The present risk assessment work emerged from my interest in the BRIC countries and the fact that they represent a big part of the world’s economic potential. In the following analysis I will focus on the main economic, political and financial risks in Russia.
Russia is the largest country in the world in terms of area and the world’s ninth most populous nation with 143 million people. Due to its large area the country is situated in 4 different climate zones and has vast natural resources. Russia also has a unique geographic position with the 14 border countries, bounded by 3 out of 4 world oceans, facilitating the build of international and domestic supply chains. Russia is one of the most technologically advanced economies in the world with a very big and well-educated work force and one of the largest consumer markets. The Russian economy is commodity-driven and is the world’s largest producer of oil (12%), natural gas (18%) and nickel (20%).
Russia's political institutions remain comparatively weak and political power is highly centralized, particularly at the presidential level, which maintains a dominant presence. Continued government interventions, regulations and an inefficient and corrupt legal system weigh on the cost and pace of doing business in Russia. These factors seriously hinder investment, both foreign and domestic. The corruption is very high and considered one of the most important political factors in Russia, as more than half of the population feels that corruption has increased and that the efforts of the government to reduce its levels are inefficient. (See App.11) The Corruption Perceptions Index placed the country in the lower section of the list (133 of 176 countries) showing the high corruption and bureaucracy in the country. Corruption and deficiencies in the rule of law limit Russia’s FDI potential. The Human development Index of Russia shows a high development in the dimensions of health, education and income. The HDI of Russia is 0,788 giving it a rank of 55 out of 187 countries, placing the country way above the world’s average. (See App.12) The government's budget and the economy as a whole remain vulnerable to export prices of natural resources (See App.9) and the financial sector remains fragile, partially due to limited competition among banks and lack of supervision.
Russia’s GDP growth outlook for 2013 is positive even though there has been a slight decrease since 2012.The economy is growing but slower than was expected last year. She, however, was one of the hardest hit by the 2008-09 global economic crisis as oil prices decreased drastically and the foreign credits that Russian banks and firms relied on dried up. Russia is showing much lower GDP growth in comparison with India and China, but a bit higher than Brazil in the last years. GDP is expected to grow at an average pace of 2.5 percent until 2020.(See App.1) The GDP per capita is showing a constant increase since 2009 reaching 14.037$ in...