Why International Trade and Investment is Important for Russia
Russia is at a critical turning point in its economic, social and political development. After 10 years of unprecedented economic growth and rising living standards, the economy was hit hard by the global financial crisis of 2008. Although its rebound was prompt, aided by resurging global energy prices, this drop highlighted underlying uncertainties about the sustainability of Russia’s economic model.
A strong reliance on the export of natural resources, combined with centralized political and economic powers, have served the country well over the past decade but with international and domestic environments changing rapidly, participants in this scenario process have highlighted the need for the country’s economy to be revitalized urgently. 1 Russia is best known among international investors for its energy industry, as a leading exporter of oil and natural gas.
However, those investing in Russia are also watching its growing information technology (IT) and telecommunications sectors. In particular, the country’s software development outsourcing industry is one of the fastest growing markets in the world. 2 “Russia open for new trade and investment” “Let me emphasize that Russia and its economy are open for new trade and investment projects. We maintained a trade surplus of $195 billion in 2012 and the unemployment rate is consistently falling.
It has reached a historical low of 5. per cent,” President Vladimir Putin said at a business breakfast for the leaders of Brazil, Russia, India, China and South Africa, the countries that form the BRICS political organization at the March 27, 2013. 3 Putin has said on many occasions that measures to improve the business climate and eliminate administrative hurdles and corruption are at the top of the Russian government’s efforts to turn the country’s enormous investment potential into a real flow of foreign capital to boost Russia’s sluggish economic growth.
Russia ranked just 120th on the World Bank’s Doing Business Index in 2011, and has since moved just eight places up to the 112th position. The country needs investment, including foreign capital, to spur its flagging economy and diversify away from raw material exports, which make the country highly vulnerable to changes in global markets. Putin said Russia had developed a set of measures to improve the country’s investment climate, he added that the country was also ready to boost cooperation in the space industry, science and the hi-tech sphere.
Advantages for foreign investors Russia has a long way to go in the process of improving its business environment. Although bureaucratic barriers and lack of transparency may seem to jeopardize Russia’s appeal as an investment location, the country has a number of advantages for foreign investors: Vast natural resources. Russia continues to attract investments due to its natural resources sector. The oil and gas industry is the foundation of the Russian economy and is responsible forapproximately 25 percent of GDP, 50 percent of federal budget revenues and 80 percent of exports.
Russia is the second-largest oil-producing country in the world and the largest gas producer with the biggest known reserves. An investor-friendly tax structure. With a profit tax rate of 20 percent and a VAT rate of 18 percent, Russia has one of the most generous non-offshore tax regimes in the world. It also offers one of the most comprehensible tax codes of any nation. A growing financial and legal services sector.
The country’s financial and legal services sector is relatively young but already offers a range of opportunities for foreign companies, particularly in light of a ecent major project of the Russian government to develop Moscow as an international financial center. More open to foreign trade. The improvement of Russia’s foreign trade has been a central policy of the government for many years. In 2012 Russia joined the World Trade Organization (WTO) after 18 years of negotiations. International trade and investment relations will now become based on WTO regulation and subject to enforcement through WTO dispute resolution. This is likely to result in a more stable environment for trade and investment relations with Russia.
Infrastructure modernization. One of the current priorities for the country is modernizing its transport infrastructure, which includes development of a network of ports, airports and rail links. To some extent the infrastructure update is driven by Russia’s ambition to become a leading global sports arena. The country is hosting a number of major sporting events, these events open the way for international companies in construction, architecture, project management and related services.