Discuss about the Value Of The Russia As A Country For Investment.
This report discusses the current situation of the country Russia. It is one of the most important country in the Eurasia. It is the largest market if Europe with more than 140 million people. Over the next five years, GDP growth of this country is expected to be on 4 percent if the price of oil remains above $96 per barrel. The country has great amount of natural resources which is the main source of raw material in the industries of this region. Despite the fact that the country has great potential for foreign investment due to its fast economic growth the government policies need to be loosened a lot. The country has satisfactory amount of resources for expert but as the value of ruble is much lower than dollar, the government has to emphasis on the import. However, the country has great prospect for the foreign investors, need to bring changes in the internal judicial systems to reduce corruption. The essay provides a general overview of the country, discusses its external factors, trade policies and barriers, impact of foreign currency in the country’s economy and concludes with some recommendation.
Russian Confederation is a sovereign country in Eurasia. It is the largest country in the world in terms of area and ninth most populous country. Moscow is the capital of the country and is one of the largest cities of the world. The country borders the important European as well as Asian countries hence have great business opportunities. It landscapes borders from Tundra to it subtropical beaches. The coastline of the country 12 seas of the three major ocean basins. The climate of the country varies from place to place within the country. This is because the country has a vast territory hence has natural contrasts. The norther part is located in the arctic zone and the southern part has subtropical climate. The country has huge natural resources starting with oil, gas, coal, minerals and timber. The natural resources which the Russian economy uses, accounts for almost 95 percent of national wealth. The people of the country has extreme cultural diversity. This country is a home to highly ethnic people like Tatars, Ukrainian, Chuvash, Bashkirs and Belarusians. The government of the country realizes education as national priority. Therefore, the Russian graduates have a great demand in the world Labor market.
The country has potential features that can easily attract the foreign investors in the country. petroleum, steel and iron are the achieve industries and Russia export many of its products to the other countries of the world.
Political factors: Russia faced bad political and economic impact after the defeat in the war with Afghanistan and had it economy completely shattered after it. However, it worked hard to gain the financial stability and the government had to take wiser and tougher decisions to retain the political stability. The repents political situation of the country is however stable and the political system is running according to the convention. Russia is a federation but the national government has great connection with the local governments. The judicial system is strong and human rights update report of the condition regularly. The government of the country has maintained a healthy relationship strategy with all the important countries. Russia has maintained nuclear strategy and committed to mainatain global peace.
Economic factors: the country is gaining economic strength and expected to reach $3 trillion in the next year. Problems of corruption has negative impact on the economy of the country. The internal security of the country is quite weak but it has highly skilled workforce which adept with the relevant works.the country has sufficient resources that contribute to build the country strong. The country is in top ten position in terms of GDP, it has ample natural gas and oil reserves in the country. As the country has huge land area, the agricultural sector is also very developed. The agricultural crops are exported to the countries of Europe and America. This economy of this country cannot be compared with the other neighboring countries as this economy largely depends on the price of natural gas and oil in the international market. The governed therefore make conventional budget to survive in the global market. The country has an effective tax system as well as monitory policies which help it to become a stable economy.
Social factors: after the recession in 1990s the society had a great division among the rich and poor. The aristocratic culture increased the amount of expenditure in the lavish clothing, expensive cars and other luxurious items. This increased the wealth gap in the society. the outlook regarding family system had changed. Due to this, birth rate had reduced and death rate as mentioned before, the increased owing to excesses alcohol consumption and HIV. the wealth gap in the society is wide and there is a huge inequality present in the country. However, the soak activities have recorded a major change in last two decades. The living tided of the people has been associated with the major elements of entertainment like art, music and literature.
Legal factors: the judicial state of the country is very strong and the people are confident to get judgement in any types of crime. There has been a new legal reforms introduced by the government which has brought improvement in the national judicial system. The government has introduced various types of legal assistance programs together with the neighbouring countries in order to solve the international as well as domestic legal issues. As the corruption rate is high in the country, the government has made new laws for controlling the issue of corruption. This new changes in the legal system has increased the condition of the country which successfully attracted the foreign customers.
Technological factors: Russia is a technologically advanced country which had sent foist man in space.the country pays more attention to the technological advancements in the sector of nanotechnology. In addition to this the county also has expertise in the fields of information technology and used them to fulfil the expectation of the people as well as improving their lifestyle (Rudenko et al. 2015). The country has significant advancement in the fields of chemistry, geography, aerospace engineering and mathematics. The country has also advanced in the military materials as well as war weapons but committed to maintain world peace.
Environmental factors: the government of the country has introduced effective security system for reducing the pollution and controlling environmental disasters. The basic policies to control the environment and decisions pertaining to save the environment safety has effected the ecological system of Russia. The governed of Russia has taken initiatives to make polices to control the carbon emission though industries as it has huge economic contribution by the iron and steel factories (Shlychkov, Khasanova and Vedin 2015). The people of Russia are quite aware about the protection of the environment hence adheres and abide by all the protective policies introduced by the government. These policies also focus on the water and noise pollution despite the fact that the country has huge oil and natural gas reserve.
As mentioned before, Russia is extremely rich in minerals, oil and natural gas. The country has huge reserve for various types of natural resources. Russia uses more than 90% of its natural resources in the industries (Shlychkov, Khasanova and Vedin 2015). This is the reason why the industries have flourished to its high in this region and strict investors from different part of the world. In addition to natural oil and gas, the country possess huge coal resave which has helped Russia to arrange all the factors for industry building. In the production of iron, gold, copper, zinc, manganese and other non-metallic ores that are heavily used in the heavy industries. In addition to this the country has huge forests which is the source of income of the government. The country’s high population has created a huge market for the foreign investors. The country has the third expensive market in the world and as mentioned before, the people prefer to buy expensive products. The automobile companies therefore, feel attracted to this country and it is the second largest automotive market in all over Europe. The internal economy of the country is in good position (Bozhechkova and Polbin 2018). The annual household income of the citizen is developed as the issue of inequality has been reduced. Therefore, the middle class families have become the chief target of the foreign investors. This country is one of the lowest rankers in the household debt index. The educated and skilled labor is another chief attraction of the investors therefore unemployment rate is low. The resources Rae properly used by the government in order to serve the citizens.
Despite the fact that Russia possesses third largest hard currency reserves in world, the currency of the country has lower value than dollar (Fischer 2016). It is still a developing country; the external economy is not very high. Hence it needs to be increasing its expert but as the value of ruble is lower than their foreign currency, the country has to put emphasis on imports than export. However, Russia has ranked fifth in the foreign currency reserves which means the country will be soon in the position of high economic growth. The fiscal monetary policy will be favorable for the Russian economy.
The foreign companies feel different kinds of tariff as well as non-tariff trade barriers in exporting to this country. The complicated system of standardisation has be a barrier for the foreign exporters. The country lacks transparency and clarity. This overall redundancy has created barriers for the companies and they are encouraged to get proper assistance to enter the market. As the country has a federal power, the issue of federation against the foreign investors is present. Following this, the abuse of power, sub-national regulations as well as practices often violate the Russian law making the situation more critical for the foreign investors. In case of competition to get favor, the local or domestic companies get them via giving bribes but the foreign companies need to pay a range of fees to get the work done. These foreign exporters need to pay customs duties, value-added taxes and excise taxes in advance otherwise banned from entering the market. For different of industries there are different types of rules to be followed by the Russian government (Kolupaev et al. 2015). There is product approval process for some specific types of products therefore, scope for test and certification executed by the foreign competent idea are limited. In the case of IT industries, the Russian government regulations have made more difficult to provide any types of goods and services in the country’s market. Under this regulation the Russian software is given priority to the foreign software. Despite all these, Russian government provides tax benefits of 16.5% to the investors. Russia often supports free trade and has become a member of World Trade Organization.
According to the reports, the trend of foreign direct investments in Russia is fluctuating in nature. This is due to the reason that the above figure shows that first half of 2017 shows the maximum growth, which later reduced in the second half. However, the early trend of 2018 is showing positive growth that denotes that Russia is being able to portray themselves as one of the most popular destinations for the foreign investments. The existing level of foreign direct investments in Russia is also denoting that return of investments in Russia is also favorable. These factors are also contributing in enhancing the opportunities in investing in Russia.
Compared to some other major economies, the existing trend of foreign direct investments is positive and in the leading position. According to the above figure, Russia is just behind China in terms of inflow of foreign direct investments in last ten years (Kuzmina, Volchkova and Zueva 2014). This is portraying that Russia is one of the most popular destinations for the foreign investors along with the strategic location of Russia, more foreign investors are coming. Geographical location of Russia is also contributing in attracting the foreign direct investments due to the reason that entering in the Russian market will enable the business organizations to cater both to the Asian and European market. Thus, the market potentiality of the organizations will get further increased.
Many long term investors from forming countries have distrust against Russia but this has to be overcome. Therefore, the government has to improve this investment climate as well as the quality of life. despite the fact that getting the results exactly as expected is impossible but some of these reformation is really simple. The government must take actions based on modernization but it is impossible without truly independent judiciary system as well as mass media, freedom of movement, political competition and respect for the civil rights. For making the investment climate improved to be operated, the government should-
By following these measure, the ambience of the country will become more favorable for the investors. The situation which has affected the country’s economy, especially bribery and corruption in the bureaucracy, will be reduced hence the investors will be attracted more.
Conclusion:
Therefore, it can be concluded that the economic situation of the country has become more developed than it was two decades ago. The country has improved a lot both from the political as well as economic aspects. The country has hug natural resources and great facilities from location. Russia has skilled and educated labor force which has great reputation in the foreign market. Despite the fact that the country’s rules and regulations associated with the foreign exportation and investment are much stricter, the internal law system need to be stranded to get more focus on the development. Analyzing all the aspects of the country it can be stated that Russia has potential market for investment but will take to synchronize all facts of economy thus will be the best place for investment.
References:
Akhmadeev, R.G., Bykanova, O.A. and Tretyakova, D.A., 2016. The ways to overcome the negative phenomena in the Russian economy. Ekonomicke trendy, (3), p.44.
Bayev, I.A. and Solovyova, I.A., 2014. Empirical analysis of the relationship of investment and innovative activity of regions of Russia. Economy of Region/Ekonomika Regiona, 37(1).
Bozhechkova, A.V. and Polbin, A.V., 2018. Evidence for the Interest Rate Channel in the IS Curve for the Russian Economy. Economic Policy, 1, pp.70-91.
Fischer, P., 2016. Foreign direct investment in Russia: A strategy for industrial recovery. Springer.
Gurvich, E. and Prilepskiy, I., 2015. The impact of financial sanctions on the Russian economy. Russian Journal of Economics, 1(4), pp.359-385.
Kolupaev, R.V., Rogacheva, L.I., Moskalenko, A.V., Ulrikh, I.V. and Mikhailova, T.A., 2015. Special considerations of the financial investment in Russia. Asian Social Science, 11(7), p.297.
Kuzmina, O., Volchkova, N. and Zueva, T., 2014. Foreign direct investment and governance quality in Russia. Journal of Comparative Economics, 42(4), pp.874-891.
Maksim, T., Irina, T. and Olga, C., 2015. Transaction Costs under Globalization: The Example of Russian Economy. European Research Studies, 18(2), p.107.
Reuters. (2018). reuters.com. [online] Available at: https://blogs.reuters.com/globalinvesting/2012/04/27/where-will-the-fdi-flow/ [Accessed 28 Apr. 2018].
Rudenko, L., Zaitseva, N., Larionova, A., Chudnovskiy, A. and Vinogradova, M., 2015. Socio-Economic role of service-Sector small business in sustainable development of the Russian economy. European Research Studies, 18(3), p.223.
Shlychkov, V.V., Khasanova, A.S. and Vedin, N.V., 2015. A Quarter Century of Reform of the Russian Economy: is it Wandering in a Maze or Jogging in Place?. Indian Journal of Science and Technology, 8(s (10)).
Tradingeconomics.com. (2018). Tradingeconomics.com. [online] Available at: https://tradingeconomics.com/russia/foreign-direct-investment [Accessed 28 Apr. 2018].
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