Bad for business
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Emerging Markets

Bad for business

Russia’s economy is in a sorry state. Sclerotic and tangled in red tape, it also faces a worrying future in which the majority of its people are either very young or very old. The population is expected to tumble to 107m by mid-century, with the number of working-age people set to drop by six percentage points between now and 2020. As the best young brains also leave the country, investors will increasingly struggle, warns Charles Robertson at Renaissance Capital, “to get excited by Russia as a story”.

Russia’s president Vladimir Putin recognises the threat. Over the past two years, generous new maternity benefits have been introduced while senior ministers have moved to make the country an easier place in which to do business. Regulations relating to registering land and new companies and securing reliable access to electricity have eased, helping the country jump 19 places in the World Bank’s 2014 Doing Business report, to 92nd place. Russia wants to break into the top 20 by 2018, eclipsing the likes of Germany, Japan and the Netherlands.

But this remains a very difficult country in which to do business. Western sanctions have left Russia increasingly friendless, exposed as belligerent in a world weary of conflict. In recent decades, the country has busied itself pumping hydrocarbons rather than building a diverse economic base, meaning it often has precious little, other than oil and gas, to offer new sovereign investors. Worst of all, despite a flurry of Chinese megadeals, the nation remains dependent on exports to a European continent with which it is engaged in an increasingly bitter war of words and sanctions. Capital Economics’ William Jackson says: “Whether Putin likes it or not, the West in general and Europe in particular will remain Russia’s only major trading partner for years, and maybe even decades, to come.”

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