Country risk reference rating: Level 5 (5/9)
Country Risk Outlook: Stable
◆Political Risk
Russia’s political situation was generally stable in 2014. President Vladimir Putin’s strong handling of the Ukraine crisis has brought his approval rating to a record high, and the opposition is gradually losing ground. But at the same time, internal strife among Russia’s political elites is intensifying, and there is still a long way to go in combating corruption and terrorism.
Russia has low risks of nationalization and expropriation of assets and shares of large foreign investors. The Foreign Investment Law prohibits the expropriation or nationalization of foreign investments except as a result of a court ruling or to safeguard national interests. However, companies linked to funding anti-Putin are at higher risk of expropriation. According to the Foreign Investment Law, as long as the exchange rules are followed and taxes are paid in accordance with the law, foreign exchange profits can in principle be returned to the home country.
In terms of foreign relations, the Crimea incident has degraded relations between Russia and Western countries, and the two sides will be in a state of tension for a long time. In view of the close economic and trade ties and energy dependence between Russia and Europe, sanctions will be maintained within a certain limit, and the two sides will maintain a situation of “fighting without breaking up” for a long time.
◆Economic Risk
Although Russia has vigorously developed its infrastructure, industry and service industries in recent years, the model of its economy being highly dependent on natural resource exports has not changed substantially. As the geopolitical crisis in the Russia-Ukraine region escalates, the United States and the European Union have imposed substantial economic and financial sanctions on Russia, which has had a serious negative impact on its economic and investment growth.
The Russian economy recovered relatively quickly from the financial crisis. However, since the second half of 2012, Russia’s economic growth has slowed down as domestic and foreign demand has weakened. In addition, there are many uncertainties in its external environment, and major institutions’ economic forecasts for Russia have been constantly adjusted as the situation in Ukraine changes, and have basically become negative. The International Monetary Fund (IMF) assessed the impact of Western sanctions on the Russian economy and lowered its 2014 economic growth forecast to 0.2% from the previous 1.3%, close to zero growth, believing that the Russian economy has fallen into recession; such as geopolitical tensions As the situation further intensifies, the possibility of further downward revision of economic expectations will exist, and the economy is predicted to grow by 1% in 2015.
◆Business environment
According to Russia’s “Foreign Exchange Regulation Supervision Law”, foreigners can freely open foreign exchange accounts in designated banks and deposit funds brought in or remitted. Funds in the account, including investment income and dividends, can be remitted abroad without restrictions.
After the financial crisis, as the economy got out of trouble, Russia’s attraction of foreign investment steadily rebounded. In 2013, it ranked third in the world’s ranking of countries attracting investment. However, affected by the situation in Ukraine, investor confidence has been hit, and the amount of foreign investment attracted in 2014 will decline significantly.
According to the “Foreign Investment Law of the Russian Federation”, when foreign investors invest in priority investment projects determined by the Russian Government, and the total investment is not less than 1 billion rubles, the government will impose corresponding import duties and taxes on foreign investors. Tax benefits. The government encourages foreign direct investment mostly in traditional industries, such as oil, natural gas, coal, wood processing, textiles and automobile manufacturing. In order to increase the development of the Far East, in the first half of 2013, Russia launched the “National Plan for Social and Economic Development of the Far East and Baikal Region”, aiming to rapidly expand infrastructure construction and economic growth in the Far East.
◆Policy suggestions
Based on the overall judgment of the current situation, the growth and decline of the power of Russia’s strong parties and liberals will have a key impact on the political situation. Russia’s economic activities are sluggish and there is even a risk of falling into recession.
Inflationary pressure in Russia has been going on for many years, and the depreciation of the ruble has made inflation risks at a high level. In 2013, Russia’s inflation rate was as high as 6.8%. The central bank has implemented an inflation targeting system and set the inflation control target at 5% in 2014 and within 4% by 2016.
Tensions between Russia and Ukraine will increase Russia’s economic risks, damage business and consumer confidence, and hinder the economic reform process. Sanctions imposed by Western countries on Russia will also have a negative impact on the economy. In the first quarter of 2014, Russian capital experienced significant outflows and the external financing environment deteriorated significantly.
Since 2014, exchanges between China and Russia have made great progress in various fields, especially the economic and trade relations and energy connections between the two countries have further deepened. Chinese companies should conduct in-depth research into the market opportunities brought about by this and increase trade and investment in Russia.