Russia Team Crouching Tiger
Dec 21, 2015
Agenda
• Current Status • Demographics• Political Environment• Economic Environment• Trade and Investment
Opportunities
Current Status
• Economic Crisis of 1998
• 10% growth in FDI annually
• Ruble strengthening
• Political Stability • Population
decline
Declining Population
• By 2050 Russian’s population will decrease by 1/3
• Why?• High death rate, esp among males• High suicide rate, 38/100,000• Low Birth Rate
• 1.6 million Abortions• 1.5 live births• Median age 38 years old
Population decline means market size diminishing for investors.
Cultural Factors
• Ethnic Groups• 160 different ethnic groups• Boarders 15 countries, constant immigration
and emigration
• Language• 100 languages• Business conducted in English and Russian
• Religion• Most “non-practicing”• Opening to religious freedom
More ethnic diversity leads to more FDI
Health & Literacy• Male life expectancy: 58 years• Why?
• Violent crimes• Alcohol• WWII fatalities• HIV/AIDS and Tuberculosis
• Literacy: males 100%, females 97%• Why?
• Free education. High completion• Same education system as in Soviet times• Emphasis on science, math, medicine,
technology, and aviation
Very skilled labor force helps market grow
A Brief History
• Russian Revolution of 1917- Lenin takes control (Marxist-Communism), Tsars gone
• 1922- Soviet Union Formed• 1924- Stalin Takes Power
• Gulags (Millions murdered)• Rapid industrialization• “Modernizing” the Soviet Economy
• 1953- Khrushchev• Sputnik• Cold War
Vladimir Putin
• Elected in 2000, second term in 2004
• Over a 70% approval rating
Political Structure
• Executive Branch• President at head• Can dissolve Legislative Branch
• Judicial Branch• Constitutional Court• Supreme Court• Superior Court of Arbitration
• Legislative Branch• Federation Council• State Duma
Executive/ Legislative
• No Vice President• 4 year term, maximum of 2 terms• Federation Council -178 seats
• members appointed by the top executive and legislative officials in each of the 88 federal administrative units
• State Duma- 450 seats• members are elected by popular vote• serve four-year terms
• Suffrage: 18 years old• Over 50 political parties
• Has caused a weakening party structure
Russian Constitution
• In place since 1993• Bill of Rights
• Includes freedom of speech/religion, protection of private property, protection from unlawful searches
• More power given to the President
• Lacks Checks and Balances• President Control Parliament
• Often difficult to Enforce
Russia’s Struggles Today:
• Become a democracy
• Have a market economy
• Human Rights
• State control of the media
• Law enforcement
• Corruption
Land resources
• 1.8 times the size of the US • 80% of Exports: natural gas, metals, timber, and
oil• Despite its size, the country lacks proper soils and
climates (either too cold or too dry) for agriculture
Economic Environment
• Moving from Government controlled to Market controlled economy
• Lowering taxes
Gross Domestic Product - growth at 6.8%
• Russia’s GDP by Purchasing Power Parity was ranked 11th in the world at $1.589 trillion
• World leaders in GDP: United States at $12.36 trillion and the European Union at $12.18 trillion
Russian Federation Trade
• 2005 - Trade with other countries was up 13.2% to $23.3 billion
• Main import partners being
- Germany (8.4%)
- Italy (6.2%)
- China (5.8%)
- Ukraine (5.7%)
- Belarus (5.7%)
- Netherlands (5.6%)
- Switzerland (5%)
- US (4.6%).
1998 Financial Crisis
• Russian government defaulted on debt because of overspending
• Foreign capital flooded to other countries
• Many banks went bankrupt
• Little consumer savings
Resurgence in 1999
• Foreign Direct investment has averaged 10% growth each year since 1999.
• Russia is transitioning more and more into a market economy.
• Restrictions on exports are being lifted.• Joint Ventures in oil, gas, aviation, and other
commodities
Reasons for recent growth
• Public offerings of Rosneft (oil) and Gazprom (gas) have opened up investment to international investors.
• Putin has increased political stability and added strong economic growth.
• Russia is rich in natural resources.• Public companies are being privatized.