Economic Performance and Policies Implications

Question: Discuss about the Economic Performance and Policies Implications. Answer: Introduction: Today, Russia is at the forefront of FDI growth. For years now, FDIs have been a significant source of foreign capital and funds for the Russian economy. Since 2013, Russia has been a lucrative investment destination that attracts investors from all over the world. During this year, the country was ranked at position six, as the most attractive destination for FDI (Overview 2016). Additionally, the hospitality industry is fast-growing. Particularly, the travel and tourism industry continue to see substantial growth. As a result, investors are focusing more on Russias hospitality industry. The Economic Environment in Russia The Russian economy is dynamic fast growing. Primarily, this is because the countrys strong scientific background provides excellent opportunities for research and development partnerships. There is also a large consumer market in the country. As such, Russia is capable of providing a vibrant internal market for foreign companies, thereby assuring attractive growth potential for firms. What is more, investment in the Russian economy is strongly supported by the federal and regional governments through initiatives such as the Foreign Investment Advisory Council. Also, the country has an attractive taxation system. Currently, the personal income tax is 13 percent. On the other hand, the corporate tax rate is 20 percent while the sales tax is 18 percent. In addition, there is an attractive non-offshore tax regime that aims at enhancing the level of investment in the country. Regardless, the Russian economy is associated with high costs of investments. This is As such, the cost of materializing FDI in the country is higher than the world average. Furthermore, there are low credit ratings in the country amidst high risks. Additionally, the economy is associated with low rates of return. As a result, this discourages investors from injecting their funds into the country for fear of low profitability. Political Environment As at now, the country boasts a politically stable system with long periods of prudent social and political policies. However, doing business in the country is subject to political, administrative and legislative issues (Tarr Volchkova 2010). Particularly, the regulations are burdensome as the system is associated with hefty bureaucratic obstacles and inconsistent enforcement of regulations. In addition, the level of corruption in the country is too high (Nichol 2014). Furthermore, there are deficiencies in the legislative environment. In turn, this limits the countrys potential for FDI (Tarr Volchkova 2010). Recommendations The Russian government should strive to reduce administrative barriers in the country. Mainly, this can be achieved through minimizing bureaucracies and increasing the levels of transparency of business regulations (Investment 2010). Additionally, effective policies should be instigated to curb the high corruption rates in the country to attract foreign investments (FDI Policy 2010). The federal authority should also work out a plan to reduce the high costs associated with investing in the country. Furthermore, it should implement an effective cooperation mechanism between local and foreign firms in order to reap the benefits of FDI in the country. Reference List Cooper, W 2009, Russias Economic Performance and Policies and Their Implications for the United States, Congressional Research Service, retrieved 13 January 2017, https://fas.org/sgp/crs/row/RL34512.pdf Economy Freedom, 2016, Russia, retrieved 13 January 2017, https://www.heritage.org/index/country/russia Economy Watch, 2010, Foreign Direct Investment Policy, retrieved 13 January 2017, https://www.economywatch.com/policywatch/fdi-policy.htm Global Trade, 2010, Investment Climate in Russia, retrieved 13 January 2017, https://www.globaltrade.net/f/business/text/Russia/Investing-Investment-Climate-in-Russia.html Nichol, J 2014, Russian Political, Economic, and Security Issues and U.S. Interests, Congressional Research Service, retrieved 13 January 2017, https://fas.org/sgp/crs/row/RL33407.pdf Tarr, D, Volchkova, N 2010, Russian Trade and Foreign Direct Investment Policy at the Crossroads, The World Bank Development Research Group, retrieved 13 January 2017, https://fas.org/sgp/crs/row/RL33407.pdf Trading Economics, 2017, Russia Foreign Direct Investment - Net Flows, retrieved 13 January 2017, Russia Foreign Direct Investment - Net Flows World Bank, 2017, Overview-Russia, retrieved 13 January 2017, https://www.worldbank.org/en/country/russia/overview