The Great Transformation: Russia's Return to the World Economy

Since the 1998 financial crisis the Russian economy has been growing rapidly, and seems set to go on doing so in the coming years, recording healthy balance of trade surpluses and surpluses on the public sector accounts. At the same time, under President Putin, market-type reforms have gained renewed momentum. Surveys show that the business environment in Russia has changed in recent years, but from "very bad" to "bad", but for foreign investors, the existing business conditions are fair and getting better. Foreign investment levels have remained relatively low for much of the 1990s, usually little over $2 billion per annum, but recently inflows have increased - including returning flight capital - and there are prospects for far higher levels of FDI in the future. FDI to date has been relatively broadly-based by sector: oil and other natural resources provide the headline projects, but investment in hotels and catering, food, drink and tobacco, and other services, have been large and growing. We expect industrial restructuring in selected lagging sectors of manufacturing to present massive opportunities to foreign investors, notably vehicles. Overall, while noting various problematic areas for the business community, and the usual uncertainties in any medium- to long-term forecasting exercise, we remain broadly confident that Russia's economy will continue to grow quite rapidly, and that the opportunities for foreign investors in an increasingly wide range of branches will steadily expand.