Pest Analysis in Russia
Natural environment Among Russia’s most important environmental problems: * Water pollution is the most serious concern. Less than half of Russia’s population has access to safe drinking water. While water pollution from industrial sources has diminished because of the decline in manufacturing, municipal wastes increasingly threaten key water supply sources, and nuclear contamination could leach into key water sources as well.
The head of Russia’s environmental protection committee estimates that the cost of raising the quality of Russia’s entire drinking water supply to official standards could be as high as $200 billion. Air quality is almost as poor as water quality, with over 200 cities often exceeding Russian pollution limits, and is likely to worsen. The number of vehicles on the road has increased rapidly, and their emissions will offset reductions in industrial air pollution owing to reduced economic activity and greater reliance on natural gas. * Solid waste generation has increased substantially due to adoption of Western-style consumption patterns. Russian municipalities, however, lack management expertise and landfill capacity to cope with disposal problems. Hazardous waste disposal problems are extensive and growing.
Russian officials estimate that about 200 metric tons of the most highly toxic and hazardous wastes are dumped illegally each year in locations that lack effective environmental or public health protections or oversight. * Nuclear waste and chemical munitions contamination is so extensive and costly to reverse that remediation efforts are likely to continue to be limited largely to merely fencing off affected areas.Environmental problems are harming both the health of Russia’s citizens and the economy: * US, Russian, and World Bank studies link an increase in respiratory and gastrointestinal illnesses and developmental problems among children in several Russian cities in part to environmental factors. A 1996 joint US-Russian government study found that one-quarter of kindergarten pupils in one city had lead concentrations above the threshold at which intelligence is impaired, while a US government study noted a rise in the incidence of waterborne diseases and environmentally related birth defects.A Russian government report cited air pollution as a contributing factor to 17 percent of childhood and 10 percent of adult illnesses. * Pollution is adding to budgetary strains, reducing labor productivity through illness and absenteeism, and damaging natural resources.
It also is deterring some domestic and foreign investors concerned about cleanup and liability issues.A team of Russian experts has pegged overall economic losses from environmental degradation at 10 to 12 percent of GDP–roughly similar to estimated losses in East European countries and substantially higher than estimates of 1 to 2 percent in developed countries. Russia’s environmental problems also pose substantial threats to other regions and are likely to continue to do so during the next decade: * Russia is a polluter of adjacent seas, dumping industrial and municipal wastes, chemical munitions, and, until the mid-1990s, solid and liquid radioactive wastes. It is likely to continue to be a major producer and exporter of illicit ozone-depleting substances because of widespread black-market activity and also will remain a major emitter of carbon dioxide. Although Russian Government officials decry the economic and social costs of environmental degradation, they lack the commitment, resources, and organizational capacity to address environmental problems: * Policymakers are focusing on stopping Russia’s economic deterioration and stabilizing the country’s financial markets, not on the environmental impact of their actions.Spending on the environment was less than 0.
5 percent of total federal budget spending, or about $480 million in 1997–a significant drop from the modest levels of the late Soviet period. Spending on drinking water quality, for example, was down 90 percent from levels of the 1980s. * Russia has a comprehensive legal and regulatory framework in the environmental area, but government institutions responsible for environmental protection lack the authority and capability to enforce legislation. A continued Russian tendency to treat certain nuclear waste and chemical weapons information as a state secret will complicate Western cleanup assistance programs. The Russian government recently made broad new categories of environment-related information subject to secret classification in response to revelations about environmental problems at Russian military bases by former military officers. * Environmental activism has been on the wane since the breakup of the Soviet Union.
Despite growing concerns about environmentally related health problems, the Russian public is preoccupied with economic survival and accords much less priority to environmental issues. Russia is widely expected to be the major financial beneficiary of the carbon-trading scheme associated with the Kyoto Protocol to the UN Framework Convention on Climate Change, mainly because the sharp decline in Russian economic activity has reduced emissions nearly 30 percent below the target level Russia set for the period 2008-12.Under the Protocol, countries exceeding their targeted cuts will be able to sell emission-reduction credits to those unable to meet their targets: * Even if a future sustained economic recovery increases emissions, Russian officials are convinced that the extensive boreal forest covering most of the country will act as a major carbon absorber that will earn them substantial revenues well beyond the 2008-12 period if effectively managed. According to a MEDEA study sponsored by the National Intelligence Council, however, current carbon flow models contain significant uncertainties, and it is not clear whether Russia’s boreal forest is a net absorber or emitter of atmospheric carbon. 1) Even minor improvements in Russia’s environment during the next few years will require continued international pressure, aid, management expertise, and foreign investment to compensate for Russian shortcomings, but any government shift toward greater state control of the economy to deal with the ongoing economic crisis would jeopardize at least some of this assistance: * A number of international institutions and environmental nongovernmental organizations (NGOs) are providing Russia with substantial aid and technical training, as well as assistance on policy priorities, reform, and institution-building. Although Russia’s latest economic crisis has slowed foreign investment considerably, multinational corporations that have invested in Russia generally have introduced new and more efficient equipment and employ more environmentally friendly practices than Russian firms.
The outlook for more sustained environmental progress over the long term will depend less on foreign assistance and more on whether Russian leaders can muster the courage and skill to implement reforms leading to sound economic growth, greater governmental accountability, and increased public political involvement: * If Moscow can rein in its ongoing financial crisis and implement sound fiscal, monetary, and corporate governance policies, investors will eventually return to Russia and help set the stage for sustained economic growth that, in turn, would increase government and private-sector capacity and willingness to address nvironmental concerns. * A higher living standard, along with changes in Russian political culture that increase government responsiveness and reduce public apathy, would gradually strengthen public support for a more robust environmental agenda as it has in more developed countries. It would also boost the influence of environmental NGOs on government and private-sector environmental policies.Although at least some of these positive indicators may begin to appear near the end of our 10-year time frame, it will probably take decades for Russians to garner the will and the wherewithal to deal with their environmental problems, especially if neo-Communist or nationalist forces come to power and pursue decidedly xenophobic and antireformist policies. BUSINESS ENVIRONMENT IN RUSSIA 1.
Business climate 2. International agreements 3. Legal environment 4. Regulations for business 5. Property market 1.
Business climateThe business environment in Russia has been steadily improving since the transition from a centrally controlled planned economy to a free market, though the economic crisis has had a significant impact on the business climate. In recent years, many reforms have been implemented, the tax system has become fairer and more transparent, Russia has become increasingly integrated with global markets, and customs have improved appreciably. At the same time, the operating environment remains hazardous on a number of fronts, with many foreign investors scared off by poor legal safeguards, as well as high levels of bureaucracy and corruption.The government has made fighting corruption a key priority. Under the crisis conditions businesses began closing down their investment programmes, and they encountered difficulties in repaying credit.
The main problem, especially for small companies, is the availability of financial resources, the commercialisation of science-intensive developments and the support of exports. RUB 18 billion was allocated to supporting measures for small- and medium-sized businesses in 2009. It is planned to appropriate RUB 10 billion from the federal budget to support small- and medium-sized businesses in 2010, with a special focus on the innovation sector.Economic policy Economic policy in Russia is primarily aimed at social, political and economic stability; further development of the institutional structure of the market; and economic diversification. In response to the crisis the government, together with the Central bank, have developed an anti-crisis stimulus package aimed at minimising and mitigating the scale of the crisis, both for the economy and the population.
In this context, the government continues to initiate change and introduce new methods to develop the currency, fiscal, budgetary and tariff policy, and the financial market and banking systems.The state is increasing its role in the economy, paying special attention to the oil and gas, banking and defence sectors. In 2005 the government initiated a much-publicised National Priority Projects programme to develop social welfare and services in Russia through additional state funding in four areas: health, education, housing and agriculture. The government promised to continue funding these programmes, in spite of the crisis. Major development goalsIn his Address to the Federal Assembly and his “Go, Russia” article, President Medvedev identified modernisation as a key priority for the development of Russia and cited five strategic goals which can be achieved by establishing the basis for a national innovation system and creating a favourable environment for research and development: • The efficiency of production, transport and use of energy to be increased; new fuels for use on domestic and international markets to be developed • Nuclear technology to be maintained and raised to a qualitatively new level • Russia’s experts to improve information technology and strongly influence the development of global public data networks, using supercomputers and other necessary equipment • Russia’s own ground and space infrastructure for transferring all types of information to be developed • Russia to take a leading position in the production of certain types of medical equipment, sophisticated diagnostic tools, and medicines for the treatment of viral, cardiovascular, and neurological diseases and cancer 2.
International agreements Russia is a major international power. The Russian Federation is recognised as being the successor to the former Soviet Union in international law: it has assumed the USSR’s permanent seat on the UN Security Council, membership in other international organisations, rights and obligations under international treaties, and property and debts.As one of the UN Security Council’s five permanent members, Russia has special responsibility for maintaining international peace and security. Russia has participated as a member of the Group of Eight (G8) industrialised nations since 1994, although the finance ministers of the G7 continue to meet several times a year, without their Russian counterparts. The Group of Twenty Finance Ministers and Central Bank Governors (G20), of which Russia is also a member, is to replace the G8 as the main consulting body for global financial issues.
This was announced at the G20 summit in Pittsburgh in September 2009. Russia is a member of a large number of other international organisations, including the Council of Europe and the Organisation for Security and Cooperation in Europe.Russia plays a special role in Central Asian organisations: the Commonwealth of Independent States (CIS), the Eurasian Economic Community (EurAsEC), the Collective Security Treaty Organisation (CSTO), and the Shanghai Cooperation Organisation (SCO). Membership: International Structures • United Nations: Security Council, General Assembly, United Nations specialised agencies • Group of Eight (G8) • Group of Twenty (G20) • Council of Europe • Organisation for Security and Cooperation in Europe (OSCE) • Permanent Court of Arbitration (PCA), also known as the Hague Tribunal Regional • Council of the Baltic Sea States • Arctic Council • Shanghai Cooperation Organisation • Organisation of the Islamic Conference (observer) • CIS and CIS structures Economic Organizations Universal Trade • United Nations Conference on Trade and Development • World Trade Organisation (observer) Financial International Bank for Reconstruction and Development (World Bank Group) • International Development Association (World Bank Group) • Multilateral Investment Guarantee Agency • International Monetary Fund • International Finance Corporation • Bank for International Settlements • Paris Club Other • World Intellectual Property Organisation • World Federation of Trade Unions • World Customs Organisation • International Organisation for Standardisation • International Trade Union Confederation Regional Trade • Organisation of the Black Sea Economic Cooperation • Asia-Pacific Economic Cooperation Forum Financial • European Bank for Reconstruction and Development Other • General Confederation of Trade Unions NATOOn 27 May 1997, NATO and Russia signed the NATO-Russia Founding Act, which provides the basis for a long-lasting and robust partnership between the alliance and Russia. The creation of the NATO-Russia Council (NRC), unveiled at the 2002 NATO summit in Rome, opened a new era in NATO-Russia relations, providing opportunities for consultation, joint decisions and joint action on a wide range of issues.
EU The bilateral basis for EU relations with Russia is the Partnership and Cooperation Agreement (PCA), which came into force on 1 December 1997 for an initial duration of ten years. The PCA established an institutional framework for regular consultations between the European Union and Russia.At a St Petersburg summit in May 2003, the EU and Russia reinforced their cooperation by creating four “common spaces” under the Partnership and Cooperation Agreement: a common economic space; a common space of freedom, security and justice; a space of cooperation in the field of external security; and a space of research and education, including cultural aspects. A new partnership agreement is under consideration, but its conclusion has been postponed for political reasons. World Trade Organisation The Working Party on Russia’s accession to the WTO was established on 16 June 1993. Russia is currently in the process of negotiating entry to the WTO.
3. Legal environmentIf you are involved in a commercial or tax dispute in Russia, you can seek to resolve it and defend your rights in state arbitrazh courts. The litigation process starts by filing a statement of claim with an arbitrazh court, and the procedure is regulated by the Arbitrazh Procedural Code. The litigation timeframe depends on the matter under dispute, but in practice, a full-cycle litigation in three instances (levels of courts) takes from 9 to 12 months. 4.
Regulations for business Competition policy The government regulator of market competition policy in Russia is the Federal Antimonopoly Service (FAS). Its primary objective is to ensure compliance with anti-monopoly regulations set out in Russian competition law.The FAS has the power to prevent unfair competition, state aid or agreements that reduce competition, and abuse of a dominant position on the market. To be legitimate, some types of state aid – meaning granting a commercial entity any privileges in the form of property, proprietary rights or proprietary benefits – must first receive written approval from the FAS. An agreement or activity that may imply or lead to control over prices, price fixing, or a change in prices – and thereby reduce fair competition – is prohibited.
However, there are certain minor exceptions to this rule related to “vertical” agreements. Companies that dominate a market are rohibited from setting low or high prices, or different prices for the same goods. Forcing counterparts to accept disadvantageous contractual terms is also illegal. The FAS has the right to audit companies’ activities with regard to their compliance with competition law and request documents and information required for the audit. Violating competition law may entail severe penalties for a company and its management.
For instance, for certain violations, the FAS may impose fines of up to 0. 15% of the company’s revenue raised from transactions on a given market. The Russian Criminal Code establishes criminal liability for company executives guilty of breaching competition law. Price controlsAs a general rule, price controls, where companies must set prices in accordance with state tariffs, exist for natural monopolies such as electricity, gas and railways. In addition, special price regulations have been established for certain other goods and services, including pharmaceutical products and alcoholic beverages. If a company is seen as dominating a market, its prices may also be subject to the control of the anti-monopoly authorities (the FAS).
Patents, trademarks and copyrights Russia is a party to all major international agreements and conventions on intellectual property. From 1 January 2008, Chapter IV of the Civil Code of the Russian Federation came into force.It covers patents, trademarks and copyright issues, and replaces all previous legislation in these areas. It codifies provisions of intellectual property law, introduces clear legal terminology and new intellectual property rights, resolves conflict of laws issues, and generally strengthens protection of intellectual property rights. Russian civil law regulates the legal protection and use of inventions, utility models and industrial designs.
Its provisions correspond with international treaties on patent law harmonisation and the Patent Cooperation Treaty. Consequently, many of its provisions are similar to those in other industrialised countries.In Russia, an examination of merits is conducted to confirm the patentability of an invention. The legal protection of a trademark is provided on the basis of its official registration or under international treaties or conventions to which Russia is a party, including the Madrid Agreement. The trademark owner must actually use the trademark in its business activities.
If the trademark owner does not use it, an interested party can apply to deregister the trademark with the Chamber of Patent Disputes. Copyright is generally granted to the author(s) of works of science, literature and art. Exclusive right to reproduce, distribute, demonstrate, modify, etc. uch works are granted to authors for their lifetime plus 70 years after their death and are transferable and disposable. Software is also covered by copyright laws.
To enjoy legal protection of production secrets (know-how), the owner of the know-how must undertake specific actions under Russian law. The information constituting know-how must meet Russian legal requirements and must have real or potential commercial value owing to the fact that third persons do not know it and have no free access to it. In addition, under Russian law the owner of the know-how must introduce a confidentiality regime with respect to the information that constitutes know-how.Intellectual property licence or assignment agreements for patents or trademarks must be registered with the Federal Service for Intellectual Property, Patents and Trademarks of the Russian Federation (Rospatent). Generally, copyrights do not need to be registered. Copyright owners of software or a database may register them with Rospatent at their own discretion.
After such voluntary registration, the assignment agreement for the registered software or database must also be registered with Rospatent. 5. Property market Russian law upholds and protects the right to own private property, including land, buildings, premises (i. e. , parts of buildings) and other types of real estate.
The introduction of the Land Code of the Russian Federation in 2001 is seen as representing a major improvement in the legal regulation of the property market and a key step toward market reform in Russia. Currently, most land (unlike buildings and premises) is not privately owned, but held by federal, regional and local authorities. Owners of property built on state land may purchase the land, but many property owners prefer to lease land from the state instead. The right of ownership and other proprietary interest in real properties, their creation, encumbrance (e. g. , mortgage, leasehold for a term of one year and longer, easement), transfer and termination are subject to state registration.
With effect from 1 March 2009, the government agency which performs the state registration of rights o real properties (formerly the Federal Registration Service) was renamed the Federal Service for State Registration, Cadastre and Cartography and became responsible for the cadastral registration of real estate (including land plots). It has become easier to obtain technical and registration documents since the recent introduction of a “one-window” system and internal standards for registration authorities. Although the Land Code provides that if a building and the underlying land are owned by the same person, it is impossible to sell them separately, the land and the facilities located on it are treated as separate legal interests and may be owned by different persons.In general, Russian law neither imposes major restrictionson foreigners nor makes distinctions between foreigners, Russian legal entities with foreign interest and Russian legal entities/citizens in relation to the ownership of land (except for agricultural land, land located near the Russian border, and certain other territories yet to be specified). The vast majority of land (outside cities and populated areas) is still categorised as agricultural land, which means it cannot be used for development or industrial purposes.
To use these lands for a purpose other than agricultural production, a landholder must first have the land reclassified to another category in accordance with its proposed use.Russians and foreigners may acquire land held by the state or municipalities for development and construction. The Land Code allows the state or municipal authorities to refuse to grant land if the land in question cannot be alienated or privatised, if the land is reserved for state or municipal needs, and in certain other cases specifically stated in the law. Apart from land legislation requirements, a prospective developer must comply with planning regulations that are rather complex and may differ, depending on where the project is implemented. The new Town Planning Code, adopted 29 December 2004, introduced clearer and more transparent regulations governing the issuance of construction permits and permits for commissioning facilities.From 1 January 2007, the multiple appraisals that were previously required for reviewing project design documentation and issuing construction permits have been replaced by a single state examination (or “state appraisal”), to be carried out by a state authority.
From 1 January 2010, there are no longer licensing requirements for entities in Russia undertaking certain construction activities (such as engineering surveying, preparing project documentation and construction works); instead, such entities are required to be members of a self-regulating organisation. Real property and certain rights to real property can be pledged. All pledges to real property must be registered. Unless the pledgor and the pledgee enter into an agreement on levy of execution in out-of-court proceedings, it is only possible to levy on property in court.In certain cases provided by law, out-of-court proceedings for levy of execution are prohibited.
If the pledgee levies on the pledged property, the property has to be sold through an auction. Russian law allows the securitisation of loans backed by real estate pledges, and legislation on mortgage-backed securities is developing rapidly. Strengths that make Russia a magnet for investors * National resources. Forty-three percent of survey respondents named an abundance of natural resources as Russia’s most globally competitive feature. Over half of respondents (56%) expect Russia to still be an energy sector leader in 2020.
* Market opportunities.Three-quarters of all respondents, and 85% of those already present in Russia, continue to be impressed with Russia’s domestic market. According to industry estimates, the country is poised to become Europe’s largest consumer market by 2018. * Higher education advantage. Two-thirds of the respondents cited education as one of Russia’s competitive advantages. * Balanced labor costs and skills.
Nearly 56% of respondents described the availability of skilled labor as a positive factor for investing in Russia. Low labor costs were mentioned by 61% of investors. * Solid telecommunications infrastructure. Sixty-four percent of respondents list Russia’s telecommunications infrastructure as an attractive feature.Russia has the fourth-largest number of operational land lines and cellular phones in the world.
In 2011, Russia also surpassed Germany to become the largest internet user in Europe. Russia’s areas for improvement * Political, legislative and administrative environment. Sixty-two percent of investors highlighted this area as needing improvement. * Transport and logistics infrastructure. Respondents have mixed views on the current state of Russian infrastructure – while 45% do not find Russia’s infrastructure attractive, 44% consider the transport and logistics infrastructure to be an advantage.
However, government spending on road and railway infrastructure is growing.The need to renew transport and logistics infrastructure has now become a political priority at the highest levels. * Innovation and a culture of entrepreneurship. Innovation in the country suffers because of very low levels of R;amp;D and relevant activities in corporations, weak framework conditions for innovation and inadequate infrastructure. Our G20 Entrepreneurship Barometer report highlights that access to funding continues to be one of the most significant challenges for the creation, growth and survival of small and medium enterprises (SMEs), particularly innovative ones.
Entrepreneurs also complain about the lack of tax incentives to start a business.