Economy of Russia
A decade after the collapse of the Soviet Union in 1991, Russia is still struggling to establish a modern market economy and achieve strong economic growth. Russia saw its economy contract for five years, as the executive and legislature dithered over the implementation of reforms and Russia's industrial base faced a serious decline.
Russia achieved a slight recovery in 1997, but that year's Asian financial crisis culminated in the August depreciation of the ruble, a debt default by the government, and a sharp deterioration in living standards for most of the population. The economy subsequently has rebounded, growing by an average of more than 6% annually in 1999-2002 on the back of higher oil prices and a weak ruble.
This recovery, along with a renewed government effort in 2000 and 2001 to advance lagging structural reforms, have 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 over 80% of exports, leaving the country vulnerable to swings in world prices.
The greatest challenge facing the Russian economy is how to encourage the development of SME (small and medium sized enterprises) in a business climate dominated by oligarchs and a large dysfunctional banking system. Many of Russia's banks are owned by entrepreneurs or oligarchs, who often use the deposits to lend to their own businesses.
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.
The recent arrest of Russia's most successful businessman Mikhail Khodorkovsky on charges of fraud and corruption in relation to the large-scale privatizations organised under 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 cheaply or gaining concessions from government cheaply. Other countries have expressed concerns and worries at the "selective" application of the law against individual businessmen.
However, some international firms are investing heavily in Russia. An example is Scottish and Newcastle, a beer firm who has found the beer market in Russia to be growing much faster than in other areas of Europe. Scottish and Newcastle has already invested heavily in the Russian beer industry
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