::gold::oil::gas::diamonds::minerals:: ::gold::oil::gas::diamonds::minerals:: RUSSIAN INTERNATIONAL FINANCE By: Andriy Lahush – 250459077 For Dr. J.D. Han, Economics 3370a King’ ’s University College 2011 s University College 2011 For Dr. J.D. Han, Economics 3370a King
Illustration 1 Presnensky District – Home of Moscow’s Financial District
Purpose Table of Contents There currently are lots of exciting new developments in :: Relevant Background and Statistics the economy of Russia, which deserve a closer attention. ::Investigation of Russian Economy’s Sources of Growth ::2008 Global Financial Crisis and its effects on Russia ::Russia and European Union ::Russia and “Near Abroad” ::Russia and Japan ::Current Developments ::Conclusion
Historical Background & Relevant Statistics • December 1991: USSR split into Russia and 14 other independent republics in part because USSR lost to China in the United States’ bid for a preferred business partner due to their unwillingness to adopt new technology. • Adopted a semi-authoritarian state, carefully managed politics, prudent management of Russia's windfall energy wealth • Largest state in the world: 17,098,242 sq km (1.8 times the size of the US) Wide natural resource base including major deposits of oil, natural gas, coal, • and many strategic minerals, timber. Even though, like in Canada, climate, terrain, and distance hinders resource exploitation, the world demand is gradually making it feasible to exploit the above resources. Population of 139,390,205 (July 2010 est.) 9 th globally (-0.465% growth rate) • GDP of $2.116 trillion USD (2009 est.) (8 th in the world; 73rd in per capita) • Comparatively low investment ratio: 21.5% of GDP (2009 est.) 74 th in globally • • Decelerating inflation rate – 11.7% (2009 est.) from 14.1% (2008 est.) • #2 natural gas (#1 exporter) producer globally; #1 proved reserves • #6 positive current account balance globally :: Source : CIA World Factbook ::
Investigation of the Russian Economy’s Sources of Growth Long Term Growth is Due to Real Factors Long Term Growth is Due to Real Factors • Productivity (leads to higher profits, so that firms can invest in new technologies, create in new technologies, create • Productivity (leads to higher profits, so that firms can invest jobs, pay more in wages and dividends) jobs, pay more in wages and dividends) Total factor productivity growth of 5.8 percent has been the driving force behind average Total factor productivity growth of 5.8 percent has been the dri ving force behind average GDP growth of 6.5 percent over 1999 – GDP growth of 6.5 percent over 1999 – 2005 due to utilization of excess capacity, 2005 due to utilization of excess capacity, relocation of labour and capital to more productive sectors (World Bank) rld Bank) relocation of labour and capital to more productive sectors (Wo But: But: Russian firms have exhausted the post- -soviet productivity gains derived from more soviet productivity gains derived from more • • Russian firms have exhausted the post efferent labour and capital allocations. The capacity utilization rates rose from 42 percent efferent labour and capital allocations. The capacity utilizatio n rates rose from 42 percent in 1999 to almost 70 percent in 2005. (The World Bank) in 1999 to almost 70 percent in 2005. (The World Bank) • Low Investment Rate Prevents Russian Economical Growth • Low Investment Rate Prevents Russian Economical Growth Russia has a wide range of natural resources, demand for which is rising, but the s rising, but the Russia has a wide range of natural resources, demand for which i th Globally (CIA investment rate in only 21.5% of GDP (2009 est.) (74 th Globally (CIA Factbook Factbook) ) investment rate in only 21.5% of GDP (2009 est.) (74 Therefore Therefore To sustain growth Russia needs to increase productivity in terms To sustain growth Russia needs to increase productivity in terms of of technology, foreign development and foreign know- -how, as the growth from the post how, as the growth from the post- - technology, foreign development and foreign know socialist transition is running out. Russia needs to make foreign investment more gn investment more socialist transition is running out. Russia needs to make forei attractive to make up for its low domestic investment. Russian attractive to make up for its low domestic investment. Russian government is currently government is currently taking steps to do the above. taking steps to do the above. :: The Old Saint Petersburg Stock Exchange :: CIA Factbook ::
Russia and The Economic Crisis • • Reliance on commodity exports makes Russia vulnerable to boom an Reliance on commodity exports makes Russia vulnerable to boom and bust cycles that d bust cycles that follow the highly volatile swings in global commodity prices (CIA A Factbook Factbook) ) follow the highly volatile swings in global commodity prices (CI • Russian government and people, awash with money, were convinced their economy was their economy was • Russian government and people, awash with money, were convinced invulnerable to the world financial crisis until the 2008 crash invulnerable to the world financial crisis until the 2008 crash of oil prices and world of oil prices and world markets (The Seattle Times) markets (The Seattle Times) Russia made the mistake of confusing high oil prices with the genius of their economic nius of their economic • • Russia made the mistake of confusing high oil prices with the ge management. - management. -Rory Rory MacFarquhar MacFarquhar, Goldman Sachs in Moscow , Goldman Sachs in Moscow • Kremlin and Kremlin and Duma Duma failed to let businesses and the economy diversify. (The Seatt failed to let businesses and the economy diversify. (The Seattle Times) le Times) • • Heavy focus on oil resulted in no paved roads from Moscow to Vladivostok for Russian divostok for Russian • Heavy focus on oil resulted in no paved roads from Moscow to Vla people and businesses, 10 people and businesses, 10- -20% interest rates for entrepreneurs (0% is optimal, as 20% interest rates for entrepreneurs (0% is optimal, as discussed in class), and scientists leaving for better equipped laboratories and universities laboratories and universities discussed in class), and scientists leaving for better equipped in Europe and America (The Seattle Times), devastating home- -grown research and grown research and in Europe and America (The Seattle Times), devastating home innovations. innovations. • Russian government acknowledged these vulnerabilities of the Russian State sian State’ ’s economy s economy • Russian government acknowledged these vulnerabilities of the Rus and currently is working with international bodies, such as EU, Japan, and ex Japan, and ex- -Soviet states Soviet states and currently is working with international bodies, such as EU, to strengthen Russian economy. to strengthen Russian economy. •The government starting in 2007 has embarked on an ambitious program to reduce this dependency and build up the country's high technology sectors. (CIA Factbook)
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