However, expansion requires capital investment and there is question as to whether these trends have a strong enough bases to continue into the future. The focus of Russian spending trends is on construction, particularly improvements on the infrastructure. However, this good news comes with a work of caution. Russia still has many obstacles to overcome in terms of competitiveness. They are recent players on the global market and need to invest intensively to become major players. They still have a long way to go. Investors should keep this in mind as they decide to include Russia in their list of expansion projects (Economist Intelligence Unit ViewsWire).
A review of literature regarding the growth of the Russian economy reveals many variables that could affect the long-term ability to sustain the current growth rates. Analysts disagree on the sustainability of the Russian economy. One body of analysts feels that sufficient resources are being placed into infrastructure improvements and building a stable base. Others simply feel that the growth is too much too fast and that it cannot keep up this pace without dire consequences (Economist Intelligence Unit ViewsWire).
The most difficult portion of this research study was finding sufficient data to support the thesis and draw conclusions. Insufficient data was found prior to 1998. Only after Putin became Prime Minister and instituted sweeping economic reforms did academia take an interest in the Russian economy. Government agencies were also consulted, and it was found that Russia was considered a minor player in the balance of trade scenario, therefore it was difficult to find detailed data. Due to a lack of resources, the only data available was aggregate data, which combined data from many goods into general categories. While, this provides an overall view of the export scenario with Russia, it is not detailed enough for detailed trend analysis.
The most reliable source of trade data was from the U.S. Census bureau. Other sources of information used in this research study used the U.S. Census Bureau as their primary data source. Data in this study was compiled from documents collected by U.S. Customs and Border Protection at the point of export (U.S. Census Bureau). This data source is the most reliable available to a non-governmental entity. It is compiled from primary sources that fall under strict guidelines for use (U.S. Census Bureau).
The Census Bureau has strict guidelines for the collection of trade data. This data compiled for this report were collected using these general guidelines. Several factors must be taken into consideration in the interpretation of this data. For instance, the value reflected for exports reflects the estimated appraised value of the merchandise in U.S. dollars (U.S. Census Bureau). Export tariffs, shipping, insurance, and other charges incurred as a part of the transaction were not included in the estimated value of goods (U.S. Census Bureau). Goods were valued at the U.S. port, upon exit from the country.
Monthly data was used as the source from which yearly aggregates were obtained (U.S. Census Bureau). The data includes a small amount of carry-over from the previous month and takes into consideration any corrections that were filed after the data was published (U.S. Census Bureau). However, these adjustments are not expected to have affected the yearly data to a significant degree as to cause errors in the conclusions drawn in this report. Data from this source is revised annually.
Statistics are collected according to standardized commodity classifications (U.S. Census Bureau), which are reflected in the data tables presented in this research report. The data used the Harmonized Tariff Schedule of the United States to facilitate equitable comparison of trade between the U.S. And its many trading partners (U.S. Census Bureau). The harmonized system of goods classification allows data from various countries to be categorized according to a standardized set of methodology (U.S. Census Bureau).
These parameters represent extra assurances to make certain that the data provided by the Census Bureau is accurate and that it can be easily compared to other similar data sets. This was the key reason for selecting data derived from U.S. Census Bureau reports as the primary data source from which to draw conclusions. This data source represents the most accurate source available to the non-governmental researcher. The literature review was the primary source of data used for the analysis contained in this report.
The Russian economy has undergone dramatic changes over the past decade. Only after the fall of the Old Russian Empire did researchers take a serious interest in the Russian economy, particularly from the standpoint of developing trade relations. Russians are currently in a period of expansion and growth. The Russian people now have resources that were not previously available to them. They are just beginning to stretch their economic wings and engage in practices such as consumer credit and investment.
There are many opinions among analysts as to the ability of the Russian economy to sustain its current growth rate. However, they are taking extra precautions in the expansion of their infrastructure to support this new development. It may be some time before Russians are considered competitive on a global basis, but they are continuing to improve.
Aggregate exports to Russia from the U.S. are increasing rapidly. However, more important than the trend are the underlying factors behind the trend and its ability to sustain for the long-term. The pattern in Russian spending for U.S. goods reveals an increased interest in manufacturing-related goods and equipment. Agricultural products continue to lead exports, indicating that there is still a need for basic commodities, such as food. Increases in exports of agricultural equipment indicate that Russians have plans to produce more food in the future. However, there is some question as to how long it will take until they are completely self-sufficient. It is expected that it will take quite some time before Russians will become less dependent on the U.S. For basic commodities, such as meat.
Building the Russian infrastructure and economy from the state that it was in almost a decade ago will be a slow process. Over time, Russians will become less dependent on U.S. goods, particularly as they develop the methods and resources to produce their own equipment. It will also be some time before they are able to produce sufficient amounts of agricultural products. It is foreseeable that in the distant future, Russia will need fewer exported goods from the U.S. However, in the medium to short-term range, exports are expected to continue to increase as the money becomes available for further expansion.
Opinions differ in terms of the ability of the Russian economy to sustain its current rate of growth. However, the literature examined as a part of this research project indicates that the fledgling economy is on solid footing. Evidence of this is the emphasis on infrastructure growth and the import of U.S. manufacturing equipment. Like any newly established capital economy, there will be some adjustments along the way. The impact of these adjustments will depend heavily on the faith of the Russian people in Prime Minister Putin and the reforms that he has imposed.
The Russian people may have been hesitant in the beginning and wanted to see the results of the new reforms before launching into a spending spree. Consumer confidence is one of the most important factors in a growing economy. If consumer spending is any indicator, it looks like the new economy has the strength to continue its current growth well into the future.
The key is to focus on the long-term, and in this respect, Russia presents many opportunities for export expansion of U.S. goods. The most sensible approach will be to attempt to match Russian growth with output. However, this task is not an easy one. U.S. companies that can project production needs in the short-term will be able to survive and develop long-term relationships. As the Russian economy expands, it will be more likely to need greater numbers of U.S. goods, particularly technological items that it cannot yet produce itself.
Theoretically, it is possible that as the Russian economy continues to grow, it will result in a decline in demand for foreign goods due to increasing ability to produce these items domestically. However, this projection is in the distant future. It will be many years before Russia is in this position. Even so, it may be cheaper to buy them rather than to produce them. The distant future is speculative. However, as this research indicates, there will be many opportunities for growth and expansion into the Russian market for those companies that wish to pursue them.
Economist Intelligence Unit ViewsWire. Russia's booming economy. June 18th 2007. The Economist. http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=349002&story_id=9354403 Accessed April 8, 2008.
Gaddy, C. Issues in the U.S.-Russia Economic Relationship. October 17, 2007. Brookings. http://www.brookings.edu/testimony/2007/1017russia.aspx. Accessed April 8, 2008.
Products Marketing Association (PMA). International Resources: global Market Profile: Russia. http://www.pma.com/cig/international/russia.cfm Accessed April 8, 2008.
Sweeney, P. Exports to Russia Grow. Business Information Service for…