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Russian economy

Is Russia a good investment destination for global businesses? This article takes a hard look at the attractiveness of this country.

How does World Bank assess Russia?

Russia emerged from recession in 2017. This was because of three reasons:

  1. Macroeconomic stability
  2. Increased energy prices
  3. Recovering global economy

The World Bank believes that continued improvement of the Russian economy is dependent on the international private sector sentiment. Increased consumer sentiment will also lift up the Russian economy, according to WB.

Some key stats

The current GDP of Russia is USD 1.5 trillion. Its average per capita income is USD 10,700 and the average life expectancy is 70 years. 

Russia is a member of the BRICS block that also comprises Brazil, India, China, and South Africa. There was an increase of 5.6% in the trade of this block with the rest of the world (2016 figures). 

What needs to be fixed

According to World Bank, Russians need to fix the following things in order to consolidate their gains:

  1. Drive up consumer sentiment
  2. Improve physical infrastructure
  3. Remove physical and non-physical barriers to growth and trade
  4. Improve the competitiveness of Russian firms
  5. Induce an environment that makes Russian companies more innovative

Apart from the above, Russians also need to address the implications of an unfavorable demographic situation, improve quality of education and enhance governance at all levels. 

Economic Outlook

World Bank estimates that oil prices would remain modest in the next few years and the economy would grow between 1.7% and 1.8% between 2018 and 2020. 

However, there are some external risks that might constrain the GDP growth of the Russian economy. 

External risks

The economy would suffer a setback if oil prices softened globally. Currently, global crude is at USD 80 per barrel but if this price were to go down, then Russians would look at inflation once again.

Another factor that threatens the economy is a sudden tightening of the global economy. Global and regional conflicts may also impinge the Russian economy in a negative sense. 

While the Russian banking sector is stable, it is inherently fragile as the case of the bailout of three private sector Russian banks points. 

Accession to WTO

Russia joined World Trade Organization in 2012 and since then global businesses, as well as the local economy, have realized several mutual benefits. These are:

  1. More liberal treatment of service exports and service providers. 
  2. IPR related issues are resolved professionally and with a deep sense of commitment.
  3. Rules-based treatment of agricultural exports.
  4. Trade-related dispute resolution mechanisms have become more effective.
  5. There is more transparency in trade-related rulemaking.
  6. Market access related issues are more clearly defined so there is little scope for unilateral actions.

International businesses will find the following sectors attractive in Russia;

  1. Agriculture and Agricultural Equipments
  2. Travel and Tourism
  3. Road Construction
  4. Rail
  5. Pharmaceutical
  6. Medical Equipment
  7. Mining
  8. Franchising
  9. Medical Equipment
  10. Cosmetics and Perfumery
  11. Education
  12. Aviation Products
  13. Food Processing
  14. Automotive Equipment

To conclude- While Russia is emerging from the woods, it is advised to the international community to wait and watch. The Russian government is expected to undertake several steps to stabilize the economy. 

References;

  1. World Bank 
  2. IMF 
  3. BRICS trade with the world- An Economic Times Report