Pestel Analysis of Russia

Russia: Country Analysis Report In-depth PESTLE Insights Published 05/2010

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OVERVIEW

Catalyst This profile analyzes the political, economic, social, technological, legal and environmental structure in Russia. Each of the PESTLE factors is explored on four parameters: current strengths, current challenges, future prospects and future risks.

Summary Key findings

Russia has an established political structure, but corruption and crime still pose a problem

Russian politics gained considerable stability after Vladimir Putin became president in 1999. Both political and economic reforms introduced under his leadership were well received, prior to the recent global crisis. In the presidential elections of May 2008, Dmitry Medvedev, previously the chief of staff and vice president under Putin, was elected as the new president. There was considerable support for Medvedev, as it was believed that he would undertake policies very similar to that of

Putin. This was later proved when Putin was appointed prime minister in June 2008. With both Medvedev and Putin at the

helm, Russia was expected to have the twin advantages of political stability and high economic growth. However, with the economic crisis, it is feared that the relationship between Prime Minister Putin and President Medvedev may not remain as harmonious as before, especially due to differences in opinion on ways to tackle the economic crisis.

However, despite its established and seemingly stable political structure, Russia is considered to be one of the most corrupt nations in the world. According to Transparency International (TI), Russia scored 2.2 out of 10 in 2009 Corruption Perception Index (CPI), down from 2.3 in 2007, which is the lowest standing in the last eight years. The government has not been very effective in controlling increasing criminal activities and corruption, which could prove to be a major impediment for foreign investments.

COUNTRY ANALYSIS REPORT

Russia In-depth PESTLE Insights

Publication Date: May 2009

Overview



Strong current account surplus; however rising unemployment is a cause for concern

Despite global slowdown, the Russian external trade showed tremendous growth with increasing current account surplus in 2009. In 2008, the current account surplus stood at around 7% of GDP. The countrys current account surplus came down from around $102 billion in 2008 to around $47 billion in 2009. According to Central Bank of Russia, the current account surplus increased by 250% to reach $33.9 billion in the first quarter of 2010, up from $9.7 billion in the same quarter in 2009. The rising unemployment level in Russia is currently posing a challenge to the government. The number of unemployed people rose from a level of 4.6 million in 2007 to more than 6.4 million in 2009, recording an unemployment rate of 8.4% in 2009.

Despite improvements seen in real wages, high mortality rate still dogs the social system

During 200708, increased economic growth in Russia stimulated an increase in real incomes and wages of the working population. The same trend continued in 2008, with the average real wages and real disposable incomes in the first four months increasing by 13.1% and 11.8% respectively compared to the same period in 2007. The growth in real wages, during the 200708 surpassed the real GDP and productivity growth. Furthermore, almost all sectors of the economy reported an increase in real wages of more than 10%. The largest increase was recorded in the public sector, retail trade and construction sectors, with growth in real wages up by around 17% compared to previous periods. The average monthly dollar wage increased to around $650 in the first four months of 2008, with a growth rate of 41% over 2007. Although, the real wages declined by 1.8% in first quarter of 2009, the disposable income grew by 4.5% during the same period. Furthermore, the average real wages again grew by 3.4% at the end of first quarter of 2010 and real disposable income grew by over 4%. The average monthly dollar wage increased to around $694 in the first four months of 2010.

High mortality and morbidity among the Russian working population have become a huge challenge to economic and social development. The death rate in 2009 was an estimated 16 deaths per 1,000. As a result, supply constraints of labor are

expected to become a major impediment to economic growth. Currently, Russias demographic crisis is considered more serious than that of Western Europe. Furthermore, the population has declined by six million since 1992 to an estimated

140 million in 2009. It is also expected that the population will fall by 30% by 2050. The high mortality rate is expected to exacerbate the problem of a decreasing labor force.

Although Russia is renowned for its advanced space technologies, it is lagging behind in fundamental research

Historically, Russia has been known for creating some of the most advanced space technologies in the world. The Russian space station, Mir, for example, has played a vital role in promoting international space stations in many space programs. The space agency is also a revenue generating body for the government, which has become more prominent with Russia taking up launching activities on a commercial basis. Furthermore, the country has started space tourism. However, the science and technology system in Russia has more recently been falling short of international standards mainly due to the structures of the old Soviet system exerting control over scientific streams. The chief problems of the system include language barriers, a weak network and co-ordination of activities, lack of active presence in international meetings, discrepancies in intellectual property rights and policies, political obstacles and differences among scientific bodies.

Overview



Russia is increasing its access to international labor; however, the country is dogged with a weak judiciary

After the end of the Soviet rule, a fall in population led to a decline in Russias labor efficiency for many years. This led to the need for foreign workers in various industrial sectors of Russia, which in turn caused the government to ease its immigration policy. The liberal immigration laws brought in many foreign workers, especially from the EU region; indeed, it was reported that the total foreigners who entered Russia rose to 14.5 million at the end of 2008. Immigration laws play a vital role for foreign direct investment (FDI) and, in Russia's case, they are presently adding to its strength. Aside from the immigration laws, Russias judicial system is relatively weak and unpredictable. Corruption is rampant among law enforcement bodies and judges, and court decisions are often difficult to implement. Many foreign investors have experienced problems executing judicial rulings and obtaining approval on contractual agreements. This is presently proving to be a major obstacle for FDI in Russia.

Russia is well equipped with a good environmental management system, although lack of resources is a challenge

Russias environmental management systems are well equipped with various levels of controls and streamlined monitoring systems. A three-tier executive federal governance bodywhich comprises federal ministries, federal services, and federal agenciesmanages the environmental management system. Presently, the system plays a vital role in co-ordinating various conservation activities in Russia. However, the biggest challenge of the Russian government is its inability to tackle huge environmental problems that may arise due to military and other toxic wastes. The federal funds available for the disposal of solid fuel missiles are not sufficient to conduct any cleaning programs. Furthermore, in Russia there is also a scarcity of trained local staff to implement environmental regulations.

PESTLE highlights

Political landscape

In July 2009, President Medvedev and Barack Obama reached an agreement to cut back their countries' stockpiles of nuclear weapons. Russia also supported the US decision to shelve controversial missile defense bases in Poland and the Czech Republic.

In April 2010, Ukraine and Russia signed an inter-governmental protocol on the supply of goods on industrial cooperation in 2010. The sides also signed protocols on cooperation in the aviation industry and on industrial policy.

Economic landscape

Although, the country managed to maintain 6% growth in 2008, the Russian economy contracted by 8% in 2009. With the prevailing economic deterioration, the government has drawn policies to reduce budget deficit which was about 6% of GDP in 2009 to around 3% by 2012.

The insurance market in Russia has grown continuously for the last five years, despite sharp declines in the life insurance segments value since 2003. The Russian insurance market generated a gross premium income of $36.9 billion in 2008, representing a compound annual growth rate (CAGR) of 18.4% for the period spanning 2004-2008.

Overview



Social landscape

Income inequality in Russia has widened in the post-liberalization period. The difference between the 10% richest

and 10% poorest among the population in Moscow was over 42 times in 2008 compared to 38.6 times in 2005.

Even though the country went through a severe economic crisis during 2009, the government was able to carry out large-scale anti-crisis measures without any cuts in social spending. The actual social spending increased by over 27% in 2009 compared to that of 2008.

Technological landscape

Russia has been historically known for its excellence in space technologies and is one of the most successful countries with regards to its implementation of many space programs. The government has allocated more than $11 billion for the Russian Space Agency for the period 200615.

The country's IT market is presently the fastest-growing in the Central and East European (CEE) region. There is huge potential for IT spending by Russia's traditional industries to make their conventional systems of operations IT compliant.

Legal landscape

The new government has set a long list of legal reforms which are expected to bring improvement to the countrys judicial system.

Russia has also agreed to various legal assistance programs from many countries to solve its domestic and international legal issues.

Environmental landscape

The Russian government is planning to set up an effective security system to prevent pollution and man-made environmental disasters. The main tasks outlined by the government include implementation of environmental decisions consistently and completely, and the creation of an effective system for ecological security in the country.

Overview



Key fundamentals

Table 1: Russia key fundamentals

2008 2009 2010 2011 2012 2013 2014

GDP, constant prices ($bn) 431.0 396.6 408.5 417.0 426.5 442.4 465.4 GDP growth rate (%) 6.0 -8.0 3.0 2.1 2.3 3.7 5.2 GDP, constant 2000 prices, per capita ($) 3064 2832 2930 3006 3089 3219 3404 Inflation (%) 13.1 10.7 8.9 8.9 7.7 7.4 6.8 Exports, total as % of GDP 28.7 31.4 31.0 29.3 28.2 27.5 26.9 Imports, total as % of GDP 17.8 19.8 20.7 19.4 18.5 18.0 17.8 Mid-year population, (m) 140.7 140.0 139.4 138.7 138.1 137.4 136.7 Unemployment rate (%) 6.3 8.4 8.6 9.0 9.4 9.7 10.0 Doctors per 1,000 people 4.3 4.4 4.4 4.4 4.5 4.5 4.5

Mobile penetration (per 100 people) 133 144 152 157 160 162 163

Source: Datamonitor D A T A M O N I T O R

Table of Contents



TABLE OF CONTENTS Overview 1

Catalyst 1

Summary 1

Key facts and geographic location 10

Key facts 10

Geographical location 11

PESTLE analysis 12

Summary 12

Political analysis 13

Economic analysis 16

Social analysis 20

Technological analysis 23

Legal analysis 26

Environmental analysis 29

Political landscape 32

Summary 32

Evolution 32

Structure and policies 35

Performance 40

Outlook 42

Economic landscape 43

Summary 43

Evolution 43


Performance 47

Outlook 61

Social landscape 62

Summary 62

Evolution 62


Performance 65

Table of Contents



Outlook 68

Technological landscape 70

Summary 70

Evolution 70


Performance 71

Outlook 75

Legal landscape 77

Summary 77

Evolution 77


Performance 81

Outlook 82

Environmental landscape 83

Summary 83

Evolution 83


Performance 86

Outlook 87

APPENDIX 88

Ask the analyst 88

Datamonitor consulting 88

Disclaimer 88

Table of Contents



TABLE OF FIGURES Figure 1: Map of Russia 11

Figure 2: Unemployment in Russia, 200213 17

Figure 3: Russias political events timeline 33

Figure 4: Russia Key political figures 35

Figure 5: Distribution of seats by political parties in the Duma, 2007 38

Figure 6: Evolution of GDP growth in Russia, 19902009 45

Figure 7: GDP and GDP growth rate of Russia, 200213 48

Figure 8: Sector specific GDP in Russia, 2009 49

Figure 9: Agricultural output in Russia, 200209 50

Figure 10: Industrial output in Russia, 200209 51

Figure 11: Services output in Russia, 200209 52

Figure 12: Current account balance in Russia, 200108 54

Figure 13: Russias external trade position, 200209 55

Figure 14: FDI inflow in Russia, 200208 57

Figure 15: Consumer price index (CPI) and CPI-based inflation in Russia, 200213 59

Figure 16: Employment in Russia, 200213 61

Figure 17: Major religions in Russia 64

Figure 18: Healthcare expenditure in Russia, 200213 66

Figure 19: Education expenditure in Russia, 200213 68

Figure 20: Growth of fixed and mobile phones in Russia, 200213 72

Figure 21: Internet users in Russia, 200213 73

Figure 22: R&D expenditure in Russia, 200010 75

Figure 23: Carbon dioxide emissions in Russia, 200213 87

Table of Contents



TABLES Table 1: Russia key fundamentals 5

Table 2: Russia key facts 10

Table 3: Analysis of Russias political landscape 13

Table 4: Analysis of Russias economic landscape 16

Table 5: Analysis of Russias social landscape 20

Table 6: Analysis of Russias technology landscape 23

Table 7: Analysis of Russias legal landscape 26

Table 8: Analysis of Russias environmental landscape 29

Table 9: Mid-year population by age (m) in 2009 63

Table 10: Patents received by Russia 200008 71

Table 11: International environmental treaties signed and ratified by Russia 86

Key facts and geographic location



KEY FACTS AND GEOGRAPHIC LOCATION

Key facts Table 2: Russia key facts

Country and capital

Full name Russia

Capital city Moscow

Government

Government type Federation Head of state President Dmitry Anatolyevich Medvedev

Head of government Prime Minister Vladimir Putin

Population 140.04 million

Currency Ruble (RUB)

GDP per capita (PPP) $15,100

Internet domain .ru

Demographic details

Life expectancy 66.03 years (total population) 59.33 years (men) 73.14 years (women)

Ethnic composition (2002 data) Russian 79.8%, Tatar 3.8%, Ukrainian 2%, Bashkir 1.2%, Chuvash 1.1% and other unspecified 12.1%

Major religions (1995 census) Russian orthodox 20% Muslims 15%

Other Christians 2% None 63%

Country area 17,075,200 sq km Language Russian Exports Major exports include petroleum and petroleum products, natural

gas, wood and wood products, metals, chemicals and military equipment.

Imports Machinery and equipment, consumer goods, medicines, meat, sugar, and semi-finished metal products.

Source: CIA D A T A M O N I T O R

Key facts and geographic location



Geographical location Russia is located in Northern Asia, between Europe and the North Pacific Ocean. The country also borders the Arctic Ocean.

Figure 1: Map of Russia

Source: CIA The World Factbook D A T A M O N I T O R

PESTLE analysis



PESTLE ANALYSIS

Summary Russia, in its present form, came into existence after the disintegration of the Union of Soviet Socialist Republics (USSR; also known as the Soviet Union). Russia gradually opened up its economy, and after a seven-year transitional period of numerous market reforms, witnessed political stability under Prime Minister Vladimir Putin and President Dmitry Medvedev.

The Russian economy grew at a rate of 8% in 2007, but contracted by 8% in 2009. The economic conditions deteriorated in 2009. Government finances and the balance of payments came under pressure along with the fall in oil prices and as a result the economy went into a recession. In addition, corruption and crime remain two significant impediments to the smooth functioning of the state.

The Russian population is among the most highly educated in the world. Despite an increase in real wages, a rise in food prices has drastically affected the poor in Russia. Also, the mortality rate in the country is still very high among the working population. To mitigate the effects of these problems, the government has plans to implement certain reforms and streamline funds for social development in the near future.

Russia has been one of the most successful countries in implementing ambitious space programs. However, the country has not been very successful in registering patents over the years for its products. In addition to its advances in the space sector, the country is also seen as one of the leading IT destinations of the future.

The Russian judicial system has been very ineffective and weak since the fall of the USSR. However, the country has introduced many reforms which are expected to bring improvements in the system. Russia has also entered into various legal assistance programs with many countries around the world, as unfair competition practices are hampering the entry of foreign direct investment (FDI) into the country.

The environmental management system in Russia lacks resources to tackle the environmental problems of the country. However, the government is set to introduce an environmental security system to enhance environmental protection and conservation. The country has also signed various international environmental treaties to participate in environmental conservation.

PESTLE analysis



Political analysis Overview

The Russian political system was reinvigorated by the election of Dmitry Medvedev as the new president and Vladimir Putin as the prime minister. The new government had promised to continue with economic reforms and thereby cohesively integrate the Russian economy with the rest of the world. However, deteriorating economic conditions have brought fresh challenges for the present government. Moreover, its relations with its neighbors, especially Georgia have deteriorated. Moreover, corruption and crime, which haunts all the governmental agencies of Russia, continues to be a serious challenge to the country.

Table 3: Analysis of Russias political landscape

Current strengths Current challenges

Continuity in polices International integration

Corruption and crime Terrorism

Future prospects Future risks

Growing international relations

Pressure from bureaucracy


Current strengths

Continuity in policies

Russian politics gained considerable stability after Vladimir Putin became the president in 1999. From that point, both political and economic reforms undertaken under his leadership have taken the country on a growth path. Putin served as the president for almost three full terms and implemented effective reforms to bring the country out of economic and political turmoil. In the presidential elections of May 2008, Dmitry Medvedev was elected as the new president. Medvedev was previously the chief of staff and also deputy prime minister under Putins rule. As such there was considerable support

for Medvedev and belief that the new president would undertake policies very similar to that of Putins. This was later proved when Vladimir Putin was once again appointed as prime minister of the country in June 2008.

Under Mr. Putin's leadership, the Russian economy had boasted an annual growth rate of almost 7%. Overall, the reforms undertaken by Mr. Putin elicited little opposition and his approval rating rarely fell below 70%. These policies have also been welcomed by the new president. Since his election as the president, Medvedev has followed similar line of policies that the previous administration had followed. The president, in April 2010, went in for a greater international integration in all spheres starting from industry, R&D and environment. The president also initiated an agreement with Japan to step up cooperation in energy development in the Middle East and Eastern Siberia. The continuity in policies has been main reason for the country to come back to growth in 2010.

PESTLE analysis



International integration

Russia came out of a strict socialist regime to become a more economically open society during 19912009. Throughout this period, Russia has endeavored to closely integrate itself with the international community, resulting in large investments pouring into the country. The main goals of the Russian government during this period were to not only bring about a qualitative economic change in the country but also to transform the social structure of the Russian society, by giving more support to the rapidly growing middle class. Through this strategy, the government has been instrumental in shaping Russias new long-term economic policy by relying on fully-fledged international integration and comprehensive modernization of key industries and infrastructures in the country. The Russian government has initiated free market exchange with many European countries and is on course to open its markets for many more countries around the world. The country entered into several bilateral agreements with China, Japan, Iran, the US and many other European nations during the course of 2009 and 2010 in many spheres such as energy, environmental issues, and R&D development. The country is also in talks with Ukraine for an economic integration program in near future.

Current challenges

Corruption and crime

Russia is ranked as one of the most corrupt nations in the world, and its performance with respect to corruption has

worsened. According to Transparency International (TI), Russia has scored 2.2 out of 10 in 2009 Corruption Perception Index (CPI), down from 2.3 in 2007, which is its lowest standing in the last eight years. Out of the 180 countries surveyed in terms of Corruption Perception Index (CPI), Russia was in 146th place in 2009, falling from 143rd place in 2007. Corruption remains a barrier to foreign investments and negatively affects the country's economic development. Furthermore, according to a survey carried out by the World Bank, nearly 80% of businesses in Russia are paying some form of bribes to many state-run agencies.

Increasing criminal activities is another factor restricting governmental effectiveness in the country. According to a survey conducted by the Council of Europe (CoE), economic crimes committed in Russia include political fraud (13%), embezzlement of funds (13%), customer fraud (20%) and counterfeiting of money or securities (7%). The council has also reported that criminal organizations in Russia have largely targeted the fuel and energy sector, as well as consumer goods, commercial services, transnational trade, financial services, metal industry, and public procurement. The government has not effectively monitored and controlled these criminal and corrupt practices. These are proving to be significant impediments for the effective implementation of government policies in Russia.

Terrorism

The terrorist activity has always been a concern in the country and has gained strength during 2009 and 2010. In November 2009, more than 25 people were killed when a bomb blast caused the derailment of a Moscow-St Petersburg express train. More than 40 terrorists were suspected to have taken part in the attack and as of March 2010, 10 were

arrested. In March 2010, 39 people were killed and more than 60 were injured in two suicide bomb attacks on the Moscow Metro. The government blamed Muslim militants from the North Caucasus as the cause for the attack. The country has been on high alert on terrorist activity since then. This is currently posing severe threats to national security in the country.

PESTLE analysis



Future prospects

Growing international relations

Russia has a strong presence in the international political arena, especially after its induction to the G7, an international association of various countries which was rechristened as the G8 after Russias induction. Russia also hosted the BRIC (Brazil, Russia, India and China) summit in Yekaterinburg in May 2008, convening a high-profile gathering of four nations with vast resources but differing interests. The BRIC summit is expected to unite these major economic growth centers to increase their role in international affairs. Furthermore, the country also held talks with Turkey in May 2008 to improve its bilateral relations with the country. The main areas of focus included a number of regional and international problems, including the situation around the Conventional Forces in Europe Treaty (CFE), relations between Russia and NATO and security issues in the Black Sea region. Russia has also emerged as the representative voice of the BRIC nations, as witnessed during the G20 meeting in April, 2009. All these initiatives are expected to enhance Russias position in the international arena. In a historic event for the reduction of the nuclear stockpile, both the US and Russia signed a new strategic arms agreement in April 2010. This is an outline agreement to cut back their countries' stockpiles of nuclear weapons by more than 30%. This agreement is a welcome sign for both the countries.

Future risks

Pressure from bureaucracy

Since the end of Soviet rule, Russias bureaucratic structures and state administration has been under the control of the ruling party. There is no clear division of functions and responsibilities among various governmental institutions, which slows down co-ordination among government agencies. As corruption is widespread in state agencies, unofficial payments for licenses and state procurement contracts are common. The number of corrupt employees in public administration is also a continued problem and has decreased the efficiency of governance in the country.

PESTLE analysis



Economic analysis Overview

Russia liberalized its economy in the 1990s and reaped huge benefits. The economys successful run since 1999 came to an end in 2008 with the mounting economic crisis. During 19992007, the country had one of the highest growth rates, touching around 8% in 2007 but fell back to 6% in 2008. The global economic slowdown gripped the Russian economy too, and the economy went into recession with a negative rate of 8% in 2009. Large scale government expenditure and the devaluation of the ruble have posed fresh challenges to government finances and the balance of payments. The growth rate however is expected to recover to positive terms in 2010. The Russian economy continues to suffer setbacks in the form of low oil prices, a lower inflow of capital and tighter credit conditions coupled with bad corporate debt.

Table 4: Analysis of Russias economic landscape


Successful economic reforms Strong current account surplus

Unemployment

Dependence on foreign money


Comfortable foreign exchange reserves Growing foreign investments

Decreasing budget surplus Adverse balance of payments


Current strengths

Successful economic reforms

Russia's adoption of institutional developments and market reforms in 1998 has been beneficial for the country, allowing it to recover from a crisis situation. The Russian economy has been growing by 67% per year during 200007 and the GDP surpassed the pre-crisis level of 1991. However, due to global economic crisis, the country went into a recession in 2009. However, the economy revived quickly during the first quarter of 2010 and posted a growth rate of over 3%. Diversifying the structure of the economy and improving the market's institutional environment are the two main reforms that the country is currently implementing. Mutual relations between government agencies and business organizations are becoming more transparent, the efficiency of state regulation is being raised and human capital assets are being developed through responsible social policies. The reforms implemented by the government have led to closer integration with the world economy, with an ever-increasing economic growth for nearly nine years.

Strong current account surplus

Russia has maintained a current account surplus position since 2000. Improved competitiveness and higher oil prices facilitated a dramatic turnaround in the current account, from a deficit of around 0.5% of GDP in 1998 to a surplus of 12% of

PESTLE analysis



GDP in 1999. In 2008, the current account surplus stood at around 7% of GDP. The countrys current account surplus came down from around $102 billion in 2008 to around $47 billion in 2009. According to Central Bank of Russia, the current account surplus increased by 250% to $33.9 billion in the first quarter of 2010, up from $9.7 billion in the same quarter in 2009. A strong and consistent current account surplus implies a very strong international trade in the country.

Current challenges

Unemployment

The rising unemployment level in Russia is currently posing a challenge to the government. The number of unemployed people rose from 4.6 million in 2007 to more than 6.4 million in 2009, recording an unemployment rate of 8.4% in 2009. During global economic crisis, unemployment reached a maximum of 7.1 million people in February 2009. A year later, in March 2010, unemployment totaled 6.4 million. Although, the government has initiated measures to reduce unemployment, the rate at which it is growing is a cause for concern. It is expected that the unemployment rate would go beyond 9.7% by 2013. The governments intent to join hands with other Asian nations to conduct exploration in Middle East nations, instead of Russia, may also cause a hit to domestic employment in the country.

Figure 2: Unemployment in Russia, 200213

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PESTLE analysis



Dependence on foreign money

The Russian economy historically has been dependent on two external factors. One being the price of oil and the other is the status of international financial markets. The Russian banking sector has been one of the most fragmented banking sectors of the world with many localized banks in place. As a result there has been low trust, poor supervision and relatively

small share of foreign banks. During 19992009, a consistent share of banking sector growth has been due to high borrowing from abroad. It was reported that around a third (37%) of the $140 billion foreign debt of the banking sector matures after mid-2011, for which the sector has to ready funds. Furthermore, the interbank market, in particular, is highly dependent on foreign money. All these factors apparently make the financial sector open to risk, because of which sector ran into crisis during 200809 as the supply of foreign refinancing dried up and the interbank Russian Ruble interest rates doubled in a matter of months. Furthermore, the collapse in the world market price of oil destroyed market confidence in the Ruble. The government along with the central bank has to clearly formulate policies to restrict the dependency on foreign funds of the economy.

Future prospects

Comfortable foreign exchange reserves

Russias foreign exchange reserves on December 31, 2009 stood at $439 billion. Although the country's foreign exchange reserves fell from $575 billion in July 2008, Russia is better placed in terms of external reserves than many other countries that are fighting the economic crisis. The Central Bank of Russia (CBR) has intervened in the market to stabilize the value of the ruble. In November 2008, faced with a rapidly falling trade surplus, the CBR changed its ruble policy by introducing mini devaluations against the basket, of around 1% per step. It gained speed in following weeks and by December 2008, it managed three devaluations per week and four by mid-January 2009. The total depreciation to the basket since November 2008 reached around 34% by February 2009. This has helped in arresting the flight of the ruble.

Growing foreign investments

Despite the dire economic situation, the foreign investments in to the country have not fallen. The FDIs into Russia grew from $55 billion in 2007 to more than $70 billion in 2008. Furthermore, Japans investments in the Russian economy doubled to $8.3 billion in 2009 in spite of the difficulties of the crisis period. This was mainly due to effective government support to revive economy out of recession which has gained foreign trust. Furthermore, according to the Economic Development Ministry, the net capital inflow amounted to $10 billion in the first quarter of 2010 against a net capital outflow of $8.3 billion in Q4 2009 which gives good indication that the capital markets are picking up in the country.

Future risks

Decreasing budget surplus

The budgetary balance in Russia has been decreasing in the past few years due to increased social expenditure. The budget balance decreased from around 7.5% of GDP in 2006 to around 5.5% of GDP in 2007, and despite the economic slowdown, the government managed a surplus of 4.1% of GDP in 2008. However, the slowdown has exerted pressure on government finances. With large scale government expenditure along with a fall in oil prices, the deficit reached 5.9% of GDP in 2009, which will be the first deficit in a decade amounting to $79.6 billion. An increasing deficit is largely due to

PESTLE analysis



increased unemployment, pension and healthcare expenditures. It is expected that the decrease in tax revenue will further put pressure on the budget balance.

Adverse balance of payments

Russia has failed to develop itself into a well diversified economy. It is dependent on imports for most of its consumer and

capital needs. At the same time, it suffered a setback because of its excessive dependence on oil for its export income.

Though Russia has continued to post a current account surplus, its magnitude has declined. In 2008, the current account balance stood at around 7% of GDP. The countrys central bank had expected a deficit in 2008, but due to the gradual devaluation of the ruble, which depreciated about 34% against the dollar-euro bi-currency basket, it posted positive figures. Although the measure was successful in lowering imports, lower oil prices will also reduce export revenues. The countrys current account surplus came down from around $102 billion in 2008 to around $47 billion in 2009. Although, it went up in first quarter of 2010 to $33 billion from $9 billion last quarter 2009, the trend is not expected to be consistent. The scenario will have an adverse impact on the balance of payments.

PESTLE analysis



Social analysis Overview

The social welfare system in Russia went through turmoil after the fall of the USSR. A weak healthcare system is one of the biggest challenges faced by Russia currently. Though the system is well decentralized in the country, it is inefficient, with under-qualified doctors and corrupt officials undermining the quality of treatment. Russia faces a severe demographic challenge resulting from low birth rates, poor medical care, and a rising AIDS problem. The human capital quality of Russia also compares unfavorably with other nations at the same level of development.

Moreover, rising unemployment and poverty are still some of the challenges. Besides tackling the economic crisis, the government also needs to implement urgent measures to meet the challenges emerging from low birth rates and a shrinking working age population.

Table 5: Analysis of Russias social landscape


Improvement in real income and wage levels Educated population

High AIDS rate High mortality rate


Revamp of social security benefits

National welfare fund

Tax benefits to healthcare and education

Widening income inequality and rising poverty Increasing spread of the AIDS epidemic


Current strengths

Improvement in real income and wage levels

During 200008, increased economic growth in Russia stimulated an increase in real incomes and wages of the working population. The same trend continued in 2008, with the average real wages and real disposable incomes in the first four months increasing by 13.1% and 11.8% respectively compared to the same period in 2007. The growth in real wages, during the 200708 surpassed the real GDP and productivity growth. Almost all sectors of the economy reported an increase in real wages of more than 10%. The largest increase was recorded in the public sector, retail trade and construction sectors, with growth in real wages up by around 17% compared to previous periods. The average monthly dollar wage increased to around $650 in the first four months of 2008, with a growth rate of 41% over 2007. Although, the real wages declined by 1.8% in first quarter of 2009, the disposable income grew by 4.5% during the same period. Furthermore, the average real wages again grew by 3.4% at the end of first quarter of 2010 and real disposable income grew by over 4%. The average monthly dollar wage increased to around $694 in the first four months of 2010.

PESTLE analysis



Educated population

Russia has one of the most highly educated populations in the world. The country has more than 70,000 primary and secondary schools and more than 82,000 pre-schools. One of the strongest facets of the Russian education system is that a majority of the schools are in rural areas compared to urban areas, making education accessible to all areas of the country. Furthermore, the literacy rate in Russia is one of the highest in the world, at 99.4% for the total population. The high literacy rate signifies that there is a large educated workforce in the economy.

Current challenges

High AIDS rate

Russian society reflects unfavorable trends of both the developed and developing worlds. The country is challenged with an ageing population, coupled with a poor healthcare system and rapidly deteriorating AIDS situation. The AIDS rate is growing in Russia, with country registering 49,000 HIV cases in 2007, and 55,000 in 2008. More than 500,000 Russians have contracted the infection, according to the health department. It is estimated that there have been more than 60,000 registered AIDS cases in 2009. It is reported that the AIDS rate is 0.3% of adult population in Western Europe, and it was more than 1% in Russia. It is estimated that this could increase in coming years as the government is not taking necessary steps to control the disease.

High mortality rate

High mortality and morbidity among the Russian working population have become a huge challenge to economic and social development. The death rate in 2009 was an estimated 16 deaths per 1,000. As a result, supply constraints of labor are

expected to become a major impediment to economic growth. Currently, Russias demographic crisis is considered more serious than that of Western Europe. Furthermore, the population has declined by six million since 1992 to an estimated

140 million in 2009. It is also expected that the population will fall by 30% by 2050. The high mortality rate, then, not only shows the low level of healthcare services in the country but also poses the problem of a decreasing labor force.

Future prospects

Revamp of social security benefits

In May 2008, the Russian government announced an increase in social security benefits. To this end, the government has increased pension payments by 15% since August 2008. Furthermore, child tax exemptions for individuals will be increased from $26 to $35 and the revenue accrued would be allocated to education, healthcare and housing programs. The government will also boost financial support for the disabled and World War II veterans, and also provide them with housing and other basic amenities. The government reported that it would continue with this strategy until 2011. These positive signs and the government's continued focus will, in the long-term, further enhance social development in Russia.

Tax benefits to healthcare and education

In January 2010, the Russian government announced that it will consider tax breaks for private enterprises in the education and healthcare sectors and expects to benefit from an eastward shift in investment. It is expected that the due to increased

debt and the tax burden in developed countries, the foreign investment flows would be increasingly towards eastern

PESTLE analysis



countries, which would be beneficial to Russia. With the view of attracting more investment into the social sector, the government intends a plan of a full profit-tax exemption for private businesses linked to human capital, such as healthcare and education. This would not only increase the social infrastructure in the form of new investments but also will provide more access to healthcare and educational facilities.

National welfare fund

The Russian government reported a national welfare fund of around $33 billion in April 2008. The national welfare fund is being judiciously invested into foreign currency bonds, sovereign bonds of chosen developed countries, foreign banks, and credit originations. It is reported that revenue generated from these sources would be used to develop the social infrastructure of the country. Between January and March 2008, the government reported earnings of $290m which has been put to use for social development. As of January 1st, 2010, the National Welfare Fund reached RUB2.77 trillion, the equivalent of $91.56 billion. The national welfare fund represents long-term motivated planning by the Russian government to bring social change in the country.

Future risks

Widening income inequality and rising poverty

Income inequality in Russia has widened in the post-liberalization period. According to the Russian Statistics Service, the Gini coefficient was 0.42 at the end of 2008, compared to 0.29 when the Soviet Union collapsed. In addition, income inequality has been sharper in the cities of Russia. For instance, the difference between the 10% richest and 10% poorest

among the population in Moscow was 42 times in 2008 (compared to 41.7 times in 2006 and 38.6 times in 2005). Along with rising income inequality, poverty is also on a rise in Russia. The living conditions of Russians are set to deteriorate with the economic slump. According to the Federal State Statistics Agency (Rosstat), 19.7 million citizens were below the poverty line as of third quarter of 2009, which is 14% of the population. However, unofficial sources claim that more than a

third of the Russian population is living in poverty. Russia also faces a severe housing shortage, with about 7% sharing living space with other households and one in two people having less than 10 square meters (108 square feet) per capita. The prolonged existence of such conditions is expected to give rise to a social crisis.

Increasing spread of the AIDS epidemic

The emergence of an AIDS epidemic is a real possibility in the near future. Some predictions suggest that up to 5% of the population could be infected within the five year period of 200712. Despite an increase in investment to combat the disease, the desired result has not yet been achieved. According to the estimates released by the Russian federal AIDS center, Russia registered 49,000 HIV cases in 2007 and 55,000 in 2008. Moreover, the figure is expected to have reached over 60,000 by the end of 2009. This amounts to an over 12% increase compared to 2007 and 2008, and has come despite the governments increased expenditure of around RUB400 million ($13.7 million in 2009) to fight the disease.

Given the current weaknesses of the health infrastructure and the recent sharp increases in the usage of intravenous drugs, there could be a potentially disastrous escalation of infection rates. If the experience of Sub-Saharan Africa is any kind of indicator, the economic impact of AIDS on Russia could be devastating.

PESTLE analysis



Technological analysis Overview

Russia has historically been known for its excellence in space technologies and is one of the most successful countries in terms of its implementation of many space programs. However, the country lacks expertise in fundamental research. Although Russia is part of the G8, the country does not have enough patents registered in its name. Furthermore, the science and technology system in Russia is weak, with a lack of proper resources and funding. Nevertheless, the country is beginning to position itself as the next destination for IT sector investments.

Table 6: Analysis of Russias technology landscape


Advanced space technologies

Poor performance on patents

Weak science and technology systems


Increasing presence of IT sector Increasing number of skilled workers Military technologies helping the farming sector

Piracy and poor infrastructure


Current strengths

Advanced space technologies

Russia has historically been known for creating some of the most advanced space technologies in the world. For example, the Russian space station, Mir, is playing a vital role in helping international space programs. The government had allocated more than $11 billion for the Russian space agency for the period 200615, and has always provided a regular flow of funds for the development of advanced space technologies. It is also a revenue-generating body for the government. This has become more prominent in recent years, with Russia taking up commercial launching activities and starting a space tourism program.

Furthermore, in April 2010, the government announced that it is investing RUB1.5 billion rubles (around $50 million) to flag off a unique satellite system to monitor climatic changes and survey energy resources in the Arctic region. The Arctica satellite constellation will monitor the weather and environment of the North Pole, pinpoint hydrocarbon deposits on the

Arctic shelf, provide telecommunications over the hard-to-access areas and ensure safe air traffic and commercial shipping in the region. Along with several international treaties with the US, Japan, India and China, Russia plays a key role in developing space technologies.

PESTLE analysis



Current challenges

Poor performance on patents

For many years, Russia has been performing badly in terms of registering patents for the technologies it develops. The figures were as low as 204 patents in 2008; this is particularly significant when compared to the US, which registered over 93,691 patents for the same period. Russias share in tradable international patents has also remained low. This is largely due to efforts being concentrated completely on space and military technologies. The country's poor performance in terms of patents has been a worrying factor for the government's science agencies.

Weak science and technology systems

The science and technology (S&T) system in Russia has been falling short of international standards mainly due to the structures of the old Soviet system exerting control over scientific streams. The chief problems of the system include language barriers, weak co-ordination of activities, a lack of active presence in international meetings, discrepancies in intellectual property rights and policies, political obstacles and differences among scientific bodies. Adding to these reasons, corruptive practices further deteriorate the system from harmonious functioning.

Future prospects

Increasing presence of IT sector

Although Russia has historically been a significant producer of oil, the country is now going through a diversification process. The country's IT market is presently the fastest-growing in the Central and Eastern Europe region. There is huge potential for IT spending by Russia's traditional industries to make their conventional systems of operations IT compliant. Furthermore, Russia is witnessing a great increase in the sales of computers due to the government investments in several IT-based programs in the country. The Russian software market generated total revenues of $3.8 billion in 2009, representing a compound annual growth rate (CAGR) of 20.9% for the period spanning 200509. In comparison, the French and German markets grew with CAGRs of 7.2% and 5.2% respectively. These factors provide strong incentives for international vendors to invest in Russia. It is expected that the total size of the Russian IT market will increase to around $18 billion by 2012.

Increasing number of skilled workers

Russia is slowly emerging as one of the countries with the highest number of skilled workers in S&T areas. According to government sources, the US had around 35 million skilled workers out of 300 million people in 2007. Comparably, Russia has around 30 million skilled workers out of 140 million population, signifying a better ratio. It is expected that this number will rise to 45 million by 2020. This provides a strong base for future technological development and R&D in the country.

Military technologies helping the farming sector

The Russian military and air force have created a cloud-dispersal aircraft in 2008, which is considered to be one of the

most advanced technologies capable of artificially producing rain. Under this, a special aircraft will carry liquid nitrogen and silver compounds (dry powder cement) and spray it over certain parts of the clouded sky. When this combination touches a cloud, it will accumulate particles of the cloud, which then form into rain or snowflakes. This unique technology is soon

PESTLE analysis



going to be commercialized and is considered to be of great importance for both domestic and other international drought-prone areas.

Future risks

Piracy and poor infrastructure

Russia is considered to have one of the highest rates of piracy. Russia reportedly had piracy rates of 68% in business software in 2008. According to the International Intellectual Property Alliance (IIPA), it was reported that business software losses due to piracy amounted to more than $2.3 billion in 2008. Furthermore, Russia continued to be on the priority watch list of IIPA, which indicates that there is rampant piracy in the country. This is one of the worrying factors that prevent many foreign investors from starting any exclusive R&D centers in Russia. Another factor impeding investment is that although there has been economic growth, there have not been any significant efforts to build the scientific infrastructure of the country. With the government streamlining funds more towards social and military development, there are no sign of any efforts towards the future up-gradation of the scientific infrastructure and patent laws in Russia.

PESTLE analysis



Legal analysis Overview

The Russian judicial system has suffered from corrupt officials and practices, which have made the system unreliable. In addition, unfair competition practices are hampering the entry of FDI into Russia. However, the country has set a long list of legal reforms during 2008, which are expected to improve the countrys judicial system. Russia has also agreed to various legal assistance programs from many countries to solve its domestic and international legal issues.

Table 7: Analysis of Russias legal landscape


Conducive FDI policies Easy immigration policy

Weak judicial system Unfair competitive practices


Judicial reforms

International co-operation for legal assistance

Slowdown of structural reforms


Current strengths

Conducive FDI policies

The Russian government has put in place policies which favor foreign direct investment (FDI). The 1991 Investment Code guarantees foreign investors rights equal to those of Russian investors, while the 1999 Law on Foreign Investment also follows this principle of equal treatment. Moreover, to lure foreign investors, both federal and regional governments are establishing special economic zones and high-technology parks, and special tourist regions to encourage foreign investment. Local laws are also being amended to suit the needs of foreign investors. FDI inflows for 2004 were $28.75 billion, but reached $70 billion in 2008. The jump in FDI in Russia before the economic crisis set in is reflective of the impact of such policies.

Easy immigration policy

After the end of Soviet rule, Russias labor efficiency decreased with a corresponding fall in population for many years. This led to the availability and provision of employment opportunities for foreign workers in various industrial sectors of Russia. The liberal immigration laws brought in many foreign workers, especially from the EU. It was reported that the number of legal foreign workers in Russia reached eight million at the end of March 2008, an increase of 20% from the previous year. The immigration laws play a vital role for FDI and in Russia they are presently adding to its strength.

PESTLE analysis



Current challenges

Weak judicial system

Russias judicial system is still relatively weak and unpredictable. Corruption is rampant among law-enforcement bodies and judges, and court decisions are often difficult to implement. Many foreign investors have experienced problems executing judicial rulings and obtaining approval on contractual agreements. There are also extended court sessions and judicial delays for many cases, exacerbating the situation. Furthermore, the judicial system is also under-funded, under-staffed and extremely slow in implementing decisions. This makes judicial processes in Russia highly inefficient.

Unfair competitive practices

After the Soviet era, Russia created competition laws and bodies based on the laws prevailing in western countries. In practice, however, Russian competition policy often differs from the norms familiar to foreign firms in the western world. Russian authorities tend not to follow a consistent approach to competition. This is mainly due to the influence and corrupt practices of large monopolies which wield power among the authorities. As a result, smaller companies with less influence face tough competition laws. The selective application of these laws often results in the restriction of competition. Furthermore, foreign investors have, on a number of occasions, experienced discrimination in obtaining licenses from local authorities. In some situations, local interest groups have influenced authorities. Foreign investors have been forced to pay several fees by local governments and have been offered less favorable terms to develop their projects. Also, many criminal organizations in Russia have gained access to sensitive information from companies and used it against them, leading to the failure of products. These unfair practices have become a barrier to investment in Russia.

Future prospects

Judicial reforms

The present government, headed by Dmitry Medvedev, is keen on implementing judicial reforms in the country. The president held a special meeting in July 2008 to procedurally implement a phased reform of the judicial system. As part of this, the president, along with the judicial heads and ministry of justice, reached a consensus on the implementation of a new law. The new law stringently addresses issues related to damages borne by the citizens and compensations regarding the violations of their rights. The president has also considered an immediate course of action to implement a special training and education program for all of the judges to discourage them from indulging in corrupt practices. Furthermore, in December 2009, the EU allocated E3 million for measures intended to boost the efficiency of the enforcement of court

rulings in Russia. The implementation of these reforms is expected to bring in positive changes in the Russian judicial system.

International co-operation for legal assistance

Russia is extending its relationships with the international community to gain legal assistance in various civil and criminal cases. In one such move, the country entered into a legal assistance program with Japan in mid-2008. According to the Russian ministry of justice, the agreement has already been co-ordinated at the level of judicial bodies and is passing co-ordinating procedures in the legal institutions of the countries. Furthermore, the country is also entering into other similar

PESTLE analysis



legal assistance treaties with China, India and Sri Lanka. These programs are expected to bring in more positive changes to the judicial system in Russia.

Future risks

Slowdown of structural reforms following economic crisis

Although the investment climate in Russia has improved following liberalization, the slow pace of structural reforms has continued to irk foreign investors. The Russian governance system has been accused of a lack of transparency. Since the Russian government has begun to intervene to support various sectors, there are apprehensions that the functioning of government entities will lose transparency even further. Moreover, no adequate steps are being taken to increase clarity and consistency in the Russian tax laws and administration. If the legal regime continues to remain unreliable, it will dissuade investors from entering Russia.

PESTLE analysis



Environmental analysis Overview

Although an environmental management system exists in Russia, a lack of resources to tackle environmental problems is preventing Russia from effectively implementing environmental protective measures. However, the government is planning to introduce an environmental security system to address this problem. The country has also agreed upon various international environmental agreements to take up conservation activities.

Table 8: Analysis of Russias environmental landscape


Environmental management systems

Spillages causing environmental hazards Lack of resources to tackle environmental problems


Environmental security system

International co-operation

Increased investment in global environmental facility

Deteriorating water quality Difficulties with environmental monitoring


Current strengths

Environmental management systems

Russias environmental management systems are well equipped with various levels of controls and streamlined monitoring systems. The systems are headed by a three-tier executive federal governance body comprising federal ministries (charged with developing state policies), federal services (supervision and control functions), and federal agencies (resource development and service provision). The three-tier system enables effective policy making, implementation and supervision. This system is presently playing a vital role in co-ordinating various conservation activities in Russia.

Current challenges

Spillages causing environmental hazards

Russia is one of the most important contributors of oil to world markets and transports most of its produce through seaways. There have been many cases in the past where spillages from sea containers have resulted in the pollution of sea waters. In November 2007, a Russian oil container carrying about 4,000 tons of fuel oil was wrecked in a storm, causing a massive spillage into the Black Sea. Furthermore, four ships sank to the bottom, including two vessels each carrying 2,000 tons of sulfur. The devastation in the wake of the storm was staggering. Endangered species such as the Dalmatian pelican and the great black-headed gull were seen coated in oil, as the region is home to thousands of migratory birds that nest along the waterways during winter. Fish caught in the Kerch Straight were deemed unsafe to eat, which

PESTLE analysis



threatened the livelihoods of locals. These kinds of incidents are leading to degradation of the marine environment around the Russian coast. In February 2009, up to 300 tonnes of oil was spilled into the sea in the west Cork coast. However, the government has not taken any proactive decisions to prevent such spillages and the possibility of such instances re-occurring is posing a serious environmental challenge to Russia.

Lack of resources to tackle environmental problems

The biggest environmental problem facing the Russian government is its inability to tackle huge environmental issues that may arise due to military and other toxic wastes. The federal funds available for the disposal of solid fuel missiles are not sufficient for conducting any cleaning programs. There is also some concern that the current pollution charges may be abolished and replaced by an ecological tax which will go to general revenue support, resulting in a decrease in funds for environmental protection. Furthermore, there is also a scarcity of trained local staff in the country to implement environmental regulations.

Future prospects

Environmental security system

The Russian government is planning to set up an effective security system to prevent pollution and man-made environmental disasters. The main tasks outlined by the government include the implementation of environmental decisions consistently and completely, and the creation of an effective system for ecological security in the country. The system is expected to effectively deal with man-made pollution and provide solutions to new environmental problems and challenges. Strict measures will also be taken for the disposal of waste accumulated over years of economic and military activities. The government is simultaneously going to introduce an exclusive sector for clean technology and is set to draw measures to minimize environmental consequences resulting from oil pipeline and offshore hydrocarbon projects.

International co-operation

Russia is extending and participating in various international co-operation agreements related to different aspects of the economy. In June 2008, the country agreed to co-operate with China on a variety of environmental activities. Under the new agreement both Russia and China have made great progress in environmental co-operation and have pledged to boost their co-operation in the coming years. This co-operation is mainly designed to boost cleaning-up activities in areas which are affected by toxic waste in both countries. The Russian government has entered into similar agreements with Indonesia, Japan and the Czech Republic to develop various technologies designed to improve environmental protection and conservation. In February 2010, the country also joined hands with the Iranian government to conduct research on the Caspian Sea. These environmental pacts will further the cause of environmental protection in Russia.

Increased investment in global environmental facility

The Global Environmental Facility (GEF), established in 1991, helps developing countries to finance projects and programs to protect the global environment. Russia attaches great importance to GEFs activities and has co-operated with it since 1992. Although the country is a participant in many activities conducted by GEFI, it has never financially supported the organization. However, in the beginning of 2008, Russia invested about $270m in GEF. This will bring adequate resources

PESTLE analysis



to the organization in the coming years to successfully run 24 projects dealing with issues like biological diversity, climate change, international waters and ozone depletion taken up by various governments.

Future risks

Deteriorating water quality

The quality of water in Russia has been deteriorating for many years now. The deterioration has been especially noticeable in water protection zones close to cities. In these areas, the quality of drinking water is especially poor. The last reported government public health data indicated that 20% of drinking water samples from piped sources did not meet chemical quality standards and 9% did not meet bacteriological standards. For rural non-piped sources, the levels were even higher, with 31% and 28% falling below chemical and bacteriological standards. This has led to regular intestinal infections affecting around 3,000 people every year in the country. It is expected that the water quality is going to further deteriorate in Russia in the coming years.

Difficulties with environmental monitoring

In Russia, Hydromet, a federal body accountable for the collection of data on different environmental conditions, and the

General Department of Natural Resources and Environment Protection (GDNR) are responsible for environmental management systems. However, there is no consensus between the GDNR and Hydromet for the circulation of information on a routine basis. Furthermore, the information collected by the GDNR itself is not fully shared with the sub-national regions and Hydromet. For example, Hydromet receives an annual environmental performance report from the GDNR but no details on performance at the enterprise level. This has led to an inefficient system of monitoring, with insufficient amounts of the accurate data compared to the amount required for effective reporting. There have not been any reforms to co-ordinate the activities of the two organizations, which is leading to difficulties in monitoring the environment.

Political landscape



POLITICAL LANDSCAPE

Summary Russia entered the 20th century in a quasi-feudal condition: its economy was in disarray and its government corrupt, ruled by an ineffective authoritarian monarchy. Entering into World War I made matters even worse for the country. With the support of communist agitators like Lenin and Trotsky, Russia seized the power from the monarchy in 1917. The country then withdrew from the war and commenced a radical transformation of the social and economic order. During seventy years of communist rule which followed, the country went through a rapid period of industrialization and achieved victory in World War II at a terrible human cost. Towards the end of the century it became increasingly apparent that the country's economy could not match up to the completive capitalist economies of the West, and eventually the state edifice collapsed, bringing down the Soviet system in 1991 and plunging Russia into a seven year economic crisis (199198).

Former President Vladimir Putin, who achieved victory in the 2000 elections on the back of his brutal but politically popular

suppression of the separatist movement in Chechnya, overcame a number of potential crises and pitfalls throughout his presidential career. In 2004, he was re-elected as the president of Russia with a significant majority, garnering three quarters of the total votes cast. After successfully completing three terms as president, Putin handed over the office to Dmitry Medvedev in May 2008. He won the presidential election with a popular vote of more than 70%. Soon after, Vladimir Putin was appointed as the prime minister of Russia. The first few months of Dmitry Medvedevs presidency was dominated

by the Russia-Georgia war, as Russian support increased for the Georgian breakaway region of Abkhazia. Russia subsequently recognized the territories of South Ossetia and Abkhazia, leading to further protests from Georgia. The war has adversely affected Russia relations with the west. Russia also engaged itself in another standoff after it cut the gas supplies to Ukraine, disrupting supplies to southeastern Europe too. The aggressive stance maintained by Russia in its foreign relations has not gone down well with its neighbors in the west. However, with President Obama assuming power in the US, the two nations have agreed to co-operate in areas of mutual interest.

The economic challenges that the country faces have assumed paramount significance, as the investment grade for Russia has been lowered.

Evolution

Pre-1991

During the 19th century, Russia was ruled by autocratic rulers. Social and economic modification programs implemented during the 1860s and 1900s failed to tackle Russias vital problems. In 1914, Russia became a participant in World War I due to its rivalry with Austria, resulting in a widening of the economic gap between Russia and Western Europe. This, combined with the stress of the war effort, allowed the radical Bolshevik Party, led by Vladimir I. Lenin, to seize power from the provisional government which took over after the failure of monarchy. At the end of a fierce, four- year civil war, Russia entered into a 70 -year period of one-party rule and came to be known as the Soviet Union. Initially, the union embraced Ukraine, Byelorussia, and three Transcaucasia republics, with the ruling party Communist Party of the Soviet Union (CPSU) at the helm.

Political landscape



Figure 3: Russias political events timeline


19912000

In 1991, Russia became independent after the collapse of the Soviet Union and was renamed the Russian Federation. Boris Yeltsin was elected as the first president of newly christened country. During his nine year tenure in office (19912000), Yeltsin oversaw a disorganized makeover that ended the domination of communism but brought irregular reforms in the economic, political, and social spheres. Although the constitution of 1993 made the executive the dominant branch of government, Yeltsin contended the legislative branch over many issues. Economic reforms were destabilized by corruption and confusion as Russia supposedly moved towards a free-market system. Furthermore, in 1998, the Russian ruble collapsed and the government gave a notice of intention of default on foreign debts. This resulted in the president making a hasty decision to sack the then prime minister. This was followed by the sacking of two more prime ministers during MarchAugust, 1998. In December 1998, Vladimir Putin was appointed as the prime minister and eventually became the president after Yeltsins resignation in 1999.

Political landscape



200004

International ties with the West, which began in the 1990s, soured to some extent over issues such as the expansion of the North Atlantic Treaty Organization, Russias ongoing conflicts with the Republic of Chechnya, and opposition to the US led war against Iraq in 2003. A new concentration of executive power began with the presidency of Vladimir Putin (elected in 2000), who sought to restore Russias regional power while maintaining relations with the West. Putin was reelected overwhelmingly in 2004 as well. Although the country was developing fast economically, political relationships with Chechnya were deteriorating quickly and the suicide attacks on the government agencies were prevalent.

2005 onwards

During the first six years of Putins presidency, political opposition became greatly fragmented, media freedom decreased drastically, and the government was able to shift the center of economic influence from a group of autonomous entrepreneurs to state-controlled enterprises and allies. Although the governments relationship with the west became increasingly strained for some time, it was reinvigorated in 2006 when Putin hosted a meeting of the G8 nations. During these years, the government also signed treaties with Germany and China for gas supply. However, since that time relations have continued to worsen. In 2007, Russia signed a law suspending the country's participation in the 1990 Conventional Armed Forces in Europe (CFE) treaty that limits the deployment of heavy military equipment across Europe. In 2008, Putin stepped down and Dmitri Medvedev was elected as the new president. The first few months of his

presidency found him engaged in a military conflict with Georgia and a standoff with Ukraine over gas supplies. In July 2009, President Medvedev and Barack Obama reached an outline agreement to cut back their countries' stockpiles of nuclear weapons. Russia also supported the US decision to shelve controversial missile defense bases in Poland and the Czech Republic. The new strategic arms agreement was signed between the US and Russia in April 2010.

Political landscape



Structure and policies Key political figures

President: Dmitry Medvedev

Prime Minister: Vladimir Putin

Figure 4: Russia Key political figures

Dmitri Medvedev was elected President of Russia on March 2, 2008. He was earlier the Chief of Staff under Vladimir Putin until 2005, when he became the first deputy prime minister of the Russian government. His main focus is set to protect civil and economic freedom. Furthermore, he intends to fight against the laws which undermine and hamper modern development.

Vladimir Putin was Russias president for more than eight years from December 1999 until May 2008. Due to constitutionally mandated term limits, Putin could not run for a third term. To his credit, he has brought the Russian economy into the growth path. After choosing Dmitri Medvedev as the presidential candidate, Putin was nominated by the later to be the prime minister. Putin is currently holding office as the prime minister.






Structure of government

Russia is a democratic federation of 89 sub-national jurisdictions, divided into republics, oblasts (provinces), autonomous oblasts, autonomous regions, and territories. At the national level, the constitution of 1993 describes the three branches of government as the executive, legislative, and judiciary. In the Russian political system, the president has superseding powers as head of the armed forces and the Security Council. These powers include the authority to appoint a broad mixture of government officials without effective oversight or verification. The houses of the bicameral legislative branch have a weak opposition because of their constitutional arrangement and the non-existence of opposition parties. The judiciary, a sanctioned branch of government under the Soviet system, has shifted gradually as an independent authority. On the whole, the power is well centralized in Russia. Former president Vladimir Putin has utilized this structure to increase the power of his office and control the government. In May 2008, Dmitri Medvedev took over the office of the president.

Legislative branch of government

The Federal Assembly of Russia comprises two houses: the Federation Council (178 members) and the State Duma (450 members). Members serve the respective houses for four -year terms. Among the responsibilities allotted between the two houses, the State Duma has an authoritative role of primary deliberation of all legislation. Although the Federation Council has the authority to appraise and force compromise on legislation, in reality its role has principally been as a counseling

Political landscape



and reviewing body. In the 1990s, the Federation Council was fabricated in such a way that it contained the heads of government and the legislative leaders of the 89 sub-national jurisdictions of Russia. In 2000, Vladimir Putin, the then president, increased his control on the Federation Council by replacing ex-officio membership with a process of appointment by the president. The Duma can vote for no-confidence on an existing government, but the president has the powers to ignore the vote and dissolve the Duma, in case a second vote is taken within three months. Furthermore, amendments in the constitution require two -thirds of the vote in the Duma. The elections were last held in December 2007, in which United Russia won 315 seats, the Communist Party of Russian Federation (CPRF) won 57 seats, the Liberal Democratic Party of Russia (LDPR) won 40 seats, and Just Russia (JR) won 38 seats.

Executive branch of government

In Russia, the president is the head of state with a maximum of two four-year terms. However, in 2006, Vladimir Putin (the then president of Russia) gathered substantial public support to amend the constitution. This allowed Putin to seek a third term in the presidential office. In Russia, the president appoints the prime minister, who is head of government and the Central Bank of Russia, and the chairman of the Constitutional Court, the highest judicial body. All the nominations require approval by the State Duma. However, the president may dissolve the Duma if it fails three times to confirm a nominee for the prime ministerial post. A number of other high level presidential nominations, however, require no approval from the legislative branch. The president also issues decrees that go into effect without the parliaments approval. The last held presidential elections were in March, 2008. Dmitri Medvedev won the presidential race with more than 70% vote, and since May 2008, he has held the position of president of Russia. In November 2008, the Russian parliament voted in favor of a bill to extend the next president's term of office from four to six years.

Administrative divisions and local governments

Russia is segregated into 89 sub-national jurisdictions and each jurisdiction has two spokespersons in the Federation Council. However, the jurisdictions differ broadly in size, composition, and nomenclature. They comprise 21 republics, 49 oblasts (provinces), six territories, 10 autonomous regions, one autonomous oblast, and two cities (Moscow and St. Petersburg) with separate oblast grades. The independent regions and oblasts are elements of larger sub-national jurisdictions. The chief executive of all 89 jurisdictions is the governor who was previously elected through popular vote. In December 2004, however, the president took over the right to appoint the governor. There are several regional governors and city mayors in Russia.

Structure of legislature

Key political parties

United Russia (UR)

United Russia is one o

Pestel Analysis of Russia

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