Wednesday, September 1, 2010

Russian Economy dependence reduce on petroleum

The investment climate in Russia has improved after the government’s efforts to attract private investors. The country has been witnessing several high-profile development deals with western companies. The first global beyond fund in Moscow is Texas Pacific Group (TPG). Others include IKEA, the Swedish furniture retailer, Wrigley, the American chewing gum maker and Wal-Mart. Western firms are also attracted to the consumer boom in Russia. On the other hand, domestic firms are also rising hefty sums for investing in the domestic markets. Overall, Russian firms raised $2.75bn through stock offering in 2006 .However industry expert says that the domestic growth in many sectors is possible only if there is an influx of cash from its primary resource industries and rapidly increasing service industries.

The banking sector is dominated by the state-owned players Sberbank and VTB. Experts opine that the Russian government’s banking model is required to be a mixed banking model is required with dominant role for several state-owned banks competing with strong private and foreign banks. Ideally, In the coming days, There may be some consolidations or tie-ups with strong private and foreign banks. The recently reported Russia-based Ros bank and France’s Societe generale merger is in the right direction. So far, the largest M&A deals are in oil and gas, metals and mining industries. Although, the FDI in Russia is still much lower, It is ahead of Japan and Canada.

Russia may achieve dynamic economy status as the country is slowly moving away from oil dependency. Besides, the recent entry of Russia in the WTO may attract more foreign competitors to the Russian market. However, much depends on the public and the private sectors to effectively act as intermediaries for the demand and supply to determine the shape of Russia’s medium term future, economically and politically. To join the world as a competitive partner, Russia should capitalize on its resources and boost its economic development. However, global experience reveals that natural resources may turn out to be a curse, rather than a blessing. More ever, the increasing corruption level may hamper Russia’s economic diversification. Adnan Vatansever, Associate Fellow at the Institute for the Analysis of Global security (IAGS) warns, “Undoubtedly, Russia has emerged as one of the world’s primary energy suppliers today. Its increasing reliance on natural resources, however, raises questions essential for Russia’s future evolution as well as its international role.

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