Russia and Its Neighbors
Moscow and Moscow Region
Moscow city is a part of Central Economic Region, which is one of 12 Russian economic regions. The Central Economic Region is 484,000 km2 and is the most developed and significant among all 12 parts. This area is well-known for its thriving manufactures of railway rolling stock, machine tools, trucks, ships, electronic equipment, chemicals, cotton and woolen textiles, etc. It is also one of the significant areas in flax, potatoes, and vegetable agriculture.
Moscow is one of the largest cities in the world. Its area is 1,081 km2. Its population is 10,524,400 (June 1, 2009). Moscow city is considered to be a center of Central Economic Region. It is also one of the biggest city economies in Europe. Moscow produces 20 percent of the entire Russian’s Gross Domestic Product (GDP). Moscow was recognized as the 3rd most expensive city in the world, after Tokyo and Osaka. All the major businesses from the entire Russia are concentrated in Moscow, and the result of this is the significant deficiency in the number of offices. Such an increase in the city’s and country’s economy started after the Russian financial crisis in 1998. Moscow became a center of such industries as metallurgy, food, textile, machinery, software development, chemical, furniture, energy production, etc. The number of billionaires started rising significantly, and by 2008 it reached 74. Despite the corruption, which still exists in the Russian business world, Moscow became one of the most developed cities economy wise in the world. The city is also known for its high prices for real estate. The price for one square meter in the center of Moscow can exceed US$40,000.
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Despite the crisis in 2008 and a short period of decline in the growth of the city, figures in the economy of Moscow remained comparably positive. However, several changes happened in the separate areas of the city’s economy. For example, one of such areas is real estate. The prices for apartments became even higher than they were before. Another critical point discussed internationally, is the decline in the number of Moscow billionaires. It has fallen from 74 (in 2008) to 27 (in 2009). There were also several closures of boutiques, which were selling luxury clothes to internationally recognized designers due to the significantly decreased demand for its products. On the other side, Moscow continues helping the high-tech industry to develop by supporting a significant amount of high-tech start-ups and existing companies. Statistics also show that not only the labor market remained stable, but additional 52,100 new jobs were created by the new companies, which are continually entering Moscow markets. According to Moscow’s official website, even after the crisis started affecting most of the world, around 3,303 new companies have opened in the city, and 832 enterprises were “renovated.” Additionally, there is still a yearly increase in the salary of 25.6 percent. Despite the Russia’s president, Dmitry Medvedev’s, statement that the country has exited the crisis, many of financial specialists claim that for the total recovery Russia will need 3 to 4 years due to its dependence on the rest of the world.
Western Siberia
Siberia is a large part of Russia; its area is 2,427,200 km2. It is around 77 percent of the country’s territory and only 25 percent of its population. Siberia is the center of the West Siberian economic region (one of the twelve industrial sectors in Russia). It is rich in agriculture products, such as rice, sugar beets, wheat, oats, etc. It is also very rich in minerals and possesses significant deposits in gold, lead, gypsum, silver, zinc, nickel, diamonds, etc. Western Siberia supplies entire Russia with its resources.
Western Siberia was first noticed after the discovery of an oil and natural gas on its territory. Before it was hardly considered as a part of Russia and was widely used for imprisoning people from other parts of the country. At present, Western Siberia provides the nation with 65 percent of its oil and 87 percent of natural gas. It is a region, which significantly supports the entire Russian economy with its resources and attracts a lot of attention of investors from abroad to the country. Siberia became and was often called a savior of the rest of Russia. Siberia holds 80 percent of Russia’s oil resources, around 85 percent of natural gas, 80 percent of its coal, 40 percent of timber resources, and approximately 80 percent of the country’s precious metals and diamonds. In addition to this, Western Siberia is rich with the land, which is covered by the vast forests. It is a significant supplier of wood to the rest of the country. The disadvantage of Siberia is its long-lasting winter period in some parts and short growing season. For that reason the culture and the supply of food resources are limited.
However, the typical attitude toward the economy of Western Siberia is usually negative. The level of life in this region is not expected to improve and develop, primarily by its residents. On the other hand, Tyumen, a large city within the Western Siberia, is recently showing very stable and high growth. It became a beautiful city for investments, and many prominent and internationally recognized companies are planning on expanding their activities in the city. Tyumen has the most of Western Siberia’s oil resources.
Ukraine
Ukraine is 44th largest country in the world and second largest country in Europe. The capital of Ukraine is Kiev. Its population in 2008 was 46,258,200. Since 1922 till 1991 Ukraine was under Soviet Union’s governance, and it had an enormous effect on the further development of the country even after the collapse of the Soviet Union. Back in Soviet times, Ukraine’s economy was the second largest in the entire Union. It was one of the most important suppliers of agricultural products. Ukraine had changed its economy from planned to market after the collapse of Soviet Union. However, after it became independent, the country had difficulties in the development of its economy and overall performance. During the Soviet times, Ukraine was bound with Russia in the trading matters, therefore after the Soviet Union’s collapse, Ukraine was left without its biggest trading partner. In 1993, the country reached an inflation, which became a world record.
In 2008, Ukraine’s Gross Domestic Product rate was 41st in the world. Despite the rapid country’s recovery after the Soviet times and growth in its economy, it still suffers from the unfortunate financial condition in specific areas. For example, country’s salary level is much lower than its neighbors’. It is not very rich in oil and natural gas, and in this matter depends on Russian to a large extent. 35 percent of natural gas comes to Ukraine from Russia and 40 percent from Central Asia. 85 percent of Russian’s gas goes through Ukraine to Western Europe. In spite of the lack of these natural resources in the country, Ukraine is prosperous with such essential sources as hydroelectricity, coal and nuclear fuel. It also has a great production of sugar, milk, meat, and grain. Additionally, Ukraine is very famous for its machinery production. The country is powerful at producing vehicles and spacecraft. Its spacecraft are being exploited in many countries already for many years. It has become a world leader in manufacturing missiles and technology related to it. Recently, Ukraine has also concentrated on the growth of Information Technology (IT) sector. The real estate prices in Ukraine are very high and are often compared to the prices of Moscow. Ukraine has not moved away strongly from Russia and remained in a close relationship with its powerful neighbor. On the other hand, the country is trying to become a member of European Union and to get closer to the European counties. It applied for the membership in EU and is working on its economy and overall condition to get accepted by it.
In 1992 Ukraine became a member of International Monetary Fund (IMF) and World Bank. After the crisis has occurred, Ukrainian government was predicting GDP growth of 0.4 percent and slowdown in inflation of 9.5 percent in 2008. World Bank was skeptical about this statement and predicted 16.4 percent of inflation for Ukraine. In general, the crisis had a substantial effect on the country and its economical condition. Country’s Gross Domestic Product rate had a decrease of 20 percent in the period of a year. Its national currency, the hryvnia, has dropped by 38 percent against US dollar. The drop in the country’s GDP was a result of intensive borrowings from foreign countries. However, in the reports by Ukrainian financial specialists from March-April 2009, it is stated that the decline in the country’s economy has slowed and the currency is beginning to stabilize and grow. It was also noted, though, that it would take Ukraine a long time to fully recover from the crisis and damages it has brought to the country’s financial development. There are also other predictions saying that Ukraine might recover significantly in the year 2010. This opinion is supported by the fact that Ukraine has a large number of exports, and this might help the country to stabilize its financial condition.
Georgia
Georgia is a country located between Turkey and Russia. The territory of the country is 69,700 km2, and its population is 4,615,807 (2009). The country is located on the west of the Black Sea. The comfortable location and water, which connects the country to its neighbors, provides Georgia with many opportunities export and import wise. Also, its position between Europe and Asia provides Georgia with an opportunity to become a transit point for gas, oil and other goods. Traditional and the oldest activities of Georgia are the winemaking and mining of gold, silver, copper, and iron. Recently it is also strong in mining manganese and copper. It has a small portion of the production of both alcoholic and non-alcoholic drinks, metals, aircraft, chemicals, and machinery. Georgia also has hydropower resources on its territory. The country is well-known for cultivating grapes, hazelnuts and citrus fruits. In 2007, however, Georgia started moving away from the agriculture and concentrated mainly on services. It has recently improved in banking services and construction. However, these businesses have fallen under a big risk due to the slowed economy in 2008. Georgia does not have any oil and natural gas resources on the territory of the country; therefore, it strongly depends on Russia in this matter. It imports all the needed power resources from its neighbor. In addition to this, Russia has drastically increased the price for the natural gas, which was exported by it to Georgia. Russia, the biggest customer of Georgian wine, has rejected this transaction. This was a big shock for Georgia and its economy.
Similarly to Ukraine, till 1991, the country was following the Soviet model of command or planned economy. Similarly to Ukraine, Georgia was faced with difficulties in developing its financial condition after the collapse of Soviet Union and entering the free market economy. The country also became a member of International Monetary Fund and World Bank and received help from them in the form of a credit. By the year 2007 country’s economy significantly improved, and Georgia was recognized as a country, where it is straightforward to do business. The unemployment rate in Georgia is still very high. In September 2009 it was 10.1 percent; however, the country is constantly working on the improvement of this situation.
In 2008 Georgia’s growth started declining and became less than 3 percent, compared to the year 2007, when the GDP was 12 percent. In 2009 country’s GDP continued to fall. In June 2009 Georgia had officially entered a recession with the changes in the economy of 1.5 percent. In addition to the world financial crisis, Georgia was strongly affected by the war with Russia in 2008. These events changed the perception of Georgia by investors, who were previously supporting this country. It has blocked the way of the nation and its potential business opportunities.
Kazakhstan
Kazakhstan is a country located in Asia. It is a 9th largest country in the world with the territory of 2,727,300 km2. Its population was 15,674,833 in 2008. It is surrounded by big countries, including Russia, and has a border with the Caspian Sea. Asia had a significant economy during the Soviet Union times, and at present, it is the largest economy in Central Asia. Kazakhstan has enormous reserves of fossil fuel, minerals, and metals on its territory. This large and very promising sector has attracted many investors and over $40 billion in foreign investment. The country is considered to have the second largest uranium, lead, chromium, and zinc reserves in the world. It has a third largest manganese reserves, the fifth largest copper reserves, and is one of the ten leaders in coal, gold, and iron mining. Kazakhstan also exports diamonds. Due to the large territory and its lands, Kazakhstan has a developed agricultural sector. The country is filled with mountains, which are very important for growing apples and walnuts. It concentrates on exports of textiles, wheat, and livestock. Kazakhstan has a relatively large machinery building sector, which produces tractors, agricultural machinery, construction equipment, and some military items. With the collapse of the Soviet Union in 1991, this sector was seriously damaged due to disappeared demand in its production. It affected the economy of the country seriously. Kazakhstan is mostly rich in the sector of the oil and natural gas. It has a potential to become one of the leading oil producers and exporters in the world. Country’s government is also planning on becoming one of the leading uranium exporters.
Similarly to Ukraine and Georgia, Kazakhstan has become a member of International Monetary Fund and was the first country among all the borrowers, who repaid all the loans back to the organization in the year 2000. The state has gone through many reforms since the collapse of Soviet Union and has introduced many changes to its economy and financial position. Due to the economic reforms, Kazakhstan was performing a big growth year since the year 2000. Developed energy sector significantly contributed to this growth. The handy location with the Caspian Sea allowed the country to increase the number of its exports. Country’s banking system started developing rapidly.
Kazakhstan’s stable and robust economy could not prevent the country from the effect of the financial crisis in 2007 on its economy. The land was severely affected by it in several ways. Country’s Gross Domestic Product rate dropped to 19.81 percent in 2008. Four Kazakhstan’s biggest banks received help from the country’s government and were saved at the end of 2008. Additionally, the country has received help from Astana in the banking sector. Real estate prices have also dropped sharply.
Lithuania
Lithuania is a Baltic city with the territory of 65,200 km2 and population of only 3,354,700. Despite its small size, it is the biggest country with the biggest population among all three Baltic countries. Its neighbors are Poland, Belarus, and Latvia. It also has a sea border with Russian city, Kaliningrad. The country is located along the Baltic Sea and has a big port in its city- Klaipeda. Lithuania is a member of European Union (EU) since the year 2004.
Lithuania’s economy has changed drastically since its independence from the Soviet Union in 1990. Similarly to the previously disused countries, it has switched from the planned to a free market economy. Naturally, during the period of the changes in the economy, Lithuania was faced with the serious financial problems. At the times of the Soviet Union, Russia was the only country Lithuania had trade transactions with. After the collapse of the Soviet Union, the financial situation became extremely dangerous for Lithuania. However, the state started recovering step by step, and its GDP grew by 7.5 percent in 2005 and by 8.9 percent in 2007.
Due to the tiny territory, Lithuania is not particularly rich with natural resources. It has no oil and natural gas resources, and it is completely imported to the country, mainly from Russia. However, the country has such resources as limestone, sand, gravel, clay, iron ore, and granite, which are exported mostly to the European Union. It plays a significant role in the logistics matters of its neighbors. Lithuania has a very developed transport business. Russia uses Lithuanian shipping services almost in all the exports made with the European countries. Lithuania is also strong in the wholesale and retail trade. The country has a large port, which does not get covered by ice, which is used for shipping. Since the state is one of the members of the European Union, it usually does not have a lack of the demand for the goods produced by it. Financially it receives support from stronger members of European Union. After it has joined the union, its economy had experienced a boom.
Despite the strong support of European Union, the world financial crisis had a big effect on Lithuanian economy. As a small country with an unstable financial position, Lithuania was badly hit by the happenings of the years 2007 and 2008. In the fourth quarter of 2008, Lithuania had a deficit in its GDP of 3,8 percent. In 2009 the decline in the economy continued, and the economy shrank by 13.6 percent, compared to 2008. Financial analysts’ forecasts are not promising. They showed the continuing decline in 2010.
Belarus
Belarus is a country in Eastern Europe. Its territory is 207,600 km2. Its neighbors are Latvia, Lithuania, Poland, Russia, and Ukraine. The population of the country is 9,648,533 (2009). Belarus was also under the ruling of Soviet Union, however, after the collapse, it has not experienced a deep economic crisis as other countries did. Instead of moving away from Russia, Belarus’ new president, Alexander Lukashenko, decided to collaborate with the country and follow the same rules in the economy. Belarus is located between Europe and Russia, and this was extremely profitable for the country to remain in a good relationship with both. This helped the country to become a most important linking point and brought much growth to it. However, back at the times of the Soviet Union collapse, the collaboration with Russia did not fully help Belarus to stay away from the crisis. The level of economy in the country is relatively small compared to its neighbors. The economic condition of the country has not changed since the 1990s, and Belarus has remained dependent on Russian in many areas. Most of the exports are made to the Russian Federation, and even a small change in the process would strongly affect the financial situation of the country. In addition to a weak economy, businesses in Belarus are constantly put under a lot of stress. All the activities, including those of the foreign companies, in the country, are being controlled by its government. Constant inspections and regulations make the functioning of Belarus’ companies very difficult. Apart from the difficulty in running a business in Belarus, constant government’s pressure blocks the attraction of potential investors from abroad.
Belarus is comparatively strong in such agricultures as potatoes and cattle byproducts, including meat. A great portion of its milk products is exported to Russia. In general, Russia is the biggest trading partner of Belarus. The second largest trading partner is the European Union; however, this relationship is weakening from year to year. Since the country has no natural resources on its own, Belarus greatly depends on Russia in the oil and natural gas supply matter. Belarus does not only use the natural resources imported from Russia but also re-exports it to other countries, which adds a lot to the country’s growth. Recently, there is a conflict between Russia and Belarus concerning the re-export of Russian resources by Belarus.
In 2008, despite the economic world crisis, Belarus’ government reported the growth in the country’s GDP reaching 8 percent. Only after a certain time, it has officially informed the world about the bad condition of its economy and high inflation rate. In late 2008, Belarus has entered an agreement with Russia, which provided the country with the loan.
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