Megaprojects In Russia

The economy of Russia has gradually transformed from a planned economy into a mixed market-oriented economy.
—Rosefielde, Steven, and Natalia Vennikova. “Fiscal Federalism in Russia: A Critique of the OECD Proposals.” Cambridge Journal of Economics, vol. 28, no. 2, Oxford University Press, 2004, pp. 307–18, .

—Robinson, Neil. “August 1998 and the Development of Russia’s Post-Communist Political Economy.” Review of International Political Economy, vol. 16, no. 3, Taylor & Francis, Ltd., 2009, pp. 433–55, .

—Charap, Samuel. “No Obituaries Yet for Capitalism in Russia.” Current History, vol. 108, no. 720, University of California Press, 2009, pp. 333–38, .

—Rutland, Peter. “Neoliberalism and the Russian Transition.” Review of International Political Economy, vol. 20, no. 2, Taylor & Francis, Ltd., 2013, pp. 332–62, .

—Kovalev, Alexandre, and Alexandre Sokalev. “Russia: Towards a Market Economy.” New Zealand International Review, vol. 18, no. 1, New Zealand Institute of International Affairs, 1993, pp. 18–21, .

—Czinkota, Michael R. “Russia’s Transition to a Market Economy: Learning about Business.” Journal of International Marketing, vol. 5, no. 4, American Marketing Association, 1997, pp. 73–93, . It has enormous natural resources, particularly oil and natural gas. , it is the fourth-largest economy in Europe, the world's ninth-largest economy by nominal GDP, and the sixth-largest by PPP.

Russia's vast geography is an important determinant of its economic activity, with the country holding a large share of the world's natural resources. It has been widely described as an energy superpower; as it has the world's largest natural gas reserves, the second-largest coal reserves, the eighth-largest oil reserves, and the largest oil shale reserves in Europe. It is the world's leading natural gas exporter, the second-largest natural gas producer, and the second-largest oil exporter, and producer. Russia's foreign exchange reserves are the world's fourth-largest. It has a labour force of roughly 70 million people, which is the world's sixth-largest. Russia is the world's second-largest exporter of arms. Russia also has the world's fifth-largest number of billionaires.

The oil and gas sector accounted up to roughly 40% of Russia's federal budget revenues, and up to 60% of its exports in 2019. In 2019, the Natural Resources and Environment Ministry estimated the value of natural resources to 60% of the country's GDP. Russia has one of the lowest external debts among major economies, although its inequality of household income and wealth remains comparatively high. Following the Russian invasion of Ukraine in 2022, the country has faced several sanctions and boycotts from the Western world and its allies, a move described as an "all-out economic and financial war" to isolate the Russian economy from the Western financial system.

History

The Russian economy is volatile. Since 1989 its institutional environment was transformed from a socialist command economy to a capitalistic market system. Its industrial structure dramatically shifted away from heavy investment in manufacturing and agriculture toward market services, oil, gas, and mining. Richard Connolly argues that for the last four centuries, there are four main characteristics of the Russian economy that have shaped the system and persisted despite the political upheavals. First of all the weakness of the legal system means that impartial courts do not rule and contracts are problematic. Second is the underdevelopment of modern economic activities, with very basic peasant agriculture dominant into the 1930s. Third is technological underdevelopment, eased somewhat by borrowing from the West in the 1920s. And fourth lower living standards compared to Western Europe and North America.

Russian Empire

Soviet Union

Beginning in 1928, the course of the Soviet Union's economy was guided by a series of five-year plans. By the 1950s, the Soviet Union had rapidly evolved from a mainly agrarian society into a major industrial power.
By the 1970s the Soviet Union was in an Era of Stagnation. The complex demands of the modern economy and inflexible administration overwhelmed and constrained the central planners. The volume of decisions facing planners in Moscow became overwhelming. The cumbersome procedures for bureaucratic administration foreclosed the free communication and flexible response required at the enterprise level for dealing with worker alienation, innovation, customers, and suppliers.

From 1975 to 1985, corruption and data fiddling became common practice among bureaucracy to report satisfied targets and quotas thus entrenching the crisis. Starting in 1986, Mikhail Gorbachev attempted to address economic problems by moving towards a market-oriented socialist economy. Gorbachev's policies of Perestroika failed to rejuvenate the Soviet economy; instead, a process of political and economic disintegration culminated in the breakup of the Soviet Union in 1991.

Transition to market economy (1991–98)

Following the collapse of the Soviet Union, Russia underwent a radical transformation, moving from a centrally planned economy to a globally integrated market economy. Corrupt and haphazard privatization processes turned over major state-owned firms to politically connected " oligarchs", which has left equity ownership highly concentrated.

Yeltsin's program of radical, market-oriented reform came to be known as a " shock therapy". It was based on the policies associated with the Washington Consensus, recommendations of the IMF and a group of top American economists, including Larry Summers who in 1994 urged for "the three '-ations'—privatization, stabilization, and liberalization" to be "completed as soon as possible." With deep corruption afflicting the process, the result was disastrous, with real GDP falling by more than 40% by 1999, hyperinflation which wiped out personal savings, crime and destitution spreading rapidly. The jump in prices from shock therapy wiped out the modest savings accumulated by Russians under socialism and resulted in a regressive redistribution of wealth in favor of elites who owned non-monetary assets.

Shock therapy was accompanied by a drop in the standard of living, including surging economic inequality and poverty, along with increased excess mortality and a decline in life expectancy. Russia suffered the largest peacetime rise in mortality ever experienced by an industrialized country. Likewise, the consumption of meat decreased: in 1990, an average citizen of the RSFSR consumed 63 kg of meat a year; by 1999, it had decreased to 45 kg.

The majority of state enterprises were privatized amid great controversy and subsequently came to be owned by insiders for far less than they were worth. For example, the director of a factory during the Soviet regime would often become the owner of the same enterprise. Under the government's cover, outrageous financial manipulations were performed that enriched a narrow group of individuals at key positions of business and government. Many of them promptly invested their newfound wealth abroad, producing an enormous capital flight. This rapid privatization of public assets, and the widespread corruption associated with it, became widely known throughout Russia as "prikhvatizatisiya," or "grab-itization."

Difficulties in collecting government revenues amid the collapsing economy and dependence on short-term borrowing to finance budget deficits led to the 1998 Russian financial crisis.

In the 1990s Russia was "the largest borrower" from the International Monetary Fund, with loans totaling $20 billion. The IMF was criticised for lending so much, as Russia introduced little of the reforms promised for the money and a large part of these funds could have been "diverted from their intended purpose and included in the flows of capital that left the country illegally".

Recovery and growth (1999–2008)

Russia bounced back quickly from the August 1998 financial crash, partly because of a devaluation of the ruble, which made domestic producers more competitive nationally and internationally.

Between 2000 and 2002, significant pro-growth economic reforms included a comprehensive tax reform, which introduced a flat income tax of 13%; and a broad effort at deregulation which benefited small and medium-sized enterprises.An Assessment of Putin's Economic Policy
, by Anders Aslund, Peterson Institute for International Economics, July 2008

Between 2000 and 2008, Russian economy got a major boost from rising commodity prices. GDP grew on average 7% per year. Disposable incomes more than doubled and in dollar-denominated terms increased eightfold. The volume of consumer credit between 2000 and 2006 increased 45 times, fuelling a boom in private consumption. The number of people living below poverty line declined from 30% in 2000 to 14% in 2008.

Inflation remained a problem however, as the central bank aggressively expanded money supply to combat appreciation of the ruble. Nevertheless, in 2007 the World Bank declared that the Russian economy achieved "unprecedented macroeconomic stability". Until October 2007, Russia maintained impressive fiscal discipline with budget surpluses every year from 2000.

2009–14

Russian banks were hit by the global credit crunch in 2008, though no long term damage was done thanks to proactive and timely response by the government and central bank, which shielded the banking system from effects of the global financial crisis. A sharp, but brief recession in Russia was followed by a strong recovery beginning in late 2009.

Between 2000 and 2012 Russia's energy exports fueled a rapid growth in living standards, with real disposable income rising by 160%. In dollar-denominated terms this amounted to a more than sevenfold increase in disposable incomes since 2000. In the same period, unemployment and poverty more than halved and Russians' self-assessed life satisfaction also rose significantly. This growth was a combined result of the 2000s commodities boom, high oil prices, as well as prudent economic and fiscal policies.''Putin: Russia's Choice'', (Routledge 2007), by Richard Sakwa, Chapter 9 However, these gains have been distributed unevenly, as the 110 wealthiest individuals were found in a report by Credit Suisse to own 35% of all financial assets held by Russian households. Russia also has the second-largest volume of illicit money outflows, having lost over $880 billion between 2002 and 2011 in this way. Since 2008 Forbes has repeatedly named Moscow the "billionaire capital of the world".

After eighteen years of negotiations, Russia's membership to the WTO was accepted in 2011. In 2013, Russia was labeled a high-income economy by the World Bank.

Russian leaders repeatedly spoke of the need to diversify the economy away from its dependence on oil and gas and foster a high-technology sector. In 2012 oil, gas and petroleum products accounted for over 70% of total exports. This economic model appeared to show its limits, when after years of strong performance, the Russian economy expanded by a mere 1.3% in 2013. Several reasons were proposed to explain the slowdown, including a prolonged recession in the EU, which is Russia's largest trading partner, stagnant oil prices, lack of spare industrial capacity and demographic problems. Political turmoil in neighboring Ukraine added to the uncertainty and suppressed investment.

2014–21

Following the annexation of Crimea in March 2014 and Russia's involvement in the ongoing War in Donbas, the United States, the European Union, Canada and Japan imposed sanctions on Russia. This led to the decline of the Russian ruble and sparked fears of a Russian financial crisis. Russia responded with sanctions against a number of countries, including a one-year period of total ban on food imports from the European Union and the United States.

According to the Russian economic ministry in July 2014, GDP growth in the first half of 2014 was 1%. The ministry projected growth of 0.5% for 2014. The Russian economy grew by a better than expected 0.6% in 2014. Russia is rated one of the most unequal of the world's major economies.

As of 2015, real income was still lower for 99% of Russians than it was in 1991.

The Russian economy risked going into recession from early 2014, mainly due to falling oil prices, sanctions, and the subsequent capital flight. While in 2014 GDP growth remained positive at 0.6%, in 2015 the Russian economy shrunk by 3.7% and was expected to shrink further in 2016. By 2016, the Russian economy rebounded with 0.3% GDP growth and officially exited recession. The growth continued in 2017, with an increase of 1.5%.

In January 2016, Bloomberg rated Russia's economy as the 12th most innovative in the world,These Are the World's Most Innovative Economies
Bloomberg Business. up from 14th in January 2015 and 18th in January 2014. Russia has the world's 15th highest patent application rate, the 8th highest concentration of high-tech public companies, such as internet and aerospace and the third highest graduation rate of scientists and engineers.

In 2019 Russia's Natural Resources and Environment Ministry estimated the value of natural resources to $844 billion or 60% of the country's GDP.

2022–present

In 2022, there have been heavy sanctions due to the Russian invasion of Ukraine that will likely result in steep recession. Since early 2022 many official economic statistics are not published.

On June 27, 2022 Russia defaulted on part of its foreign currency, its first such default since 1918.

In November 2022 it was reported that Russia had officially entered a recession as the Federal State Statistics Service had reported a national GDP loss for the second consecutive quarter.

File:Map of countries by GDP (PPP) per capita in 2022 by IMF.png, Gross domestic product (PPP) per capita in April 2022
File:Russiaunemployment.png, Unemployment rate of Russia since the fall of the Soviet Union
File:Russian inflation rate.webp, Russian inflation rate 2012–2022

Data

The following table shows the main economic indicators in 1980–2021 (with IMF staff estimates in 2022–2026). Inflation below 5% is in green.

Public policy

Fiscal policy

Russia was expected to have a Government Budget deficit of $21 billion in 2016. The budget deficit narrowed to 0.6% of GDP in 2017 from 2.8% in 2016.

National wealth fund and debt

On 1 January 2004, the Government of Russia established the Stabilization fund of the Russian Federation as part of the federal budget to balance it if price of oil falls. On 1 February 2008 the Stabilization fund was divided into two parts. The first is a reserve fund equal to 10% of GDP (10% of GDP equals to about $200 billion now), and was to be invested in a similar way as the Stabilization Fund. The second is the National Prosperity Fund of the Russian Federation. Deputy Finance Minister Sergei Storchak estimated it would reach 600–700 billion rubles by 1 February 2008. The National Prosperity Fund is to be invested in more risky instruments, including the shares of foreign companies.

Russia has one of the lowest foreign debts among major economies.

Corruption

Russia was the lowest rated European country in Transparency International's Corruption Perceptions Index for 2020; ranking 129th out of 180 countries. Corruption is perceived as a significant problem in Russia, impacting various aspects of life, including the economy, business, public administration, law enforcement, healthcare, and education. The phenomenon of corruption is strongly established in the historical model of public governance in Russia and attributed to general weakness of rule of law in Russia. As of 2020, the percentage of business owners who distrust law enforcement agencies rose to 70% (from 45% in 2017); 75% don't believe in impartiality of courts and 79% do not believe that legal institutions protect them from abuse of law such as racketeering or arrest on dubious grounds.

Sectors

Primary

Energy

The mineral-packed Ural Mountains and the vast fossil fuel (oil, gas, coal), and timber reserves of Siberia and the Russian Far East make Russia rich in natural resources, which dominate Russian exports. Oil and gas exports, specifically, continue to be the main source of hard currency.

Russia has been widely described as an energy superpower; as it has the world's largest natural gas reserves, the second-largest coal reserves, the eighth-largest oil reserves, and the largest oil shale reserves in Europe. It is the world's leading natural gas exporter, the second-largest natural gas producer, and the second-largest oil exporter, and producer. Fossil fuels cause most of the greenhouse gas emissions by Russia. The country is the world's fourth-largest electricity producer, and the ninth-largest renewable energy producer in 2019. Russia was also the world's first country to develop civilian nuclear power, and to construct the world's first nuclear power plant

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