RussiaTeam Crouching Tiger

Agenda

• Current Status • Demographics• Political Environment• Economic Environment• Trade and Investment

Opportunities

Current Status

• Economic Crisis of 1998

• 10% growth in FDI annually

• Ruble strengthening

• Political Stability • Population

decline

Demographics

Demographics

• Population Decline

Declining Population

• By 2050 Russian’s population will decrease by 1/3

• Why?• High death rate, esp among males• High suicide rate, 38/100,000• Low Birth Rate

• 1.6 million Abortions• 1.5 live births• Median age 38 years old

Population decline means market size diminishing for investors.

Cultural Factors

• Ethnic Groups• 160 different ethnic groups• Boarders 15 countries, constant immigration

and emigration

• Language• 100 languages• Business conducted in English and Russian

• Religion• Most “non-practicing”• Opening to religious freedom

More ethnic diversity leads to more FDI

Health & Literacy• Male life expectancy: 58 years• Why?

• Violent crimes• Alcohol• WWII fatalities• HIV/AIDS and Tuberculosis

• Literacy: males 100%, females 97%• Why?

• Free education. High completion• Same education system as in Soviet times• Emphasis on science, math, medicine,

technology, and aviation

Very skilled labor force helps market grow

Political History and Current Position

A Brief History

• Russian Revolution of 1917- Lenin takes control (Marxist-Communism), Tsars gone

• 1922- Soviet Union Formed• 1924- Stalin Takes Power

• Gulags (Millions murdered)• Rapid industrialization• “Modernizing” the Soviet Economy

• 1953- Khrushchev• Sputnik• Cold War

• 1982- Gorbachev

• 1991 U.S.S.R. Collapses• Boris Yeltsin comes to power

Vladimir Putin

• Elected in 2000, second term in 2004

• Over a 70% approval rating

Political Structure

• Executive Branch• President at head• Can dissolve Legislative Branch

• Judicial Branch• Constitutional Court• Supreme Court• Superior Court of Arbitration

• Legislative Branch• Federation Council• State Duma

Executive/ Legislative

• No Vice President• 4 year term, maximum of 2 terms• Federation Council -178 seats

• members appointed by the top executive and legislative officials in each of the 88 federal administrative units

• State Duma- 450 seats• members are elected by popular vote• serve four-year terms

• Suffrage: 18 years old• Over 50 political parties

• Has caused a weakening party structure

•48 Oblasts

•21 Republics

Russian Constitution

• In place since 1993• Bill of Rights

• Includes freedom of speech/religion, protection of private property, protection from unlawful searches

• More power given to the President

• Lacks Checks and Balances• President Control Parliament

• Often difficult to Enforce

Russia’s Struggles Today:

• Become a democracy

• Have a market economy

• Human Rights

• State control of the media

• Law enforcement

• Corruption

Economic Structure

Land resources

• 1.8 times the size of the US • 80% of Exports: natural gas, metals, timber, and

oil• Despite its size, the country lacks proper soils and

climates (either too cold or too dry) for agriculture

Economic Environment

• Moving from Government controlled to Market controlled economy

• Lowering taxes

Gross Domestic Product - growth at 6.8%

• Russia’s GDP by Purchasing Power Parity was ranked 11th in the world at $1.589 trillion

• World leaders in GDP: United States at $12.36 trillion and the European Union at $12.18 trillion

Russian Federation Trade

• 2005 - Trade with other countries was up 13.2% to $23.3 billion

• Main import partners being

- Germany (8.4%)

- Italy (6.2%)

- China (5.8%)

- Ukraine (5.7%)

- Belarus (5.7%)

- Netherlands (5.6%)

- Switzerland (5%)

- US (4.6%).

International Organizations

• IMF• G8• UN

• WSJ: July 2006, Russia closer to entry into the WTO

Investment Outlook

1998 Financial Crisis

• Russian government defaulted on debt because of overspending

• Foreign capital flooded to other countries

• Many banks went bankrupt

• Little consumer savings

Resurgence in 1999

• Foreign Direct investment has averaged 10% growth each year since 1999.

• Russia is transitioning more and more into a market economy.

• Restrictions on exports are being lifted.• Joint Ventures in oil, gas, aviation, and other

commodities

Russian Stock Exchange (36% growth in 2006)

Reasons for recent growth

• Public offerings of Rosneft (oil) and Gazprom (gas) have opened up investment to international investors.

• Putin has increased political stability and added strong economic growth.

• Russia is rich in natural resources.• Public companies are being privatized.

The future of Russia

• Political stability• Economic Growth• Privatization• Reduced corruption

Conclusion

• Russia’s improving political, religious, and economic environment has attracted foreign investors causing better economic conditions.