2. Promising Market
With over 140 million consumers, a growing middle class, and almost unlimited
infrastructure needs, Russia remains one of the most promising markets
World’s 11th largest economy
Highest per capita GDP ($15,900) of the BRIC countries.
Upper middle income country, ; highly educated workforce and
sophisticated, discerning consumers
GDP Forecast of 4.3% in 2011
GDP growth at 4.0% for 2010. Slightly less than anticipated due to drought and
wildfires, which disrupted agriculture, commerce and industry.
Anticipates joining the WTO in 2011, which would liberalize trade with the rest
of the world
Geographically vast market, spanning nine time zones
Underdeveloped infrastructure poses logistical challenges, especially accessing
markets outside of major cities
Incomplete transition from central planning
burdensome regulatory regimes; inadequate IPR protection; extensive corruption
and lack of rule of law, inconsistent application of laws and regulations; lack of
transparency; and excessive government interference in business matters
Eng Language; Long Visa Process
3. Socio-Political- Economic Indicators
Purchasing Power of Population -
Geographic Allocation GDP
Population Rate of Inflation
Balance of Payment Position
Balance of Trade Position
Preferences in Tastes and Strength of Local Currency
Consumption Controls on Exchange Rates
Social Unrest Foreign Exchange Reserves
Peace and Protection Debt Burden
Political Environment Fiscal Policy of the Government
Role of Opposition Trade Cycles
Work Ethics Investment Trends
Risks to Investments
Hofstede's Cultural Taxation Policies and Dual Taxations
Commitment to Multilateral Trade
Availability of labor Ability to attract Foreign capital
Labor Law Status of Infrastructure
Trade Union Practices IT Industry
6. Covering more than 17 million square kilometers in Europe and Asia.
Europe which occupies about one-quarter of the country's territory. Vast
tracts of land in Asian Russia are virtually unoccupied.
11 time zones.
Shares border with 14 countries majorly with China, Finland, Korea,
Mongolia, Norway, Poland and other countries of former USSR
And, at the far northeastern extremity, eighty-six kilometers of the
Bering Strait separate Russia from a fifteenth neighbor--the United States
Much of Russia covered by snow six months of year.
Weather usually harsh and unpredictable. Average annual temperature of
European Russia 0°C, lower in Siberia.
Coastline makes up 37,653 kilometers of border. Arctic, Atlantic, and
Pacific oceans touch shores
Land Use: 10(7.17) percent arable, 45 percent forest, 5 percent
meadows and pasture, and 40 percent other, including tundra.
Administrative Divisions: Twenty-one autonomous republics, forty-nine
oblasts (provinces), six territories (kraya; sing., kray), ten autonomous
regions (okruga; sing., okrug), one autono-mous oblast. Cities of Moscow
and St. Petersburg with separate status at oblast level.
Population Growth Rate: -0.47% (2011 est.)
Major Cities: MOSCOW (capital) 10.523 million; Saint Petersburg
Russia‘s population is forecast to continue to decline
Ethnic Groups: Russian 81.5 percent, Tatar 3.8 percent,
Ukrainian 3.0 percent
Religion: 75 percent of believers in Russia considered themselves
Russian Orthodox, 19 percent Muslim, and 7 percent other
Education: 98% of population over age 15 literate. Private
schools and universities emerging in mid-1990s
Health: Health care free of charge in principle, but adequate
treatment increasingly depends upon wealth. Urban areas vs
rural areas have great disparity
Labor Force: 57% of population working age. Work force
relatively well-educated but ill-suited for challenges of post-
8. 20 %of the Russian population lives below the poverty
line -- defined as a monthly income of 1,000 rubles
(less than 30 Euros, or $38)
160 Different ethnic Groups
Russians are proud of their country.
. Patriotic songs and poems extol the virtues of their
. Accept that their lives are difficult and pride
themselves on being able to flourish in conditions
that others could not
. Take great pride in their cultural heritage and
expect the rest of the world to admire it
Russian Ballet, Literature, Theater, Martial Arts, Art
9. Majority of Russians still fit the ‗traditional‘ mould, characterized by simple
lifestyles and spending patterns
Lately a shift towards greater affluence and sophistication is seen
Largest concentration of higher income consumers today in Moscow and St
Strong middle class has been emerging since 1990s. Makes 35% of population
Mobile, flexible, well-educated, and careerist
No expense is spared, particularly when it comes to restaurants, clothes, cosmetics and
mobile phones. Technology and media is also catching up
Nevertheless: a strong urban-rural gap exists
Growth of private consumption (which accounts for half of GDP) is presaged by
a number of factors
Consumers are regaining confidence is also reflected in a slight improvement in
household lending which could continue because of the low level of household
The rise in real wages is projected to continue apace and the government is expected
to adhere to its plan to keep pensions on an upward path almost on a par with wages
Propensity to save is not expected to increase beyond the relatively lofty level already
reached during the recession
10. Ethnic Conflicts
Conflict with Georgia
Georgia's strategic position has ensured it is of vital military and economic significance to Russia.
Georgian territory also contains vital Black Sea ports and sits astride potential routes for Russian controlled oil and gas
Russian military bases in Georgia. Russia wants a stable Georgia . So helped its settle its internal 3 ethinc strife.
Lately Russia's recognition of Abkhazia and South Ossetia Caused concern to Georgia; Russia is upset about Georgia
North Caucasus-based terrorism
Occupation of the North Caucasus has been a cause of conflict for three centuries.
2 wars with Chechnya from the mid-1990s on, attempting to repress local independence movements, stem a pan-Islamic
movement from taking hold there, and maintain access to the oil wealth of the Caspian sea.
Roots of this conflict lie in a long history of violent repression and impoverishment in Chechnya
Installed Pro-Moscow regime
Conflicts over resources are heated in parts of Siberia and the Far East. The Sakha (Yahut) are trying to claim rights to
some economic benefits from the vast diamond, oil, gold, and other mineral wealth in their republic.
Blocked by Russian central control over the resource extraction industries, and by the strategic relocation of tens of
thousands of Russians to Yakutia in the Soviet period.
This battle over resources is associated with a growing nationalist movement.
Environmental issues play a significant role, too, as people fight to prevent or reverse the spoiling of rivers, lakes, and
soils by the oil and mining industries.
Internal migration and displacement has contributed greatly to ethnic tensions and prejudice, as several million Russians have
returned from newly independent states in Central Asia, the Caucasus, and the Baltics, feeling themselves unwanted guests in
those places, or in some cases (Tajikistan, Armenia, and Azerbaijan) escaping civil wars.
11. Russia is 147 on Global Peace Index
Human traffiking – Source and destination. Russia failed to
show evidence of increased efforts to combat trafficking;
Terrorism attacks, nationalism, racism exists
12. Semi-authoritarian state
President wields considerable executive power.
Bicameral legislature consists of the lower house (State Duma) and the
upper house (the Federation Council).
President nominates the highest state officials, including the prime
minister, who must be approved by the Duma.
President can pass decrees without consent from the Duma. He also is
head of the armed forces and of the Security Council.
Putin and Dmitry Medvedev will remain president at least until May 2012
and will continue to exercise tight control over the federal government,
most of regional leaders and parliament.
Formidable influence on the judiciary, mass media and much of civil
Radicalization of ―non-systemic opposition‖ is set to continue, with many
opposition figures joining forces to challenge authorities in spite of
political differences. Public disturbances and clashes with police will also
These law agencies are capable of effectively quelling opposition protests
to secure a smooth transfer of power or Medvedev‘s re-election in 2012
13. There are currently a total of seven political parties registered with the Russian Ministry of
The Communist Party of the Russian Federation (KPRF)
The Liberal Democratic Party of the Russian Federation (LDPR)
Patriots of Russia
Russian elections are organized in such a way that no one party can take for granted its
ability to overcome the extremely high 7% electoral threshold.
Outspoken criticism of the authorities during an election campaign can irritate them and
result in the organizers removing a percentage of its votes from a party, which then makes
it easy to deprive it of its representation.
For this reason the Russian 'system' opposition parties are all extremely ready to
compromise with the authorities.
This manifests itself in an unwillingness to criticize the main government figures or their
policies, and also in their choice of candidates.
On the whole the 'system' opposition is made up of niche parties. Each one has a narrow
support group and induces feelings of antagonism in the main body of voters. This is why
the 'system' opposition suits the Kremlin: voters don't have to vote for 'United Russia'
because they like it, but because they like the others even less. The rules of the game in
Russia are such that almost no one likes the 'system' opposition.
14. For Russians, under the Soviet system, the government found them a job or
they got a job through personal contacts
Relationships are more important than time
Being late is part of the Russian makeup. Being late was a way of showing
contempt for the system and of asserting self. To Russians, appointments are
Poor Time management
Personal Benefits and Advantages
Patience is the major Russian virtue
Respect is everything
Build personal relationship
Using Local Consultants
Business Ethics are different
Russians prefer to deal with those, who occupy important positions
Hope for the best but prepare for the worst
Approach Problem even without solution
Ready to work in dynamic environment
Group mentality Team Building
15. Moderate in individualism, masculinity, and
Fairly high in uncertainty avoidance.
16. Russian labor force was nearly 76 million workers
By the end of 2010, unemployment rate falling
to 7.4% (Unemployment rate is not in top 100 )
Brain-drain is an issue
7,000,000 immigrants working in Russia. Half of
these were from Ukraine, while the remainder
was mostly from Central Asia. Only 3 million or
less than half of all the immigrants are legal.
Illegal immigrants number 4 million, mostly from
Tajikistan, Uzbekistan and Moldova
By 2025, Russian "economically-active"
population may decrease by 12,9%, think the
17. Code review record
Key insights on labor law in Russia:
Employers should consider opinions of trade unions if such unions exist. Trade
unions in Russia are typically formed at the company level.
Overtime for employees should not exceed four hours in two successive days and
120 hours per year.
Employees are entitled to 12 paid public holidays and an annual leave of at least
28 calendar days.
An employee may terminate their labor contract with a two-week advance
Employers are to pay salaries to employees at least twice per month and have
the right to notify the employer and stop working if salary payment is delayed by
more than 15 days.
Non-monetary payment may not exceed 20 percent of total salary.
Foreign citizens working in Russia
A work permit is mandatory for most foreign citizens and can take more than
four months to obtain.
A simplified procedure for highly-qualified specialists (HQS) whose salaries
exceed RUB 2,000,000 ($68,652.00
18. Code review record
Initially economy was based on the state ownership of the
means of production and strict centralised control of
wages, prices, employment and production.
Trade unions had been an integral part of the state socialist
system, not as representatives of the interests of the workers
in opposition to their employer, the state
In Capitalist, its a body with not much
Trade unions channel conflict into symbolic protests and
bureaucratic and judicial forms of conflict resolution
Weakness of unions is management dominance of primary
Numerous trade union complains are registered with ILO
Unions current focus on standardizations, migration policies
20. GDP(by PPP) : $2.223 trillion (2010 est.)
7th in the world after Europe
Union, US, China, Japan, India, Germany
GDP – per capita (PPP) : $15,900 (2010 est.)
GDP – Composition by sector:
services: 62% (2010 est.)
Russia is the most prosperous of the BRIC
countries (Brazil, Russia, India and China). About
73% of the population is urban and makes up 85%
of the purchasing power.
21. GDP - per capita (PPP) (US$).
Russia ranks 69th
GDP - per capita (US$)
22. Last reported at 9 percent in July of 2011
The Bank of Russia has clearly specified in this document its principal aim
for 2011–2013 – hold down inflation at 5-7% annual.
Inflation's effects on an economy are positive and negative. Negative
effects of inflation include
a decrease in the real value of money and other monetary items over time,
uncertainty over future inflation may discourage investment and savings,
Shortages of goods if consumers begin hoarding out of concern that prices will
increase in the future.
Positive effects include ensuring central banks can adjust interest rates and
encouraging investment in non-monetary capital projects
23. • Balance of payments will be balanced if the oil price continues to
•If it rises by 2 percent annually in real terms, experts estimate
deficit could rise to 10 percent of GDP by 2020 (from 0–2 percent
currently) if today‘s tax burden and economic growth rate hold and
the government enacts all programs
24. Trade surplus equivalent to 15.1 Billion USD in July of
Metals and energy make up more than 80 percent of Russia's
World’s largest oil producer and biggest exporter of natural
gas, nickel and palladium
Imports vehicles, machinery and equipment, plastics,
medicines, iron and steel, consumer goods, meat, fruits and
semi finished metal products.
Main trading partners are: European Union (Germany, Italy,
France), China and Ukraine
25. Ruble appreciated 1.50 percent against the US Dollar during the last 12 months
From 1993 until 2011 the USDRUB exchange averaged 22.68 reaching an historical
high of 36.37 in February 2009
Rouble hit fresh 16-month highs against the euro dollar currency basket last week
Analysts suggest the government should not spend the reserve fund to cover deficit-
and should borrow at home rather than abroad. This would bring the Rouble down.
And revenues from oil sales should again be filtered into reserve funds – just as
before the crisis – to avoid pumping up the economy.
26. Historically, strict currency control regulations had been used to
protect the ruble against devaluation and discourage "capital
Ruble floating exchange rate
Iinflation targeting effectively will require a free-floating
currency. But letting the ruble float will not give monetary
authorities full control over the money supply, which will also
depend on the oil price and capital flows. Moreover, volatile oil
prices will lead to a volatile current account balance and almost
any fluctuation in oil prices will affect the exchange rate.
In addition, a freely floating currency could more actively subject
Russia to today‘s heightened currency tensions. So far, Russia‘s
political uncertainty and worsened investment climate has spared
it from the significant capital inflows that have made other
countries worry about ―currency wars.‖
Does it make sense to raise interest rates as a means of fighting
inflation when oil prices are rising and the ruble is thus growing
27. Russia‘s International reserves was $ 532.0
billion as of September 16 , 2011
Foreign exchange reserves to expand by tens
of billions of dollars each year due to higher
interest rates on the world's markets
28. External Debt of the Russian Federation as
at the end of June 2011 (estimate)
(millions of US dollars)
External Debt as of June'11(USD in
460,000 467,245 463,411 457,421 476,639 489,043
Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11
29. Fiscal position will continue to benefit from higher oil prices
Plus Recovering corporate profit leaves the government in a
Non-oil deficit will remain high
Progress in the area of minimizing the pro-cyclical nature of
public finances is of paramount importance reducing Russia‘s
vulnerability to future downturns/ correction in energy prices
Current cyclical recovery in revenues + higher tax rates in the
extractives industry + sale of minority stakes in state assets
Helping plug deficit
More important is the message of openness and receptiveness
which has implications for long term growth.
"It is absolutely critical that we
maintain our macroeconomic stability.
This is currently one of our major
competitive advantages, a resource to
spur development, attract long-term
investment and stimulate business. We
need a highly responsible and stable
budget. We cannot afford to spend
more than we earn.― – Putin
30. The alternating periods of
expansion and contraction in the
economic activity has been called
business cycles or trade cycles.
The period of high income, high
output and high employment is
called as the Period of
Expansion, Upswing or
The period of low income, low
output and low employment is
called as the Period of
Contraction, Recession, Downs
wing or Depression.
33. Demand for automotive products, household
goods, financial services, retail products and a medical
equipment and services;
Major construction boom is creating a need for equipment
Franchise businesses are growing in both the food and non-
Opportunities for services and equipment for infrastructure
upgrades in power generation and telecommunications are
High energy prices are driving demand for oil and gas field
equipment and services
Major investor is Cyprus. that most of this is Russian
capital ―round tripping‖
Latest: Representatives of major global investors worth more than $2
trillion met with Russian Prime Minister Vladimir Putin, ahead of the
launch of a $10 billion Russian investment fund
34. Main Areas of FDI being:
Agriculture, Forestry, Fishing
Mining and Quarrying
Manufacturing FDI Trends
Electricity, Gas 160,000 142,172
Water Supply 120,000
40,000 25,159 30,962
20,000 7,975 10,159 7,406 12,825
S/W: creation, development and
maintenance activities represent a
total of 15% FDI in Europe but do not r Q1 2010 Q2 2010 Q3 2010 Q4 2010 2010 Q1 2011
ank in the top 10 for FDI in Russia. Total
35. Dynamic political risks – Russia being 9th in a list
of 11 extreme risk countries
Heightened activity of militant Islamist separatists in the Northern
Caucasus and their ambition to strike targets elsewhere in the country
Devastating terrorist attacks
Also compounded by its ‗extreme risk‘ ratings for its business
environment, corporate governance and the endemic nature of
corruption, which is prevalent throughout all tiers of government
Ineffective legal and regulatory system
Scores well for the long term on resource
security, infrastructure readiness and education
Russia has approximately 140m consumers and
an expanding economy. IMF figures reveal that
Russia‘s real GDP growth amounted to 4% in 2010
and expects it to expand by 4.3% in 2011
36. Main profit tax rate — at 20% — is one
of the lowest amongst the major economies
• 2%, payable to the Federal budget
18%, payable to the Regional budget
Tax incentives are becoming more common.
For example with the expansion of special
Meanwhile, large capital investment projects
continue to receive VAT and customs duty
Oil and Gas Taxation and Mining is separate
Transfer Pricing Law
38. After more than 17 years, the WTO saga may
finally be coming to an end.
Possibility of a member state veto remains;
Jan 2012 is the possible date
Greatly contribute to the opening of new
opportunities to do business with and in
Strengthen the international competitiveness
of the Russian economy by harmonizing its
economic regime with global trading rules
39. A level playing field: State is divesting its shares Ongoing dominance and large market
share of state-supported companies hurts both Russian and foreign companies
Institutional changes: To attract foreign investment and protect entrepreneurs at
home, Russia must create a more friendly business climate by strengthening intellectual
property rights and increasing transparency
Positive policy direction: Overall economic policy direction. Medvedev has prioritized
modernization in five sectors:
Information technology and telecommunications
Russia reports good figures for trade balance and inflation and has a small sovereign debt.
Of course, there is the factor of high oil prices but still, Russia should objectively be one
of the most attractive countries for investors
Frequent changes in Laws
Innovation industry - We certainly tell them that Russia is a country of educated people and fundamental science Need
Administrative barriers should be removed
A favorable climate for small and midsize business, economic diversification, and especially the development of
innovation sectors, will be an uphill job. The thing is that innovations are most often proposed by small businesses; big
business only supports and boosts innovative models after small business generates them.
Business in Russia often operates in a very narrow timeframe; in other words, there is no confidence that you will still
have your business in three, five or ten years.. Fear shoud go to get people invest in fixed assets
40. Railway system includes a total of 150,000 kms (93,210 miles) - extensive
railway systems in the world. Of these only 87,000 kms is in "common carrier"
service. The remaining 63,000 kms (39,148 miles) serve specific industries
Highway system includes a total of 948,000 kms of road including 416,000 kms
that serve specific industries or farms and are not maintained by
governmental highway maintenance departments. Of the total road
system, only 336,000 kms are paved
Russia has some 630 improved airport facilities, 50 of which are capable of
accommodating international flights
Extensive oil and gas pipeline system, with some 48,000 kms of pipelines for
crude petroleum, 15,000 kms designed for shipment of refined petroleum
products, and 140,000 kilometers designed for shipment of natural gas.
Electricity production need to be improved
Areas of Infrastructure Development
Infrastructure associated with the export of commodities (pipelines, ports and
transport infrastructure to support oil and gas output in East Siberia)
Investment in ports in northern Russia
Furthermore, the Football World Cup in 2018 and Sochi Winter Olympics in 2014 will
drive substantial infrastructure spending, which in turn should benefit the economy
41. Largest IT market in the whole CEE region – approx. €10bn in 2010
IT industry has recorded a record year of growth concentrating on high end niches like
algorithm design and microelectronics
Russia is now the world's third biggest destination for outsourcing software behind India
Russia's strength is its engineering and scientific talent.
3,500 engineers for every 1 million people, nearly the same ratio as the United States
Technical skills of the Russian workforce go beyond basic programming and extend to complex
To take advantage of this talent, companies such as
Sun, LG, Google, Oracle, Siemens, Intel, Boeing, IBM, Dell, Motorola and Citibank have established a
It has more personnel working in R&D than any other country in the world and ranks 3rd in
the number of scientists and engineers per capita. According to the World Bank, Russia has
one million specialists waiting in the wings who are capable of quickly joining its IT sector
The domestic outsourcing industry is maturing. Currently, more than 250 Russian-based
companies are active in offshore software development.
Major software development centres (Moscow, St.-Petersburg, Novosibirsk) have adequate
IT & outsourcing market has been growing at a rate of more than 20% since the past few
years. The Russian IT hardware market, accounting for more than 50% of total IT
spending, continues to dominate the total IT market.
Country's emergence as an IT Outsourcing (ITO) center, thanks to its close proximity with
Europe, similar time zone, and availability of high quality workforce at low cost.
Russian government is increasing its IT investments in order to expand and develop the IT
infrastructure in the country
42. While the economic indicators are
healthy, the socio-political situation seems
Law and Order situation is a big concern
Unreasonable means of handling people
found to be critics of government is a
However with the entry into WTO, Russia will
have to follow internationally acceptable
Therefore socio-political factors is a risk but
an upbeat forecast for economic factors.
Jump in if you can face the risks!
Notas del editor
An incomplete transition from central planning has led to an insufficientlyintegrated economy and disparities in wealth distribution, geographically anddemographically.Some more stats:Credit Agency RatingsMoody’s: Baa1; S&P: BBB; Fitch: BBBMain Sources of Foreign Exchange (excl. FDI):Foreign borrowing, energy exportsLargest Trading Partners: Netherlands, Germany, Italy, China, UkraineMain Imports: M&E, motor vehicles, steel, products, medicine, andcommunications equipment
Famous Russian dissident Litvinenko, later poisoned through the use of a highly radioactive material in LondonThis common ground on terrroism with the West will impact on Russia’s policy toward countries like Afghanistan (production and trafficking of opiates) and North Korea (nuclear weapons program).
In politics, centrism is the ideal or the practice of promoting policies that lie different from the standard political left and political right. Tends to focus around policies such as progressive taxation, civil liberties/human rights, economic liberalism and social liberalism.
Patience: Russians are accustomed to wait for what they wantDual Ethics - Highest ethical standards in the circle of their personal connections (“our”), but at the same time the same people can easily violate all ethical standards with respect to “strangers”Respect is everything - After obtaining proposal on the paper Russians can put it on hold ( “to mature”) and wait for the personal contactSome consultants working with Russians specify that detailed contracts often follow an oral agreement concluded during informal meetingBusiness Ethics: For example, the "offers" considered by Americans as presents, in Russia are considered as means for building relationship.Russians prefer to deal with those, who occupy important positions. Negotiations with the junior representatives are received, at best, as temporary and impersonal, and, at worse, they can be considered insulting.
Power DistanceIn cultures with low power distance, people are likely to expect that power is distributed rather equally, and are furthermore also likely to accept that power is distributed to less powerful individuals. As opposed to this, people in high power distance cultures will likely both expect and accept inequality and steep hierarchiesUncertainty AvoidanceUncertainty Avoidance is referring to a lack of tolerance for ambiguity and a need for formal rules and policiesMasculinity vs. FemininityThese values concern the extent on emphasis on masculine work related goals and assertiveness (earnings, advancement, title, respect et.), as opposed to more personal and humanistic goals (friendly working climate, cooperation, nurturance etcIndividualism vs. CollectivismIn individualistic cultures people are expected to portray themselves as individuals, who seek to accomplish individual goals and needs. In collectivistic cultures, people have greater emphasis on the welfare of the entire group to which the individual belongsLong term orientation: § Acceptance of that business results may take time to achieve § The employee wishes a long relationship with the company Short term orientation: § Results and achievements are set, and can be reached within timeframe § The employee will potentially change employer very often
Socialist : Integral part of Party-state apparatusPrimary functions to maintain labour discipline, encourage the production drive administer state social welfare systemProtective functionsRepresent individual worker in disputesMonitor enforcement of labour lawIn Capitalism:state no longer has control of enterprisesdoes not determine terms and conditionsemployment relation now contractualRussian trade unions declared independence of Party-state in 1987Chinese and Vietnamese unions still under the leadership of the Communist Party----Partner relations with state and employerTripartite commissionLobbying legislature and executiveNegotiated settlement
Gross domestic product (GDP) refers to the market value of all final goods and services produced in a country in a given period. GDP per capita is often considered an indicator of a country's standard of living.Calculated by Income or Expenditure approach:The income approach, which is sometimes referred to as GDP(I), is calculated by adding up total compensation to employees, gross profits for incorporated and non incorporated firms, and taxes less any subsidies. The expenditure method is the more common approach and is calculated by adding total consumption, investment, government spending and net exports.------------------------------------------------------------------------------------------------------------------------------------------------------PPP: the exchange rate adjusts so that an identical good in two different countries has the same price when expressed in the same currency. For example, a chocolate bar that sells for C$1.50 in a Canadian city should cost US$1.00 in a U.S. city when the exchange rate between Canada and the U.S. is 1.50 USD/CDN. (Both chocolate bars cost US$1.00.) -----------------------------------------------------------------------------------------------------------------------------------------------------The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing power is important because, all else being equal, inflation decreases the amount of goods or services you'd be able to purchase.A simple way to think about purchasing power is to imagine if you made the same salary as your grandfather. Clearly you could survive on much less a few generations ago, however, because of inflation, you'd need a greater salary just to maintain the same quality of living.---------------------------------------------------------------------------------------------------------------------------------------------Purchasing Power Parity converts local currencies to a common currency and compares the buying power of different currenciesPurchasing power parity (PPP) is a measure of long-term equilibrium exchange rates based on relative price levels of two countries. Purchasing power parity is calculated by determining what each item purchased in a country would cost if it were sold in the U.S.
Inflation refers to a general rise in prices measured against a standard level of purchasing power. Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality. inflation is caused by the interaction of the supply of increased money with output and interest rates. Common method is CPI – Consumer Price Index.
Balance of payments (BOP) accounts are an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. Prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items.When all components of the BOP accounts are included they must sum to zero with no overall surplus or deficit.Current Account: Balance of the current account tells us if a country has a deficit or a surplus Contains goods, services, income and current transfersCurrent Account: Surplus is indicative of an economy that is a net creditor to the rest of the world. It shows how much a country is saving as opposed to investingA deficit reflects an economy that is a net debtor to the rest of the world. It is investing more than it is saving and is using resources from other economies to meet its domestic consumption and investment requirementsCapital and Finance Accounts: Capital Accounts the capital account relates to dealings including debt forgiveness, the transfer of goods and financial assets by migrants leaving or entering a country, the transfer of ownership on fixed assets, the transfer of funds received to the sale or acquisition of fixed assets, gift and inheritance taxes, death levies, patents, copyrights, royalties and uninsured damage to fixed assets. financial account are government-owned assets (i.e. special drawing rights at the International Monetary Fund (IMF) or foreign reserves), private sector assets held in other countries, local assets held by foreigners (government and private), foreign direct investment, global monetary flows related to investment in business, real estate, bonds and stocks. Thus, the current account on one side and the capital and financial account on the other should balance each other out. When an economy, however, has positive capital and financial accounts (a net financial inflow), the country's debits are more than its credits (due to an increase in liabilities to other economies or a reduction of claims in other countries). This is usually in parallel with a current account deficit; an inflow of money means that the return on an investment is a debit on the current account. Thus, the economy is using world savings to meet its local investment and consumption demands. It is a net debtor to the rest of the world. If the capital and financial accounts are negative (a net financial outflow), the country has more claims than it does liabilities either because of an increase in claims by the economy abroad or a reduction in liabilities from foreign economies. The current account should be recording a surplus at this stage, indicating that the economy is a net creditor, providing funds to the world.
Trade deficit, when the value of imports exceed the value of exports The difference between a country's imports and its exports. Balance of trade is the largest component of a country's balance of payments. Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy. A country has a trade deficit if it imports more than it exports; the opposite scenario is a trade surplus
The depreciation of a country's currency refers to a decrease in the value of that country's currency. For instance, if the Canadian dollar depreciates relative to the euro, the exchange rate (the Canadian dollar price of euros) rises - it takes more Canadian dollars to purchase 1 euro (1 EUR=1.5CAD -> 1 EUR=1.7CAD). When the Canadian dollar depreciates relative to the Euro, the Canadian dollar becomes more competitive because the price of Canadian goods when exchanged to Euro will be cheaper leading to a larger Canadian export. On the other hand, European countries that denominates its goods and services in Euros will have lost competitiveness to the Canadian dollar. The price of European products denominated in Euros will thus become more expensive in Canada.-------------------------------------------------------------------------------------------------------------------------------------------------------The appreciation of a country's currency refers to an increase in the value of that country's currency. Continuing with the CAD/EUR example, if the Canadian dollar appreciates relative to the euro, the exchange rate falls - it takes fewer Canadian dollars to purchase 1 euro (1 EUR=1.5CAD -> 1 EUR=1.4CAD). When the Canadian dollar appreciates relative to the Euro, the Canadian dollar becomes less competitive. This will lead to larger imports of European goods and services, and lower exports of Canadian goods and services.
Capital flight - Occurs when assets and/or money rapidly flow out of a country, due to an economic event (such as an increase in taxes on capital and/or capital holders or the government of the country defaulting on its debt) and that disturbs investors and causes them to lower their valuation of the assets in that country, or otherwise to lose confidence in its economic strength. This leads to a disappearance of wealth and is usually accompanied by a sharp drop in the exchange rate of the affected country . This leads to dramatic decreases in the purchasing power of the country's assets and makes it increasingly expensive to import goods.What Does Devaluation Mean?A deliberate downward adjustment to a country's official exchange rate relative to other currencies. In a fixed exchange rate regime, only a decision by a country's government (i.e central bank) can alter the official value of the currency. Contrast to "revaluation". -----------Fixed Exchange RatesThere are two ways the price of a currency can be determined against another. A fixed, or pegged, rate is a rate the government (central bank) sets and maintains as the official exchange rate. A set price will be determined against a major world currency (usually the U.S. dollar, but also other major currencies such as the euro, the yen or a basket of currencies). In order to maintain the local exchange rate, the central bank buys and sells its own currency on the foreign exchange market in return for the currency to which it is pegged.Floating Exchange RatesUnlike the fixed rate, a floating exchange rate is determined by the private market through supply and demand. A floating rate is often termed "self-correcting", as any differences in supply and demand will automatically be corrected in the market. Take a look at this simplified model: if demand for a currency is low, its value will decrease, thus making imported goods more expensive and stimulating demand for local goods and services. This in turn will generate more jobs, causing an auto-correction in the market. A floating exchange rate is constantly changing.
Total of a country'sgoldholdings and convertibleforeign currenciesheld in its banks, plusspecial drawing rights (SDR) and exchangereservebalances with the International Monetary Fund (IMF). It is needed for :support and maintain confidence in the policies for monetary and exchange rate managementlimit external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis or when access to borrowing is curtailed and in doing so; provide a level of confidence to markets that a country can meet its external obligations; demonstrate the backing of domestic currency by external assets; assist the government in meeting its foreign exchange needs and external debt obligations; and maintain a reserve for national disasters or emergencies.
Fiscal policy is the means by which a government adjusts its levels of spending in order to monitor and influence a nation's economy. It is the sister strategy to monetary policy with which a central bank influences a nation's money supply. These two policies are used in various combinations in an effort to direct a country's economic goalsHow does it work ?It’s a fine balancing act - For example, stimulating a stagnant economy runs the risk of rising inflation. This is because an increase in the supply of money followed by an increase in consumer demand can result in a decrease in the value of money - meaning that it will take more money to buy something that has not changed in value.If economy slows down : 1. Govt decreases taxation giving consumers more spending money 2. Increasing government spending in the form of buying services from the market (such as building roads or schools) hereby creates jobs and increased wages 3.Consumer demand for goods and services increases thereby rekindling the economyIf economy is going great guns: excess in supply decreases the value of money, while pushing up prices (because of the increase in demand for consumer products). Hence, inflation occurs 1. Increase taxes in order to suck money out of the economy 2. Decrease in government spendingDeficit is a shortfall in revenue; A situation in which liabilities exceed assets, expenditures exceed income, imports exceed exports, or losses exceed profits.Procyclical -A condition of positive correlation between the value of a good, a service or an economic indicator and the overall state of the economy. Eg: GDP, Stock prices increase as economy is growing. Unemployment is an example of a countercyclical economic indicator. Macro Economic Indicators- GDP, unemployment rates, and price indices
Business Cycle (or Trade Cycle) is divided into the following four phases :- Prosperity Phase : Expansion or Boom or Upswing of economy. Recession Phase : from prosperity to recession (upper turning point). Depression Phase : Contraction or Downswing of economy. Recovery Phase : from depression to prosperity (lower turning Point).
The 20 years of the post-Soviet history can be divided into 2 phasesThe first period came during the 1990s can be called a period of transformation. It was marked by 1. Large-scale institutional changes and by a no less substantial restructuring of the economy 2. Major political and economic institutions were formed3. Restructuring of the economy occurred in the form of a deep transformational recession (Russia’s GDP contracted by as much as 35-45 percent) and was accompanied by a dramatic fall in living standards (real disposable income in 1999 was 46 percent of its 1991 level)4. Another characteristic of this cycle was the chronic budget deficit – in the absence of sources with which to cover it. In 1999. the second period of Russia’s post-Soviet history can be called a period of stabilization. Characterized by 1. Consistent and impressive growth in the country’s GDP (at an average rate of about 7 percent), and by the fast-paced growth of incomes. Moreover, the income growth rate exceeded the growth rate of GDP, while in the 1990s its rate of decline outpaced the GDP fall. 2. Additionally, this period was marked by a consistent budget surplus.3. Finally, according to experts, was the deceleration and attenuation of institutional reforms4. The financial crisis of 2008-2009 marked the conclusion of the second cycle
4 Trends to consider before investing in RussiaDependence on Oil pricesGovernment corruption - Nationalization of the petroleum company Yukos and the imprisonment of its owner Mikhail Khodorkovsky; Corruption also permeates the judicial system and society as a whole. Openly acknowledged as a part of doing business in Russia, the country received a 2.1 out of 10 rating on the corruption index (with 10 being a low rate of corruption)Rise in Ultra-nationalism – Murder of journalists; partly due to risein immigrants (dominant workforce as Russia’s dwindling workforce is dimishing by 700,000 a year)Russian government also uses the economy to further its political goals - prevent Central Asia from building a pipeline to Europe that bypasses Russian territory; Government’s shutdown of a natural gas pipeline to Ukraine that distributes heating fuel to homes throughout Europe
Double taxation is the imposition of two or more taxes on the same income (in the case of income taxes), asset (in the case of capital taxes), or financial transaction (in the case of sales taxes). It refers to taxation by two or more countries of the same income, asset or transaction, for example income paid by an entity of one country to a resident of a different country. The double liability is often mitigated by tax treaties between countries.A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases.A flat tax (short for flat rate tax) is a tax system with a constant tax rate.Withholding tax is an amount withheld by the party making payment to another (payee) and paid to the taxation authorities. Transfer Pricing:The new Russian Transfer Pricing law has been approved during the third reading –According to the current transfer pricing rules in the TaxCode, the tax authorities can review taxpayers' pricesin the following situations (referred to as "controlledtransactions"):• A transaction between related parties• A transaction involving the "barter" of goods or services• A cross-border transaction (i.e. a "foreign tradetransaction")• A "significant fluctuation" in the level of prices usedby the taxpayer for identical or similar goods, works,or services over a short period of time, which is definedas a difference of more than 20% . The obligation to prove that prices do not meet the market price benchmark is the responsibility of the tax authorities. However, litigation on transfer pricingis becoming increasingly common, and the taxpayerstill has to be prepared to provide the tax authoritiesor the courts with evidence that their market price
WTO - Set of rules under which signature countries conduct trade
Once the country’s richest man, Mr. Khodorkovsky had angered Russia’s paramount leader, Vladimir V. Putin, by taking part in politics and was arrested in 2003. The prison term for his first conviction expires this year; extended till 2017 Magnitsky case Gasprom – Shell Case