February 2014. The arrest of Yevtushenko, number 15 on the ‘Forbes Russia’ list and owner of the giant ‘Sistema’, was read as a symptom of the government’s authoritarian and willful take. of greater control over the economy.

Exports of gas and oil are traditionally an essential component of the trade balance of the Russian Federation, according to a trend that has strengthened over the last decade, up to making up more than 67.1% of the national GDP. Reducing the dependence on the extraction and export of raw materials in favor of the diversification of industrial production represents the main challenge of the Russian economy. After the 1998 crisis, subsequent economic growth was, in effect, largely due to the exponential rise in the price of oil. Hydrocarbons accounted for around 30% of GDPof the country over the past decade. In years in which the price of raw materials has grown exponentially, the country’s development model theoretically oriented towards privatization, liberalization, investment and innovation has been gradually abandoned, resulting in a structural vulnerability of the Russian economic system. The lack of diversification of the production system, in particular, does not make the country competitive on the markets with industrial powers such as China and the United States. In July 2014, the International Monetary Fund revised its GDP growth forecasts downwards of the country lowering them from 1.3% to 0.2% for 2014 and from 2.3% to 1% for 2015. However, following the depreciation of the ruble and the economic crisis that hit Russia in the end in 2014 and 2015, inflation led to further negative growth forecasts.

Agricultural productivity has declined since the Soviet era, although it is recovering. The vulnerability to the climate means that agricultural land represents 32% of the total, while 45% of the territory is covered by forests that produce timber, one of the main export goods. The mining industry is highly developed but, in general, Russia has inherited an industrial base that is technologically backward and oriented towards low added value transformation processes. Furthermore, following the sanctions, numerous technological collaboration projects with Western companies have been suspended or are experiencing numerous difficulties, in particular as regards those of exploration of the Arctic. The Soviet legacy has left a disparity between regions, since geographic specialization was a central aspect in planning. Heavy industry is concentrated in European Russia, the Urals and the Arctic, where the greatest energy resources are located, while the south of the country is mainly agricultural. Moscow alone produced 22% of GDP in 2008. Furthermore, inequalities in income distribution have increased since the Soviet era (in 2007 the richest 20% of the population owned half of the total Russian income, up from 38% in 1992).

In 2014, total unemployment reached around 5.6% and in 2015 inflation jumped to 15.8%. The situation has been greatly aggravated by the sanctions imposed by the European Union, the United States, and other Western powers. If the first round or ‘package’ of sanctions had an individual character and was aimed at individual political personalities who had supported the annexation of Crimea, the second was aimed at the Russian economic system and finance, limiting financial loans for example to Russian companies. The third package, on the other hand, has mostly affected the collaboration between Russia and the West in the energy sector, without however affecting the supplies themselves. As a response to European measures,

Overall trade with the former Soviet republics remains lower than that with the European Union. Brussels, which largely depends on Russian energy supplies, is by far the largest trading partner (more than 50% of Russian trade) and the largest investor in Russia (with a 75% share of foreign investments). Trade with China is also increasingly important, which could increase considerably as a result of the start of exports of hydrocarbons.

Russia Economy