Economical overview
Russia has enormous natural resources, a
broad industrial base and a relatively well-educated
population. The manufacturing industry and the service
sector are growing, but dependence on raw material
production is still high. The extensive oil and gas
exports give Russia a large surplus in foreign trade,
but at the same time make the Russian economy very
sensitive to price fluctuations in the world market. It
became obvious in the fall of 2014 when a sharp fall in
oil prices deepened the widespread economic problems
triggered by Russia's involvement in the war in Ukraine.
The transition from Soviet-centric planned,
resource-wasting and inefficient production to a modern
market economy was painful for the Russians. During
Russia's first time as an independent state in the
1990s, the standard of living of broad population groups
fell sharply. Production decreased and many large
industrial companies ceased to function. The state
budget was drawn with constant deficits and Russia was
heavily indebted.
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In August 1998, government finances collapsed. The
state was unable to pay its domestic loans and the value
of the ruble against other currencies decreased
drastically.
The financial crash and the write-down of the value
of the ruble proved to be a health cure for the Russian
economy. Exports benefited, while imports became more
expensive, which promoted the country's own production.
At the same time on the world market, oil prices rose to
record highs, which greatly increased Russian export
earnings. A period of steady growth of about 7 percent
per year followed. The standard of living began to rise
and consumption increased.
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Ownership had been concentrated during the 1990s to a
few very wealthy people, oligarchs, who bought up state
commodity resources. Foreign large companies also began
to buy into the Russian commodity extraction.
When Putin became president in 2000, he made sure to
reduce the political power of the oligarchs (see Modern
History). The influence of the state on business
increased again, which cooled the desire of foreign
investors to invest money in Russia.
In parallel with the nationalization of strategically
important assets such as the oil industry, a series of
reforms were implemented to strengthen the market
economy. The rules for companies were simplified, as was
the tax legislation. Income tax was the same for
everyone, 13 percent. The corporate tax and VAT were
lowered at the same time as the collection of taxes
became more efficient and the state budget began to show
surplus.
The large revenues from oil and natural gas exports
enabled the Russian government to pay off government
debt and build up a powerful foreign exchange reserve.
When the global financial crisis hit in the fall of
2008, thanks to the reserves, the government was able to
maintain the value of the ruble for a time and help
domestic banks and companies that had taken out large
foreign loans. This did not prevent the prices of the
Moscow stock market from falling sharply, partly as a
result of the war in Georgia in August of the same year,
partly as a result of falling oil prices. Towards the
end of the year, the value of the ruble was written down
by a total of about 20 percent. At the same time, the
foreign exchange reserve shrank sharply.
Growth was just over 6 percent in 2008, but as the
economy appeared to be heading into a period of decline,
in early 2009, the central bank decided to lower the
value of the ruble again, which reached its lowest level
against the dollar in nearly six years.
Gross domestic product decreased in 2009 by a total
of almost 8 percent and unemployment increased. As a
result of the crisis, some initiatives were taken to
modernize the economy, including investments in
technology and research. A new privatization wave began
in 2011.
The economy began to recover relatively quickly
compared to other countries affected by the financial
crisis and showed growth of around 4 percent during the
period 2010–2011. But only a little had changed about
the fundamental problems of the Russian economy:
unilateral dependence on oil and gas exports, widespread
bureaucracy, widespread corruption and an uncertain
legal position for investors.
In 2014, the situation changed as the outside world
imposed extensive sanctions on Russia as a result of the
Ukraine war (see Foreign Policy and Defense and
Calendar). Russian banks had problems borrowing money
abroad, foreign investors fled the country, the ruble
collapsed in value and inflation soared. The ban on
imports of food from the EU, the US and some other
western countries caused many store shelves to gap empty
and the Russians began to hoard. The crisis was
compounded by the dramatic fall in oil prices that
occurred in the second half of 2014. From having been
above $ 100 a barrel in the summer more than halved the
price until January 2015 when the bottom listing was
just over $ 40 a barrel. The government tried to curb
the crisis by raising interest rates and buying rubles,
but the race could not stop. International credit rating
agencies lowered Russia's status to debris and predicted
that the country's economy would shrink by 4 to 5
percent in the coming year.
At the beginning of 2015, President Putin stated that
he and the government were naïve as they expected oil
prices to be stable. The same month, the government
launched a comprehensive support package to counter the
crisis.
Since then, oil prices have risen but are far from
previous levels and the market is still shaky. After a
deep dive in 2015, Russian growth has been above zero
but at a low level and foreign sanctions continue to
hamper development.
In early 2018, the government launched a series of
"national projects" with the aim of accelerating growth
and raising living standards. The projects included
investments equivalent to more than US $ 400 billion in
infrastructure, digital economy, education and health
care until 2024. However, the first two years saw the
implementation of the reforms slow. The government that
took office in early 2020 promised to increase the pace.
FACTS - FINANCE
GDP per person
$ 11,289 (2018)
Total GDP
US $ 1 657 554 M (2018)
GDP growth
2.3 percent (2018)
Agriculture's share of GDP
3.1 percent (2018)
Manufacturing industry's share of GDP
12.3 percent (2018)
The service sector's share of GDP
54.1 percent (2018)
Inflation
4.7 percent (2019)
Government debt's share of GDP
14.6 percent (2018)
External debt
US $ 492,763 M (2017)
Currency
ruble
2011
December
Adopted by the WTO
After 18 years of negotiations, Russia is accepted as a member of the WTO.
Membership comes into force when ratified by Russia, which will take place
within 220 days (see July 2011).
Demonstrations following alleged election fraud
The election procedure is accused of electoral fraud, including by private
individuals who documented the voting. The election monitoring organization
Golos' website is hacked. The reports of cheating lead to demonstrations in
Moscow. During these, over a thousand people are arrested temporarily, including
some known oppositionists. In response to the demonstrations, Medvedev promises
political reforms "to facilitate the participation of citizens in the political
process". The general elections for regional governor posts should be
reinstated, he says. The elections were abolished by Putin in 2004 and since
then the governors have been appointed by the Kremlin. Medvedev also states that
it will be easier to found parties and register as a candidate in the
presidential and parliamentary elections.
United Russia gets its own majority in parliament
In the election to the Duma (Parliament), Putin's United Russia rallies from
64 percent (2007) to just over 49 percent. However, the distribution of the
votes cast on the parties that do not enter Parliament results in the United
Russia obtaining its own majority in Parliament. The other three parties in the
duma are moving forward. The Communist Party is growing the most - from just
over 11 to just over 19 percent. A fair Russia comes in third place with just
over 13 percent (against previously just under 8) and the Liberal Democrats get
just under 12 percent (against earlier just over 8).
September
Magnitsky abused - investigation
An investigation by the company where the deceased lawyer Sergei Magnitsky
worked (see November 2009) shows that Magnitsky was already
dead when he was picked up by ambulance from the detention center where he was
held. The guards must have tied Magnitsky to a bed and hit him with batons. The
report is submitted to the Russian Presidency for Human Rights.
Putin presidential candidate
At the United Russia Party Congress, Prime Minister Putin announces that he
will run for president in the 2012 presidential election.
August
Attacks in Chechnya during Ramadan party
Nine people, most of them police, are killed in a suicide bombing in
Chechnya's capital Grozny. The deed, which is the most serious in the city in
several years, is staged during the party that ends the Muslim fasting month of
Ramadan.
Former police are charged with Politkovskaya murder
A former Moscow police officer is arrested on suspicion of organizing the
murder of Anna Politkovskaya. The chief of police must have hired the Chechen
Machmudov, who is believed to have carried out the murder.
May
Machmudov arrested for Politkovskaya murder
Russian police arrest Chechen Rustan Machmudov, who is accused of shooting
Anna Politkovskaya to death.
March
Military takes on Umarov's death
Russian military claims to have killed Caucasian Islamist leader Doku Umarov,
who took on the airport attack, but the task is called into question.
February
Skiers are killed in attacks in Kabardino-Balkaria
Five skiers are killed in various attacks in Kabardino-Balkaria, not far from
the upcoming Olympic city of Sochi.
January
Suicide bombings on Domodedovo
At least 35 people are killed in a suicide bombing at the Moscow airport
Domodedovo.
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