The Economy of Russia

Economy of Russia 101

First Published Date : December 3, 2010

Russia is a unique country that was a superpower for one time, and may become one again depending on how things go for it in the 21st century. Currently, the economy of Russia ranks as the 12th largest economy on the planet in terms of its nominal value. When purchasing power parity is looked at, the country ranks seventh in the world in terms of economic size.

Russia has many things going for it that other countries do not, allowing it to have immense wealth. These include its abundant natural resources such as precious metals, oil, gas and coal. In addition, Russia has a rich amount of agriculture, allowing it to supply the world with vast amounts of grain.

Russia went through several tough periods during the close of the Cold War and the early 1990s. During the early 1990s, when economic reforms were put in place and privatization occurred, the country went through vast changes, not all for the good. Currently, the private sector does not have as much freedom as in other countries and the protection of property rights is quite low.

The country has about $300 billion in exports, with its exported items including petroleum, natural gas, wood, metals, chemicals and civilian and military items. Its main exporting partners are the Netherlands, accounting for 11 per cent of exports, while Italy, Germany, Turkey and Ukraine account for eight, six and five per cent respectively. China accounts for four per cent of exports, as does Poland. Russia imports $200 billion in goods, with its biggest imports being vehicles, machinery, plastics, medicine, iron, steel, consumer goods, meat, fruits, nuts and semi-finished metal products. Its biggest trading partners in terms of importing are Germany and China at 13 per cent, Japan and Ukraine at six per cent and the United States and Italy at four percent.

Currently, the gross domestic product of Russia is $1.229 trillion, ranking it 12th in the world, as I have stated. As of right now, the GDP growth of the country is growing by 5.2 per cent per year, putting it ahead of many industrial countries. The per capita GDP (Nominal) is $8,693, ranking the country 52nd in the world. Its PPP per capita GDP is $14,919, also ranking 52nd in the world.

Following the turmoil that came about at the end of the Cold War, the country began to stabilize under the leadership of Vladimir Putin, whose administration did a great deal to increase the economic power of the country. Under Putin’s administration, the nominal GDP of the country doubled, and the country saw immense gains in GDP growth through the 2000s, averaging six to seven per cent growth every year from 2000 onwards. By 2007 the GDP of the country exceeded that of 1990, which showed the country had finally recovered from the deep recession it went through in the 1990s following the end of the Cold War.

Industry in Russia grew by 75 per cent while Putin was in power, with investments also increasing by 125 per cent. Other areas such as agriculture and construction also jumped up greatly during those eight years. The average salary increased by eight-fold, and real incomes doubled. Consumer credit between 2000 and 2006 jumped 45 times, with the middle class of the country going from eight million to 55 million, which is an increase of seven times. On the same note, the number of people living in poverty in Russia went from 30 percent in 2000 to 14 per cent in 2008.

The economy of Russia is heavily dependent on commodities. Roughly half of all the budget revenues of the government came from custom duties and taxes put in place in the fuel and energy sector. While the level of poverty has fallen, the gap between rich and poor has increased greatly between 2000 and 2007. The income of the rich grew 14 to 17 times larger than the incomes of the poor during that period. One of the biggest revenue makers for Russia is arm sales, which have gone up to the point where Russia is now the second largest seller of weapons on the planet, with the United States ranking first.

Another area where there has been increased growth includes the IT industry, with the country ranking third behind India and China in terms of outsourcing software destinations. The space industry is also ahead of the United States, ranking second behind the European space industry.

The economy of Russia has taken a major hit during the major economic crisis felt around the world. The country has seen its revenues fall sharply during 2008 to 2010 as a result. Oil prices dropped from $140 to $40 per barrel, which the budget reserves of the country falling greatly as a result. In 2009, industrial production fell by 16 per cent, while fixed capital investment was down by 15.5 per cent. The GDP shrunk by nine per cent, but that is beginning to recover as of 2010.

Russia, which is the largest country on the planet at 17 million square kilometres, covering one-ninth of the world’s surface, also has 142 million people in it. This gives the country an immense amount of power and ability to help influence the world in an economic sense. While the country suffered during the collapse of the Soviet Union, it has risen out of that turmoil to become a world power once again.

As time goes on in the 21st century, there is a good chance we may see Russia once again become a super power, as it was in the 20th century. The country has a lot going for it with hard working people, immense natural wealth and a bevy of trading partners all along its borders. How it manages that wealth and the economic troubles it may face in the future are not certain, but that does not mean Russia will not be an economic force to be reckoned with as China and India below it all rise up as super powers, shifting the balance of power in the world from the East to the West.