Russian Federation Country brief
Introduction/overview
The Russian Federation covers the largest land area in the world at over 17 million square kilometres in size. It stretches from the Baltic and Black Seas in the west to the Pacific Ocean in the east. Russia's population was 142 million in 2007. Russia celebrates its National Day on 12 June.
Political overview
The Russian Federation consists of 85 states (‘subjects of federation’). Russia’s Constitution was adopted in 1993 by popular referendum. Executive power resides with the President (Dmitry Anatolyevich Medvedev), who is the head of state, and the Prime Minister (Vladimir Vladimirovich Putin), who is the head of government. Under the constitution, the President is the dominant figure in Russian politics and appoints the Prime Minister (also knows as the Chairman of the Government). Legislative power resides in the two houses of Parliament: the State Duma (Lower House – 450 seats), and the Federation Council (Upper House – 178 seats). Since the Duma elections in December 2003, both Houses have been dominated by the centrist United Russia Party, which has close links to former President Vladimir Putin. Parliamentary elections on 2 December 2007 produced a decisive victory for the United Russia Party, with the party now set to control 315 seats in the Duma. Three other parties gained seats in the Duma, Just Russia (38 seats), Liberal Democratic Party (40 seats) and the Communist Party (57 seats).
Under the Russian Constitution, a President may serve only
two terms. In the
2 March 2008 presidential election, Dmitry Medvedev, 42, former
First Deputy Prime Minister,. won a landslide victory.
Medvedev won more than 70 per cent of the vote and was
inaugurated President on 7 May 2008. He immediately (8
May) confirmed his predecessor, Putin, as Prime Minister.
Prime Minister Putin announced his new Cabinet on 12 May 2008,
reappointing many key ministers, including Foreign Minister
Sergey Lavrov.
Since 2000, Russia has adopted a more assertive stance on foreign policy. It unilaterally suspended implementation of the Treaty on Conventional Armed Forces in Europe (effective 12 December 2007). After the break-up of the former Soviet Union, the southern region of Chechnya declared independence in 1991, which led to war with Russia. After years of fighting and a failed ceasefire, then President Putin signed a decree in August 2006 ordering the phased withdrawal of Russian troops from the Chechen republic. However, low-level hostilities have continued. Most recently, on 8 August 2008 Russian forces moved into Georgia. Australia has called for Russia to respect Georgia’s territorial integrity.
Russia is a permanent member of the United Nations Security Council (chairing it in 2007), a member of the G8, the Asia-Pacific Economic Cooperation (APEC) grouping (hosting APEC 2012), and a wide range of other international organisations. Russia held the rotating Presidency of the G8 in 2006 and hosted the G8 Leaders’ Summit in St Petersburg in July 2006. As a permanent member of the UN Security Council, Russia plays a key role in formulating the international response to Iran’s nuclear program. It is also one of the countries involved in Six-Party talks with the DPRK and a member of the Middle East Peace Process Quartet.
Economic Overview
Russia is a vast country with an educated population and a wealth of natural resources reserves. It is the world’s largest exporter of natural gas and, since 2007, the largest exporter of oil. Russia’s economy has experienced eight consecutive years of strong growth, fuelled by high international oil and commodity prices.
The Putin Presidency was marked by a re-centralisation of power, at the expense of regional governments, with a marked increase in the State’s involvement in the resource and energy sectors. As part of this, Putin pledged to increase domestic power generation by two thirds, including through the expansion of Russia’s nuclear and coal-fired power generation, and to improve transport infrastructure.
In 2007, Russia’s GDP grew 8.1 per cent to reach US$1.29 trillion. A complex regulatory environment and weak banking sector have placed constraints on foreign business involvement. Current regulations impose foreign investment restrictions in a number of sectors, including energy and resources. Portions of the Russian economy, such as retail and consumer goods, are flourishing under relatively normal market conditions.
Over recent years, strong earnings from oil and gas exports have allowed Russia to more than double its foreign reserves, in turn providing a boost to the economy and budget revenues. Russia’s current account surplus for 2007 is expected to be US$76.6 billion. Russia’s Stabilisation Fund – its financial buffer against falling energy prices – and worth around US$157 billion in January 2008. In February 2008 the Stabilisation Fund was split into a Reserve Fund, which is invested abroad in low-yield securities, and the National Welfare Fund, which is focussed on social pension funding and targeted investment.
Inflation was 9.0 per cent in 2007. Russia’s total gold and foreign exchange reserves were US$481 billion in February 2008 (the world’s third biggest). Economic diversification outside the resources sector, Russia’s growing middle class retail market and astute management of the Stabilisation Fund would go some way in minimising the risk of a macro-economic downturn caused by a fall in global energy prices.
The EU is Russia’s largest trading partner, a relationship worth US$197 billion in 2006 and underpinned by Russia’s position as the EU’s major energy supplier - the EU is dependent on Russia for approximately a quarter of both its gas and its oil imports.
Russia has been undertaking WTO accession negotiations since 1995. Work is continuing on the multilateral aspects of the WTO accession but a number of key issues are still to be resolved, including the level of agriculture subsidies. Australia and Russia signed a bilateral agreement in relation to Russia’s WTO accession in June 2006.
Bilateral Relationship
Official contact between Australia and Russia began in 1807, when the Russian naval vessel Neva arrived in Sydney. Consular relations began in 1857 and diplomatic relations began in 1942. Australia has had an Embassy in Moscow since 1943 and has Consulates in Vladivostok and St Petersburg. The Russian Federation has an Embassy in Canberra, a Consulate-General in Sydney and Consulates in Brisbane and Adelaide. The Russian community in Australia numbers around 67, 000 based on figures released in the 2006 Census.
Australia and Russia cooperate in a number of important international and multilateral fora, including those involved with non-proliferation issues and regional security. Russia is involved in the Asia-Pacific region, and is active in multilateral organisations such as APEC, of which it became a full member in 1998.
Australia and Russia concluded a bilateral Double Taxation Agreement in September 2000, which came into effect in Russia on 1 January 2004 and in Australia on 1 July 2004.
Then President Putin became the first Russian leader to visit Australia when he attended APEC Leaders’ Week in September 2007. Putin was accompanied by five Ministers and a delegation of 150 senior business leaders. Joint statements noted Australia’s and Russia’s shared commitment to addressing the global challenges of climate change and energy, reaffirmed both countries’ interest in combating terrorism, in expanding bilateral trade and investment through the Russia-Australia Joint Commission on Trade and Economic Cooperation; and further stimulating the flow of investment in both directions by concluding negotiations on an Investment Protection and Promotion Agreement (IPPA). The IPPA has not yet been concluded.
During Putin’s visit, Australia and Russia signed an Agreement on Cooperation in the Use of Nuclear Energy for Peaceful Purpose (Nuclear Cooperation Agreement). The Agreement allows for the use of Australian uranium in designated Russian nuclear facilities under strict international safeguards, and provides for cooperation in a range of peaceful nuclear activities.
Several other high level visits have taken place in recent years. In June 2006 the then Treasurer, the Hon Peter Costello MP, attended a G8 Finance Ministers meeting in St Petersburg. The Governor-General, Major General Michael Jeffery AC CVO MC, visited Moscow in May 2005 to represent Australia at the 60th anniversary celebrations of the end of World War II in Europe. The then Minister for Foreign Affairs, the Hon Alexander Downer MP, visited Russia in 2002 and Russia’s Agriculture Minister, Mr Gordeyev, visited Australia in 2004 and again in 2007. The then Speaker of the House of Representatives, The Hon David Hawker MP, led a parliamentary delegation to Russia in January 2007 for the 15th Annual Meeting of the Asia Pacific Parliamentary Forum (APPF). A Russian Duma delegation visited Australia in May 2007.
Bilateral Economic and Trade Relationship
Russia is growing in importance as a market for Australian exports and investment, a trend that is expected to accelerate once Russia’s WTO accession is complete.
Two-way merchandise trade between Australia and Russia was worth $788 million in 2007, an increase of 9.7 per cent on the previous year. Russia is now Australia’s 39th largest merchandise trading partner. Australian merchandise exports to Russia in 2007 were worth $661 million, and imports from Russia totalled $127 million. Key Australian exports to Russia in 2007 included meat, raw hides and skins and live animals. Russia is our largest export market for kangaroo meat with exports in 2007 worth $33 million. Major imports from Russia in the same period included silver, platinum, fertilisers, aluminium and pig iron.
Australia’s exports of services to Russia in 2006-07 were valued at $85 million, and imports of services from Russia were valued at $74 million. Services exports are growing in areas such as education, tourism and specialist services for the mining, metallurgy, oil and gas industries.
Australian companies have had some success in winning business in the Sakhalin Island oil and gas province, located in the Russian Far East near Japan. Sakhalin is among the world’s largest oil and gas fields.
Bilateral investment has grown rapidly. In August 2007, Macquarie Bank and Moscow-based Renaissance Capital announced a joint venture to develop infrastructure advisory and fund management opportunities in Russia and other CIS countries. In 2006, BHP Billiton and Rio Tinto separately announced joint ventures with Norilsk Nickel to explore and develop mineral resources in Russia. The first large-scale Russian investment in Australia took place in 2005 when Rusal (Russian Aluminium) invested US$461 million to acquire 20 per cent of Queensland Alumina. Russian investment in Australia has increased substantially since then. In 2006-2007 Norilsk Nickel acquired, indirectly, Australian assets estimated between US$3.5-4.5 billion through its third-country acquisitions of OM Group (USA) and LionOre Mining (Canada). In August 2007, Russia’s Magnitogorsk Iron and Steel Works (MMK) purchased a 5 per cent share of Fortescue Metals Group Limited for $550 million.
Export Opportunities
Russia represents a growing market for Australian agricultural products, including meat (including kangaroo meat), livestock, dairy products and skins and hides. Russian agribusiness has expressed interest in Australia’s advanced technologies for tracing livestock and improving herd output. Wine consumption in Russia is growing strongly, with Australian exports in 2006 up 40 percent on the year prior. Opportunities also exist in education services, as over 20,000 Russian students study abroad every year.
Russia is planning to double its level of coal-powered electricity over the next 15 years. While Russia has the world’s second largest coal reserves, it lacks modern technologies. This may create significant opportunities for Australian business to export coal expertise and modern equipment.
Australia Week in Moscow has been an important trade event for Australian businesses exploring growth opportunities in Russia. The inaugural event was held in 2005, and the second Australia Week in June 2006 was the largest Australian trade promotion ever held in Russia. More than 40 Australian companies and commercial organisations representing a wide variety of industry sectors attended the event.
Russia Week in Australia was held in Brisbane in September 2007. More than 200 Russian and 87 Australian companies and commercial organisations were represented.
Trade Successes
- Bovis Lend Lease: Since 1992, Bovis Lend Lease has emerged as a leading project and construction management company in Russia. One of its current projects is the construction of the new Sheremetevo-3 Terminal which will have a capacity of 12 million passengers per year.
- Macquarie Bank: On 6 August 2007, Macquarie Bank and Moscow-based Renaissance Capital announced a joint venture (Macquarie Renaissance) to develop infrastructure advisory and fund management opportunities in Russia and other CIS countries. During Putin’s visit to Sydney in September 2007, Macquarie Bank signed a Cooperation Agreement with the Russian Development Bank (Vnesheconombank – VEB), focusing on advisory services and financing arrangements in prospective projects or transactions. A second cooperation agreement was signed between Vnesheconombank and Macquarie Renaissance with a specific focus on opportunities in the infrastructure sector in Russia and other CIS countries.
- Computershare: In October 2006,Computershare acquired a controlling interest in The National Registry Company (NRC), Russia’s largest independent registrar, and a strategic stake in Registrar NIKoil, Russia's number three registrar and largest mutual fund transfer agent.
- BHP Billiton: On 13 June 2006, BHP Billiton and Norilsk Nickel announced the launch of an alliance to explore and develop mineral resources in Russia. The companies will jointly pursue a range of commodities in certain targeted areas.
- Performa Global: On 2 February 2006, Sydney-based Performa Global announced that it had been selected to carry out theredesign and relaunch of thehistoric Savoy Hotel in Moscow. Performa Global specialises in designing customer service solutions for international clients.
- Rio Tinto: On 27 January 2006, Rio Tinto and Norilsk Nickel, Russia’s largest mining and metallurgical company, announced the launch of an exploration and development joint venture in Russia.
- Mincom: Since 2003, Mincom has supplied its flagship ERP software and related services to Norilsk Nickel. Mincom is a 25 year old Australian technology company that provides specialised computer software for many of the world’s biggest mining companies.
- Ausbay International: Ausbay is a supplier of high-quality meat, with clients including high-end restaurants, hotels and supermarkets. The company is now working to expand its geographical coverage and diversify its product range. In 2004 Ausbay doubled its sales to Russia.
- Fox Creek Wines: Adelaide-based Fox Creek Wines have enjoyed tremendous success in the last two years. The McLaren Vale winery is represented in retail outlets, supermarkets and restaurants throughout Russia and enjoys strong brand recognition. A number of Russian distributors energetically promote Australian wine.
- Wagners: an Australian private company that supplies specialised quarry products and ready-mixed concrete to the construction and petroleum industries. Wagners has expanded into the Russian market and is successfully exporting a range of products to Russia.
- Australian Travel Marketing: an Australian-owned inbound tourism operator that now draws more than half of its business from the Russian market, bringing approximately 500 to 600 Russian tourists to Australia each year. The most popular destinations are Sydney and Cairns, with interest in eco-tourism and diving particularly strong.
- Global Welding Supplies: after participating in Austrade’s Sakhalin Island trade mission in June 2003, Global Welding Supplies began selling its products to a range of large mining and construction companies in Russia.
For more information on exporting Australian goods and services to Russia, or on conducting business in Russia, please visit the website of the Australian Trade Commission (Austrade).
Last reviewed date: 18/08/2008