Russia Profile

 Area: 17,075,400 square kilometres
Population: 142.4 million
Capital city: Moscow (population 10.4 million)
People: 81.5% Russians; 3.8% Tatars; 3% Ukrainians (more than 100 nationalities in all)
Languages: Russian, Tatar, other
Religions: Orthodox Christianity; Islam; Judaism; Buddhism
Currency: 1 Rouble = 100 Kopeks
Major political parties: United Russia, Communist Party of the Russian Federation, Liberal Democratic Party of Russia, A Just Russia
Government: Federation
Head of State/President: Vladimir Putin
Prime Minister/Premier: Dmitry Medvedev
Foreign Minister: Sergey Lavrov

ECONOMY
Basic Economic Facts

Total GDP: $1,850.40 billion (2011)
GDP per head: $ 12,993 (2011)
GDP growth: 4.3% (2011)
Inflation: 8.4% (2011)
Major industries: Oil, gas, timber, metals, machinery, chemicals and arable farming.
Major import partners (IMF 2009): China 14.8%, Germany 14.4%, Ukraine 5.1%, Italy 4.8%, US 4.4%, South Korea 4%, France 3.8%, Japan 3.3%, Netherlands 2.9%, Poland 2.7%.
Major export partners (IMF 2009): Netherlands 8.6%, Germany 7.5%, Italy 6.4%, China 5.8%, Turkey 4.9%, Ukraine 3.9%, US 3.7%, Poland 3.7%, Finland 3.3%, Kazakhstan 3.1%.

Impact of the Global Economic Crisis on the Russian Economy

From 1999 to 2008, Russia's economy benefited from strong growth, averaging about 7% a year.  This growth was accompanied by budget surpluses (4% in 2008), allowing the Russian government to accumulate reserves of almost $600bn.  Oil and gas are crucial to the economy, accounting for over 25% of GDP, 45% of federal budget revenues and 70% of exports.

The economy as a whole suffered more than any other G20 country during the global recession, with GDP falling 7.9% in 2009. The sharp fall reflected the country’s dependence on oil and external financing; both were badly hit during the crisis. The banking system suffered but government support enabled it to weather the storm. The Russian real economy has since recovered, and grew by  4% in 2011. Its continued growth in the near term will be supported by high oil prices. But the oil-driven growth risks distracting from fundamental longer term structural challenges.

A steady rise in oil prices over the decade preceding the crisis helped to raise credit expansion and deliver high growth through private consumption.  Oil prices frame political decision-making.  Current high oil prices are fuelling significant increases in social and defence expenditures such that, whereas 5 years ago the budget balanced at an oil price of $50 a barrel, the 2012 budget will now balance officially only at $100 a barrel, with some analysts putting the figure closer to $120.

The Russian Rouble

The value of the Russian rouble is closely aligned to the oil price.  Surging oil prices fuelled strong appreciation at the start of 2011, but since May the rouble has fluctuated in line with the oil price, depreciating by 12% against the US dollar in the third quarter.  Significant net capital outflows - $84bn in 2011 with a further $42bn in the first four months of 2012 - have been driven by a number of factors including a general flight to safety from emerging markets and investor concerns about falling oil prices and political risk.  

World Trade Organisation Accession

After 18 years of negotiations the WTO invited Russia to join in December 2011.  Actual accession is expected in 2012 once Russia has completed the necessary legal formalities.  Dialogue continues with the OECD over possible membership.
Other Economic Challenges

Investment levels in Russia remain low, at around 20% of GDP.  Investment is forecast to grow, but risks remaining subdued unless significant reforms are implemented.  The IMF forecasts real GDP growth to be around 4%-5% per annum in the near term. This is well below the long-term potential of the economy, reflecting the constraining effect of economic structural challenges.

Russia faces huge structural challenges.  Corruption is endemic.  Transparency International ranks Russia 143rd out of 183 countries for perceptions of corruption.  A rank of 120 out of 183 countries in the World Bank’s Ease of Doing Business Index for 2012 reflects Russia’s weak property rights and poor business climate (but does show an improvement from the 2011 rank of 124).  All these factors restrict productivity growth and the creation of innovative enterprises. 

Russia faces one of the most challenging demographic declines in the world.  The UN estimates that the current population will fall from 142 million now to 128 million by 2020.  It will also age; while there are 128 workers for every 100 pensioners today, by 2030 this will be at parity.  There is already a shortfall of appropriately trained workers, which is exacerbated by low labour mobility.  At present immigration - particularly from the former Soviet states of Central Asia - is relatively high.  However it is not sufficient to replace the native Russians who are not being born, or who are leaving or dying.

DFID’s bilateral engagement with Russia started in the early 1990s, initially supporting Russia’s transition to a market economy. After 2002 the focus shifted to supporting the Russian government’s administrative and social reforms. Between 2001 and 2006 over £50m was allocated to support this. In addition, there were annual contributions of between £2-3 million for humanitarian operations in the North Caucasus.

DFID closed its bilateral aid programme March 2007, a sign of Russia’s strong economic growth since 2000 and its position as one of the richest Middle Income Countries.  As a G8 member and an emerging donor, Russia has the potential to play a major role in global poverty reduction.  DFID’s modest remaining programme in Russia now works through the World Bank and the EBRD (European Bank for Reconstruction and Development) across three main areas: building Russia’s aid management capacity; supporting public administration reforms; and promoting energy efficiency.

HISTORY

The origins of the Russian state can be traced back to the fourteenth century when the trading principality of Muscovy first emerged as the dominant player among a number of smaller principalities and fiefdoms. Ivan IV (Ivan the Terrible, 1533-1584) was the first prince of Muscovy to style himself as Tsar.  The Romanov family emerged as Russia's leaders in the early 17th century, and ruled Russia for the next 300 years. Best known of the Romanovs are Peter the Great (1682-1725) and Catherine the Great (1762-1796), who did most to reform and modernise the country.
Bolshevik Revolution

By the early twentieth century, discontent at all levels of Russian society was high. Harsh working conditions in the newly industrialised cities, coupled with an absolutist monarchy which was perceived as being indifferent to the suffering of the mass of the population, created conditions which were ripe for the growth of political radicalism.  1903 saw the emergence of the Bolshevik Party, led by Lenin, inspired by the teachings of Karl Marx. Public dissatisfaction grew following the Bloody Sunday Massacre in 1905, defeat in the Russo-Japanese War and the disastrous course of Russia's involvement in the First World War. February 1917 saw the first of two revolutions which resulted in Tsar Nicholas the II’s abdication and culminatedin the fairly bloodless seizure of power by the Bolsheviks in October of that year. The following year, Russia withdrew from the First World War having concluded  the costly Treaty of Brest-Litovsk with the Central Powers. Tsar Nicholas II and his family were shot by the Bolsheviks in 1918.
Soviet Union

The early years of Lenin’s rule were marked by civil war. Later, there was considerable rivalry for power as Lenin became increasingly incapacitated; he died in 1924. Stalin emerged as the undisputed leader of the Communist Party in 1929. Stalin’s Five Year Plans saw rapid industrialisation but his leadership was characterised by political purges, mass deportations and imprisonment on an unprecedented scale. In June 1941 Germany invaded the USSR, triggering a four-year war during which up to 27 million Soviet citizens died. Russia emerged from the war victorious, having secured effective political control over most of Central and Eastern Europe. Stalin remained firmly in control until his death in 1953, although he became increasingly paranoid and reclusive. During this period the Communist Party consolidated its hold on every aspect of life by means of a vast security apparatus. The USSR had become an industrial and military superpower, but at immense human cost.

Khrushchev, Stalin's successor, attempted to address the worst excesses of Stalin's rule while preserving the key elements of Communism. He eased censorship and fostered a foreign policy of peaceful co-existence with the West while, in response to the Hungarian Uprising of 1956, maintaining strong control over the Soviet satellite states.  But the Party establishment distrusted him and he lost credibility over his handling of the 1962 Cuban Missile Crisis. He was deposed in 1964 in a political coup.  Brezhnev, Khrushchev’s successor, presided over a period of consolidation. Life became more predictable and comfortable for the bulk of the population, though political repression remained in force. However, with growth rates slowing and social problems growing, Brezhnev’s rule became known as ‘the era of stagnation’. From 1979 the Soviet Union became involved in a prolonged and bloody occupation of Afghanistan which scarred a whole generation.
Gorbachev

The stagnation of the Brezhnev era was continued by a quick succession of short-lived Party leaders who died in office, but reform took off in the mid-1980s, when Mikhail Gorbachev came to power. Glasnost (openness) and perestroika (restructuring) liberalised the political system and, to a lesser extent, the economy. Gorbachev’s goal was to build a better form of socialism. Gradually, however, the process of democratisation took on a pace of its own. Gorbachev made it clear that he would not intervene in the internal affairs of the Eastern European satellite states, which prompted widespread protest movements that brought about the collapse of unpopular communist governments which had previously relied on the threat of Soviet military support. At the same time, pressure for independence was growing among some of the republics of the USSR – notably, the Baltic States – and in 1990 the Russian republic within the USSR (headed by Boris Yeltsin) declared its independence in a symbolic gesture. In August 1991, a coup was mounted against Gorbachev by a group of hard-liners seeking to forestall the fragmentation of the USSR. Yeltsin supported Gorbachev and the coup was defeated. But when Gorbachev returned to Moscow from the south where he had been under house arrest, it became clear that Yeltsin held the political initiative, and many of the republics of the USSR hastened to declare their independence. The dissolution of the USSR on 31 December 1991 left Gorbachev with no option but to resign as its President.
Yeltsin

President Yeltsin launched Russia's transition to a democratic, market-based state. In 1992, Acting prime minister Yegor Gaidar began a programme of radical economic reforms, known as ‘shock therapy’, including measures to cut subsidies and de-regulate prices. These quickly ran into stiff opposition, and change was as a result much more gradual and patchy than many had hoped. The exception was the field of privatisation where huge strides forward were made between 1992 and 1994 to create the bases of a market economy. Russia was hamstrung by a constitutional crisis in 1992 and 1993, with Yeltsin contesting power with the Russian parliament. In September 1993 Yeltsin broke the impasse, dissolving parliament and calling fresh elections. When parliamentary supporters took to the streets in violent protest, Yeltsin ordered tanks to fire on the White House, which broke the deadlock but left deep political scars.

Out of that debacle a new Constitution and political institutions emerged.  Yeltsin was re-elected in 1996 but his second term was crippled by severe economic problems, culminating in August 1998 in the devaluation of the rouble and a default on Russia’s rouble debt. Yeltsin installed the virtually unknown Vladimir Putin as prime minister in the summer of 1999 and resigned on 31 December 1999, before the official end of his presidential term.
Putin

Vladimir Putin was formally elected president on 26 March 2000, and served two terms before stepping down in May 2008.  On 4 March 2012, after four years as prime minister, Putin was re-elected for a third presidential term.

During his first term as president, Putin moved to re-centralise power, cutting back the positions of regional governments and big business.  He also pushed forward an ambitious programme of domestic reforms, particularly in the economic sphere, including land reform, banking reforms, tax reform, anti money-laundering legislation, and administrative and judicial reform (perhaps the key to significant change in Russia). Favourable economic conditions, fuelled by high oil prices, ensured Putin’s personal popularity. 

Putin won a second presidential term on 14 March 2004 with a landslide majority. The pace of reform slowed notably during Putin’s second term, and progress on politically and socially contentious issues such as economic reform and pensions was limited.  Even so, the years of Putin’s presidency were the most stable and prosperous period for Russia since the break up of the USSR, at least in part on the back of high commodity prices.

In presidential elections on 2 March 2008 Dmitry Medvedev won 70.2% of the vote and, once inaugurated as president, immediately appointed Putin as prime minister (who, having served two consecutive terms, was constitutionally required to stand down).  This established the unorthodox arrangement commonly referred to as the “tandem”.  Medvedev made calls for modernisation of the Russian economy and society the keynote of his presidency.  He advocated reforms to entrench the rule of law, sought to strengthen the independence of the judiciary, and pushed forward anti-corruption legislation.

Elections to the State Duma (parliament) took place on 4 December 2011. The pro-Kremlin United Russia party won with just under 50% of the vote.  While this assured United Russia of a majority of seats in the new Duma, it meant that the party lost the constitutional majority it had until then enjoyed.  Accusations of electoral fraud provoked a series of protest demonstrations in Moscow and other Russian cities.   

Presidential elections took place on 4 March 2012.  Putin won with 64% of the vote.  The OSCE election observer mission gave a positive assessment of voting on election day, but also identified problems with counting at some polling stations, unequal campaign conditions and limitations on voter choice.

Putin was inaugurated as president on 7 May and nominated Medvedev as his prime minister soon after, with the State Duma approving this nomination on 8 May.

INTERNATIONAL RELATIONS

The Russian Federation is recognised in international law as continuing the legal personality of the Soviet Union which was dissolved on 31 December 1991.

Russia is a member of international institutions such as the UN (where it is a permanent member of the UN Security Council), G8, G20, Council of Europe and Organisation for Security and Cooperation in Europe (OSCE).  Russia is expected to join the World Trade Organisation (WTO) in 2012, and has applied for membership of the Organisation for Economic Cooperation and Development (OECD).  Russia maintains close relations with most other former Soviet republics through the framework of the Commonwealth of Independent States, Collective Security Treaty Organisation, Shanghai Cooperation Organisation, and other multinational organisations.

Russia maintains a dialogue with NATO through the NATO-Russia Council, including on Afghanistan, combating piracy, counter-proliferation and counter-terrorism. Meanwhile, negotiations continue between the EU and Russia on a successor to their Partnership and Co-operation Agreement, covering a wide-range of areas including trade and investment, global and regional security and stability, and climate and energy security.  The EU and Russia cooperate in a number of areas including justice and home affairs and foreign policy. The overall direction of the relationship is guided by twice yearly summits.

Differences with the international community arose following the conflict in Georgia in 2008 and Russia’s recognition of the Georgian regions of South Ossetia and Abkhazia as independent states.

GEOGRAPHY

Russia is the largest country in the world, spanning nine time zones.  The landscape varies widely, from vast open tracts in the European heartlands and the taiga and tundra of Siberia, to mountainous terrain. Agriculture is largely confined to the European regions and the southern belt of Siberia. Further north, the main industries are forestry and extraction of energy and minerals.

The main communications across the country are by air, and the Trans-Siberian railway. The road system is not well developed countrywide. Russia's great rivers also play an important part in transportation as well as in hydroelectric power generation.

Russia's population is small relative to its size, and unevenly distributed, with the vast bulk in the European areas and the Ural regions.  In inhospitable regions, e.g. the far north and much of Siberia, population density is often less than one person per square kilometre.