At the moment The BRIC nations expecte GDP increase of 0.6% for 2009. Latest massive oil trade deal between Russia and China confirms the economic potential of the BRIC nations (Gonzalez, 2008). The opportunities for growth together with the natural resources in these countries will attract a lot of investment in the near future which is strength for trade and development.
Important questions to consider are the once that reflect major problems with which the largest economic associations have collided during their progress. The European Community as of today represents the powerful grouping, capable to resist to such giants as the United States or Japan though each of its members separately concedes to them on the basic economic performance. However the Europe had to experience serious difficulties before to come to consolidation. Whether Russia should deal with same problems, for better understanding of indispensability and advantages of integration, or is it better to learn and not repeat the mistakes of fellow countries, which therefore creates strength for Russia.
As a whole the last decade economic development can be characterized by strengthening of processes of integration and globalization (Bairoch and Kozul-Wright, 1996). As if for Russia, if the reasonable foreign policy in the future will allow to create preconditions if not for connection to the EU countries-members, then for creation of the general economic space. It will undoubtedly beneficially affect a condition of economy in the country.
As other priority close relationship building with the CIS countries (Commonwealth of Independent States) - historical partners of Russia in world trade, should be considered in order to gain allies. Long-term foreign experience can render Russia an invaluable help.
In the past Russia was a candidate on joining WTO and benefiting from it. However it never happened. There are reasons for and against on joining WTO, however in 2007 Mr. Putin’s stated that Russia and Europe share a similar vision and outlook. Therefore today WTO is seen as great provider of beneficial partnership for both sides. This possible bond between WTO and Russia can be viewed as strength because it would provide new opportunities for the country. For example it can stimulate increase of trade to encourage economic growth. The Political factor like Persistent frozen conflicts with separatist regions in Georgia and Moldova threaten to undermine Russia’s foreign relations with key trading partners. So promotion of peace might be helpful for the country after history of different conflicts. Free trade cuts can possibly help save millions as well as good tested rules that work and make life simpler for all countries. Also this relationship’s future will increase the chance in succeeding long term goals. On other hand Russian isolationism can only lead Russia in the wrong direction and it can be a great weakness that would affect economic future growth. At the present Russia’s performance is fine due to high energy prices. This is a strength because it helps reinforce public finances. However Russia must be aware that if GDP will continue to be 40% generally linked only with mineral resource, it might be risky because it has an unstable international price. Statistics show that for 2007, 82% of Russia's exports are related to hydrocarbons and metals (Mandelson, 2007). Russia is in relatively strong position now because currently there is no forecast that in the near future the prices on oil and gas will fall further therefore there is no need to be concerned. But a crash in world oil prices can devastate Russia’s economy. Nevertheless from moral point of view currently Russia is “borrowing natural resources from future generations” which can be seen as misuse, exporting it instead of saving it for the later like other countries. This leads to recommendation. Undoubtedly Russia’s economy needs to diversify soon. In Europe, small and medium sized businesses make up 60% of GDP but Russia’s merely make up 20% of GDP.
Nevertheless with a lack of transparency in decision-making, including high levels of behind-the-scenes activity by various power groups, makes for a large element of unpredictability in domestic politics. This political factor makes Russia an unattractive candidate for many organizations that the country could have benefited from and this might slow WTO and OECD application processes. (BMI, 2008)
Another new weakness that is identified is that local and foreign investors’ withdrawn funds from a country that leads to poor performance of Russian indices Russian Trading System (RTS) and the Moscow Interbank Currency Exchange (Micex). The Micex reached this year a 1,956.14 in the middle of May, however since then it has fallen to 626.42 in mid-October, which is identified as a decrease of 68%. The government of Russia has taken action in order to rescue its financial system. It has injected over $150bn that is available for the capital market which is more than 10% of GDP (Vielhaber, 2008).
The major change that can be crucial in strategy to attract investors from abroad is to establish private property rights. They must be distributed and credibly enforced in order to ensure that these rights can be freely traded at market prices. This reform can be very beneficial in order to sustain growth per IMF (Borenzstein et al, 1991).
Russia is one of the “BRIC” countries together with Brazil, china and India. The “BRIC” hypothesis predicts that these countries will become world leading suppliers of goods, services, and raw materials. But right now Russia is struggling to achieve these expectations. One social factor in this case the declining fertility rates are a major reason why Russia is experiencing an alarming population decline of approximately 0.5% annually (CIA, 2009). The depletion of the Russian population has potential negative implications for both the Russian labor force and the country’s productive capacity which is a major weakness.
Another important economical factor is Russia’s strong appetite for imports. Russians developed an urge to buy products from abroad due to its lack in soviet era. Today in Russia local products are available but they are not very popular or attractive to the consumer. This means that there is a great contrast between primary and tertiary sectors of the economy in Russia. While and all and are well developed, basic tertiary production like cement, textile, information technology, motor vehicles or even chicken is mostly imported from abroad. For 2008 Imports in goods reached $339,581 US dollars (Economist Intelligence Unit, 2009). This dislike for local products can be due to weak marketing, e.g. poor promotion while international products are thriving with the increased quantities of buyers. However it is likely to be due to quality that is inferior to imported production even though it is cheaper. Another reason is the lack of locally produced goods and market domination with imported goods. As a solution it would be wise to encourage R&D in order to improve the reputation of local products that can lead to demand and consequently increase in production that can help in reducing unemployment.
Russia has a strength which is not yet developed. A lot of native people of Russia that once have immigrated abroad are interested in coming back “home” now. This is an advantage because these people possibly gained knowledge and experience which can improve economical, social or even political areas in Russia.
Another point is that Russia has a poorly developed manufacture. Importing in Russia can be seen as a very important factor. However with the right knowledge, skill and finance the country can diversify majorly. For example in Russia no one knows about scaffolding. Since Russia’s discovery native people used natural resources such as their forests to build. Special sort trees are used in the following way. Forests get clear-cut in order to construct wooden scaffolds that are used only once and after completing the building the wood is burned or just thrown away. This is the most anti-green action that no country except Russia can afford. This is how the precious resources get wasted instead of adapting to western technology like metal scaffolding that can be used repeatedly. This is an example of current weakness that can very easily become a tool to prevent abuse of nature.
As a consultant of the Ministry of Trade and Development for the Russian federation I have identified the country’s potential strengths and weaknesses by using appropriate tools like SWOT and PEST analysis. The specific recommendations on policy design for the federation include a wise use of natural resources due to their non-renewable characteristic. This is important an important issue in long term because of weak development in finding an alternative or better source of energy and therefore later generations might suffer. Another significant point is the development of relationships through organizations like WTO, BRIC, OECD, NATO or EU with the world in order to continue economical growth and stability. Third argument is the internal development of the country through improving education, encouraging immigrants to come back in order to share gained experience and knowledge, as well as increasing population that has declined in the last few years. And the last point is the adaptation and awareness of foreign legislation in order to profit from world trade. As a tool PEST analysis should be continuous and feed all aspects of planning in order to constantly be aware of all aspects.
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