The Russian economy, fourth quarter 2013

We were asked to comment recently on the current economy in Russia and so will answer that query here: Russia benefits from great natural resources (which are also a curse if the government continues to over-rely on them).

Russia enjoys a very low tax base, a flat tax of 13% (plus health and welfare deductions) for individuals and maximum of 22% for businesses. There is very little national debt and the Russians have a large “Welfare Fund” that is flush with cash in case of a repeat of 2008.

(Forbes.com)
(Forbes.com)

The government has very shrewdly built an impressive network of oil and gas pipelines and negotiated distribution rights to transport and sell natural resources from neighboring states such as the “Stans.”

Despite continued economic growth, the Russian economy is still lagging behind in small business development. In the USA, although the American voting public is woefully ignorant of how an economy works, small business is responsible for the creation of most fortunes. More American millionaires have come from small “main street” business ventures than from any other source.

Russia is just the opposite as small businesspersons have little chance of amassing long term wealth while those with connections to the government tend to become very wealthy in a very short amount of time. This is a problem with very real long-term consequences.

For 2013, the World Bank projects the Russian economy to expand by 1.8%, down from 3.4% in 2012. The Kremlin economic management is still ahead of the clueless pretenders on the banks of the Potomac, but it is a real slowdown and borne on the backs of those who can afford it the least.

As for long term growth projections, this is an interesting article:
http://rbth.ru/business/2013/11/14/russian_economic_growth_will_be_leaner_than_predicted_31719.html

(Disclaimer: As with Russia Today television, Russia Beyond the Headlines is connected to the Kremlin.)

Border winter sky a

Capacino strong