Economy of Russia

The Russian republic, by virtue of its great size and abundant natural resources, played a leading role in the economy of the Soviet Union. In the first decades of the Soviet regime, these resources made possible great economic advances, including the rapid development of mining, metallurgy, and heavy engineering, the expansion of the railway network, and a massive increase in the energy supply. In the 1960s a second phase of Soviet industrial development began to exert a particularly strong effect on the Russian republic. In addition to further growth in established industries—especially in the production of oil, gas, and electricity and in the chemical industries—there was a marked diversification in industrial output, including a limited expansion in consumer goods. In the years before the dissolution of the Soviet Union, however, the economy of Russia and of the entire country was in a state of decline, and official statistics masked industrial inefficiencies.

After the collapse of the Soviet Union in 1991, the Russian government implemented a series of radical reforms designed to transform the economy from one that was centrally planned and controlled to one based on capitalist principles. Major components of the reforms included establishing privately owned industrial and commercial ventures (using both foreign and Russian investment) and privatizing state-owned enterprises. To encourage privatization, the government issued vouchers to Russian citizens that enabled them to purchase of shares in privatized firms, though in practice these vouchers frequently were sold for cash and were accumulated by entrepreneurs. A commodity- and stock-exchange system also was established.

The privatization process was slow, however, and many firms—particularly in the heavy industries—remained under state ownership. In addition, there was significant debate regarding the buying and selling of land. In 2001 the government legalized the sale of land, though it did so only for urban housing and industrial real estate—which together accounted for only a small fraction of Russia’s total area. At the beginning of the 21st century, similar legislation was also under discussion for rural and agricultural areas. Though full private ownership of land is provided for in the 1993 constitution, the practice has not yet been implemented. As a result of delays in implementing structural reforms, the conversion to market-based agriculture was slow, as many clung to the old, familiar collective system.

The reforms beginning in the 1990s caused considerable hardships for the average Russian citizen; in the decade after the dissolution of the Soviet Union, the Russian economy contracted by more than two-fifths. The monetary system was in disarray: the removal of price controls caused a huge escalation in inflation and prices; the value of the ruble, the country’s currency, plummeted; and real incomes fell dramatically. Conditions began to improve by the mid-1990s, but the recovery was interrupted in 1998 by a severe financial crisis, which caused the government to sharply devalue the ruble. Numerous banks became insolvent, and millions of citizens lost their life savings. Gradually, corrective measures were implemented. For example, the licensing of private banks became more rigorous, and the government cracked down on tax evasion, which had been rampant since the implementation of economic reforms. To accommodate business growth, taxes on medium and small enterprises were moderated, and the government began to offer incentives for reinvesting profits into the domestic economy. By the early 21st century, the measures had begun to have a positive effect on the Russian economy, which showed signs of recovery and stable growth. Steady earnings from oil exports permitted investments in factories, and the devalued currency made Russian goods more competitive on the international market.

In the post-Soviet years, foreign direct investment was encouraged, but it was constrained by unfavourable conditions, including state intervention in industry, corruption, and weakness in the rule of law. An upsurge in violence by organized crime syndicates contributed to hampering Western investment, and though the activity of such groups was curtailed in the early 21st century, it still presented severe obstacles to both Western and Russian businesses. Investment by non-Russian companies was also discouraged by moves taken by the Russian government to increase state ownership in various industries, including oil and gas, aviation, and automobile manufacturing.

In addition to the difficulties the country encountered in its effort to restructure the economy, Russia had been subjected to serious long-term environmental degradation during the Soviet period, the full extent of which became apparent only in the 1990s. The most visible aspects of this situation—such as the Chernobyl accident at a nuclear power plant in Ukraine in 1986, widespread industrial pollution, and the drastic reduction in the volume of the Aral Sea as a result of inflow diversions—were only symptomatic of decades of wasteful resource exploitation. These environmental concerns placed another burden on Russia’s already overwhelmed economic structure.

The economic foundation of the country itself remained similar to that which had been developed during the Soviet period. For purposes of description it is convenient to refer to the official set of 11 traditional economic regions into which Russia is divided (though the federal districts created in 2000 have begun to replace the traditional economic regions for statistical purposes). In Europe the regions are the North, Northwest, Central, Volga-Vyatka, Central Black Earth, North Caucasus, Volga, and Ural, and in Asia they are West Siberia, East Siberia, and the Far East.

Agriculture, forestry, and fishing

Agriculture

The harshness of the Russian environment is reflected in the small proportion of land that is used for farming. Agricultural land constitutes less than one-sixth of the country’s territory, and less than one-tenth of the total land area is arable. About three-fifths of Russian farmland is used to grow crops; the remainder is devoted to pasture and meadow. Overall, agriculture contributes little more than 5 percent to Russia’s gross domestic product (GDP), though the sector employs about one-eighth of the total labour force.

The main product of Russian farming has always been grain, which occupies considerably more than half of the cropland. Wheat is the chief cereal, followed by barley, rye, and oats. More than one-third of the sown area is devoted to fodder crops—sown grasses, clovers, root crops, and, in the southern districts, corn (maize). The remaining farmland is devoted to industrial crops, such as sunflowers, sugar beets, and flax, and to potatoes and other vegetables.

Variations in relief, soil, and climate produce pronounced regional variations in agriculture. In European Russia the proportion of land devoted to crops increases southward, from virtually none in the North region to about two-thirds in the Central Black Earth region. In West and East Siberia and the Far East, crops are largely confined to the southern fringe. Even in West Siberia, where the cultivated zone is at its widest, crops occupy less than one-tenth of the region’s territory, and the proportion falls to negligible levels in East Siberia and the Far East. Cereals occupy more than two-thirds of the cropland in most regions but less than half in the damper Northwest and Central regions, where fodder crops and livestock are more important. The intensity of farming and the yields achieved are generally much higher in the European section than in Siberia. The same is also the case for livestock farming.

In general, the old collective farms and state farms have continued to function in post-Soviet Russia, though they have often been renamed as cooperatives or labour-management firms. Privatized farms have experienced significant obstacles, because many in the agricultural sector treated them as pariahs, and the land that many were allocated was unproductive or inaccessible. Thus, the bulk of the grain continues to be produced by very large agricultural enterprises, particularly those in the Northern Caucasus and in the Volga economic regions.

Forestry

Russia contains the world’s largest forest reserves, and its lumbering, pulp, paper, and woodworking industries are particularly important. More than two-fifths of Russia is forested, and the country has more than one-fifth of the world’s total forests—an area nearly as large as the continental United States. However, Russian forests have very slow rates of growth because of the cold, continental climate, and the country has lost about one-third of its estimated original forest area. Legislation was implemented in the late 1990s to moderate further deforestation. Nevertheless, logging continued to endanger the last intact forest landscapes of northern European Russia. Similar risks have also spread to areas east of the Urals.

The forestry industry employs some one million people. Coniferous species are predominant; Russia produces about one-fifth of the world’s softwood. The country is among the world leaders in the production of many other wood-related products, and timber, saw lumber, pulp, paper, cardboard, and roundwood contribute to Russia’s export income.

Fishing

The fishing industry plays a significant role in the Russian economy. With access to the substantial resources of both the Atlantic and Pacific oceans, marine fishing is particularly well developed, and Russia’s fleet of factory ships can process huge catches at remote locations. The chief European ocean-fishing ports are Kaliningrad and St. Petersburg on the Baltic Sea and Murmansk and Arkhangelsk in the far north. Russia’s chief Pacific port is Vladivostok, but there are several others, particularly in Sakhalin and Kamchatka provinces. Smaller-scale fishing takes place in the Sea of Azov and the Black and Caspian seas (the Caspian sturgeon is the source of the world’s finest caviar), but reduced river flows and pollution from agricultural runoff, industrial waste, and sewage dumping have thinned fish populations. There are important inland fisheries on lakes and rivers, including a good deal of fish farming.

The Russian fishing industry rivals the size of the world’s other leading producers (Japan, the United States, and China). Russia produces about one-third of all canned fish and some one-fourth of the world’s total fresh and frozen fish. The privatization of fishing in the 1990s shifted the industry’s focus from production for domestic consumption to exports. Especially important catches are pollack, herring, cod, and salmon. Russia’s earnings from the export of fish are steadily larger than from grain export. Salmon, crabmeat, caviar, beluga, sterlet, and herring were among the important seafoods generating export income.

Resources and power

Russia has enormous energy resources and significant deposits of many different minerals. Most, if not all, of the raw materials required by modern industry are found within its borders. Its coal reserves are particularly extensive. The biggest fields lie in the remote Tunguska and Lena basins of East Siberia and the Far East, but these are largely untapped, and the bulk of output comes from more southerly fields along the Trans-Siberian Railroad. About three-fourths of Russia’s coal is produced in Siberia—some two-fifths from the Kuznetsk Basin alone and the remainder from the Kansk-Achinsk, Cheremkhovo, and South Yakut basins and numerous smaller sources. The production of hard (anthracite) coal in European Russia takes place mainly in the eastern Donets Basin and, in the Arctic, in the Pechora Basin around Vorkuta.

Privatization of the coal industry began in the 1990s, and by the early 21st century some three-fifths of overall coal production was coming from privatized mines. However, the removal of state subsidies also forced the closure of many unprofitable mines. The most severe cuts in coal output occurred in the Central and Ural economic regions and in Rostov province of the North Caucasus region. Coal mines in regions with access to large reserves of oil and natural gas fared better.

Russia is among the world’s leading producers of oil, extracting about one-fifth of the global total. It also is responsible for more than one-fourth of the world’s total natural gas output. The great bulk of oil and natural gas comes from the huge fields that underlie the northern part of the West Siberia region. Another significant source of reserves is the Volga-Ural zone, and the remainder is derived mainly from the Komi-Ukhta field (North region); the North Caucasus region, once the Soviet Union’s leading producer, is now of little importance. Extensive pipeline systems link production sites to all regions of the country, the neighbouring former Soviet republics, and, across the western frontier, numerous European countries.

There are some 600 large thermal power plants, more than 100 hydroelectric stations, and several nuclear power plants that generate electricity. About three-fourths of electricity is generated in thermal stations; some two-thirds of thermal generation is from oil and gas. The remaining power output is produced by hydroelectric and nuclear plants. Most of the hydroelectricity comes from huge stations on the Volga, Kama, Ob, Yenisey, Angara, and Zeya rivers. Nuclear power production expanded rapidly before development was checked by the Chernobyl accident in Ukraine in 1986. Much of Siberia’s electricity output is transmitted to the European region along high-voltage lines.

Russia also produces large quantities of iron ore, mainly from the Kursk Magnetic Anomaly (Central Black Earth region), Kola Peninsula, Urals, and Siberia. Although there is steel production in every economic region, the largest steel-producing plants are located mainly in the Urals, Central Black Earth region, and Kuznetsk Basin. Russia produces about one-sixth of the world’s iron ore and between one-tenth and one-fifth of all nonferrous, rare, and precious metals.

Nonferrous metals are available in great variety from many districts, but by far the most important are those of the Ural region, which is Russia’s main centre of nonferrous metallurgy. Russia is a major producer of cobalt, chrome, copper, gold, lead, manganese, nickel, platinum, tungsten, vanadium, and zinc. The country produces much of its aluminum from plants powered by the Siberian hydroelectric stations, but bauxite deposits are relatively meagre.