Russia as an Emerging Economy: An Analysis of Trade and Investment

This report provides an in-depth analysis of emerging market economies, with a specific focus on Russia. It examines the characteristics of emerging economies, including low per capita incomes and political instability, while highlighting their potential for growth and manufacturing. The report explores Russia's trade openness, emphasizing its export surplus and trade relations with foreign countries. It also discusses foreign investment in Russia, considering both the risks and potential rewards. The analysis incorporates factors such as Russia's membership in the BRICS association, its economic growth rate, and the contributions of its industrial, service, and agricultural sectors. The report concludes with recommendations for Russia to diversify its economy and create a more conducive environment for sustained growth and foreign investment, particularly in sectors like agriculture, where firms like AgriDigital can contribute to economic development.

Running head: EMERGING ECONOMIES
Emerging Economies
Name of the Student:
Name of the University:
Author Note:

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Table of Contents
Introduction.................................................................................................................................................2
Emerging Market Economies.......................................................................................................................2
Features of Emerging Economies and Agridigital........................................................................................3
Investment in Emerging Economies............................................................................................................4
Russia as an Emerging Economy..................................................................................................................5
Trade Openness and Russia.........................................................................................................................6
Foreign Investments in Russia.....................................................................................................................9
Recommendations.....................................................................................................................................11
Conclusion.................................................................................................................................................12
References.................................................................................................................................................13

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Introduction
Emerging markets are basically countries that are less developed when compared to
developed countries. The term implies that these countries are gradually developing and are in
the transition stage of development. The basis of determining whether a particular country is an
emerging market or economy is based on the calculations using statistics of GDP (Gross
Domestic Product) and per capita income. There are a group of countries that fall into the
category of emerging economies based on a few more variables in addition to the statistical
variables stated above (Ahmed & Zlate, 2014). Russia is one such country. The emerging
markets have outgrown the developing counterparts and are being expected to reach higher
levels of growth in the next few years. The concepts involving emerging economies and their
growth are studied in detail in this report. Further, the growth of Russia as an emerging market is
also evaluated with the help of features like country attractiveness to international trade and
investment opportunities within the country. In this aspect the establishment of the subsidiary of
the Australian firm AgriDigital in Russia is discussed.
Emerging Market Economies
An emerging market economy can be pragmatically defined as an economy of a nation
that is gradually progressing towards higher levels of growth and development through
advancements in the field of resource usage (Acharya et al., 2015). These economies are
generally characterised with events that boost the growth and bolster the rate of industrialisation
in the economy. There are various political and social factors that change during the course of
this kind of development in these countries. These countries slowly start gaining importance in

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the world and continental platforms. The most important characteristic of these economies is that
they are able to develop themselves as emerging powers in the political and military contexts as
well. The basic focus of these countries is to increase their influence at the global level.
However, there are several types of barriers that these countries face. These include barriers in
different contexts like geography, politics, economy, military, population, diplomacy, power and
national identity. These countries have different levels of potential and different strategies of
growth. AgriDigital being an established firm in an already developed economy will efficiently
be able to bolster the economic growth in the country that it expands to and contribute to its
development by increasing the Gross Domestic Product of the country.
Features of Emerging Economies and Agridigital
Emerging economies are identified with low per capita incomes, high levels of social and
political instability, high levels of unemployment and low levels of business and industrial
activities including investment programs compared to developed economies of the United States.
However, when compared with least developed countries these countries quite high levels of
growth and development (Marquis & Raynard, 2015). They are usually good bases for global
manufacturing operations and are also emerging to be good platforms for increase in the amount
of export businesses. While emerging these countries and economies are able to make use of the
flexible monetary policies, regulatory reforms and cross-border trade. The less developed
countries located in Asia, Latin America, Africa and Eastern Europe are generally termed as
emerging economies (Pasricha et al., 2018).
Agridigital is a technological firm primarily providing easy and the best solutions to the
firms operating in the agricultural sector. The firm helps in increasing the transparency and

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reducing friction in the supply chain in the agricultural sector firms. The firm uses smart devices
and effective disruptive business models for this purpose. They help in upgrading and improving
the skills of the workers operating in the agricultural industry as well.
Investment in Emerging Economies
Investment in emerging economies carries a lot of risks because their stocks are very
volatile. Hence a range of issues like fluctuating interest rates and inflationary pressures can
adversely affect these economies. Further, there are other sources of risk like political unrest,
change in the currency rates, exchange rates and even regulatory issues. This is compensated by
the levels of higher economic returns and growth as compared to most other economies (Xia et
al. 2014) This high rate of growth coupled with high rates of expansion slowly converts into high
profitability rates and revenue generation for the corporate investors. Emerging economies also
are increasingly trying to sustain the amount of growth accrued in the longer run. This is why the
prospects of capital generation in these nations is way higher as compared to income generation
prospects. This in turn is causing big firms to reinvest the profits accrued from the initial
investments for further investments. This is deemed to be more profitable as compared to the
situation where companies make payments in the form of dividends to their shareholders. The
other most important benefit of investing in the emerging nations is that they are not governed by
strict rules of accounting and securities regulations. However, at the very same time the negative
effects of fluctuating equity prices, credit as well as ending rates can be extremely detrimental to
the investors both in the short and long runs. Hence, investment in the emerging economies is
highly a controversial issue. For a firm like AgriDigital that has been operating efficiently since

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many years and managing funds and investments in the best way possible, investing in Russia
will win the firm increased amounts of revenue generation.
Russia as an Emerging Economy
There are five major economies in the world currently which are identified for having
immense influence regionally and are now increasing the amount of global influence too. Russia
is one of these countries, the other countries being Brazil, India, China and South Africa. Since
the year 2009, these countries have improved the levels of growth and trade at unprecedented
levels and have also been able to meet regularly by arranging and participating in forums
(Cousins et al., 2018). According to reports, BRICS as an association has been able to steer up
growth from a percentage of 3.9 in 2015 to 4.6 % in 2016. It is being estimated that in the year it
expanded at a rate of 5.3% in 2017 (Chkili & Nguyen, 2014). Russia along with the other
countries in the BRICS association, is involved in bilateral ties with these nations on the notions
of equality, non-interference and mutual benefits. In spite of the various issues faced by the
country like geopolitical issues, steep falls in oil prices, increasing inflation rates, crashing of the
stock market and loss of currency value, the economy of the country has continued to rise and
grow in the best possible ways. After the 1990s, Russia has grown at the fastest rate (7%) and is
now increasingly being recognised as the fastest growing economy. The biggest sectors of the
country that contribute the maximum to the gross domestic product of the country include the
industrial and service sectors and a very small agricultural sector. The percentage contributions
of the three sectors are 32%, 63% and 4% respectively. The country is efficient in terms of trade
as it both exports and imports in substantial amounts. However, Russia as a country still is in
need of diversifying its economy through more strategic use of resources so that the growth is

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sustained in the long-run. Thus, it can be asserted that though Russia has one of largest land
areas but it needs to make the environment for foreign investments more conducive so that it is
able to grow in a sustainable manner in the longer run. Thus, as the firm operates in the
agricultural industry, it is an added advantage for the firm to expand in Russia as it is well known
or its agricultural sector and large areas of land mass and natural resources used for agricultural
purposes. It will also impose large marketing or establishing costs for Agridigital to expand and
operate in Russia.
Trade Openness and Russia
Trade openness refers to the total orientation of the country both inward and outward in the
context of economy. It specifically emphasizes on the outward orientation of the economy to
trade with other countries (Idris, Yusop & Habibullah, 2016). It refers to the extent to which
countries are able to take advantage of the trade ties with other countries in the inward
orientation context. It is measured based on a number of factors and variables, which are stated
below:
 The comparison of the total Gross Domestic Product to the growth in the real amount of
imports
 Policy regimes of trade
 Total amount of foreign direct investment occurring in the country, that is, contribution
of foreign direct investment to the gross domestic product of the country.
 Infrastructure available in the country for trade in the form of logistics, internet and
communication structures

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The following figure represents the total amount of export activity of Russia as a part of the
total trade balance over the last few years. The graph portrays how the total amount of exports
every year from 2012 to 2015 has always remained higher as compared to the amount of imports
even though the total amount of trade has declined slightly between these years. Thus, the
balance of trade has always remained stable irrespective of the fluctuations in the amount of
exports and imports in between these years (Makhmudova & Koroleva, 2016). This again helps
in asserting that Russia is responsible for export surplus which means that the goods exported by
the country have a very high demand.
Figure 1: Export-import dynamics in Russia for 2012-2015, million dollars
Source: (Makhmudova & Koroleva, 2016)
The total amount of exports and imports of Russia as a percentage of the total amount of
Gross Domestic Product is used to find out the openness to trade in case of Russia. In the period

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between the years 1989 and 2015, the average rate of trade openness for Russia has been at
54.53% with a maximum of 110.58% in the year 1992 and a minimum of 26.26% in the year
1991. The following graph represents the levels of trade openness for Russia in between 1989
and 2015 ("Russia Trade openness - data, chart | TheGlobalEconomy.com", 2018). This shows
that Russia is undoubtedly one of the emerging economies with a stable level of trade openness.
This means that even though the country faces a lot of risks, it is still gradually becoming one of
the most important countries for attracting immense amounts of foreign direct investment in the
years to come. This again forms a very option for Agridigital to operate and expand in the
Russian cities where majority international offices are located and operate.
Figure 2: Trade Openness of Russia between 1989 and 2015
Source: "Russia Trade openness - data, chart | TheGlobalEconomy.com", 2018
It can also be asserted from these data that the foreign trade relations of Russia with the
foreign countries is quite stable in nature and there has been a positive balance in the operations

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at the global level over the last few years. The trade relations of this country with countries
situated far abroad has been more uniform as compared to other countries.
However, the current economic situation of the country is still not completely conducive for
sustained growth because the country faces a lot of fluctuations in the total amount of import and
export trades (Tsygankov, 2016). In the absence of diversification of export goods combination
the country is faced with a lot of vulnerability. The primary challenges facing Russia in the
context of trade openness are stated as follows:
 Very small participation rate in the industrial international value chains
 Very small share of market in the CIS countries
 Mediocre levels of machinery in the total export basket of the country
 Detrimental effects facing the agricultural regulations and food security
 Maximum concentration on minerals and oil in the export basket of the country
Foreign Investments in Russia
As mentioned before, being one of the largest countries in terms of land area, Russia is
increasingly becoming a budding area of investments. The attractiveness of the region to foreign
direct investments is because of the large endowment of natural resources in the country, a
market with increasing potential and skilled and educated labour force. However, there are a lot
of fluctuations causing it to become one of the least attractive host countries. Nonetheless, the
country is being successful in increasing the amount of foreign direct investments slowly and
steadily. The net amount of foreign direct investments has exceeded $20-25 billion. Even though
the Russian economy has faced a lot of geopolitical turbulences, the firms that had invested

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during that period are being successful in gaining large amounts of growth and revenue
generation. Since the year 1999, this country has been able to increase the reserves of foreign
currency by about thirty times. Over the last eighteen years, Russia has been able to reduce the
total amount of public debt from 92% to 17.2%.
The transition in the amount of net flows of foreign direct investment in Russia in
between 2015 an 2018 is represented in the diagram below:
Figure 3: Net FDI flows
Source: ("Russia Foreign Direct Investment - Net Flows | 1994-2018 | Data | Chart", 2018)
This graph shows that although there has been some rate of foreign direct investment
flow in the economy of Russia, it has fluctuated a lot in the different halves of the very same
year.
Other reports suggest that the position occupied by Russia in the field of foreign direct
investments has gone up by one spot in the year 2016 as compared to 2015. Russia has left
behind Belgium in the net amount of foreign direct investments. The employment generation in

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the country as a result of the total foreign direct investment flows has been at a rate of 6%
increase. In the year 2015, the total number of jobs created as a part of foreign direct investment
projects was 14,172 ("EY - Russia ranked seventh among European countries by FDI projects",
2018). Increasingly investor firms from the United States and Germany are bolstering their
positions in Russia currently. These two countries are proving to be the major contributors of
growth and FDI projects in Russia. In the year 2016, the number of German FDI projects in
Russia increased from 36 to 43 and the number of US FDI projects in the country rose from 31 to
38. Asian FDI inflows to Russia had also increased in 2016 but varied amongst the various
countries with the number of Japanese projects increasingly from 10 to 12 and the number of
Chinese projects falling from 12 to 9 (Jost, 2015). However, the Australian economy has not
been able to gain out of the situation existing in Russia and so it is a very good opportunity and
option for the firm to try expanding and investing into the Russian economy.
Reports also assert that the total flow of money in Russia in the form of foreign direct
investments as compared to 2017 has increased in 2018 by twenty-five percentage which is a
total sum of US$25 billion ("The Russian Economy in 2018: The Cart’s Still Here Today",
2018). The reasons for this are being estimated to be the growing economy of the country and a
vast improvement in the business environment of the country. Russia as an economy has
improved at an unprecedented scale. It has been able to capture the thirty-fifth position leaving
behind 190 countries and is making stronger efforts to match the domestic demand and supply
levels as well as handling international trade.
Recommendations

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Thus, according to research and reports about the intensity of openness of Russia to
international trade and the net flow of foreign direct investment, it can be understood that the
country is definitely increasing its potential in terms of being an emerging economy. There are
existing vulnerabilities of the country which need to be addressed by the government of the
country with the help of better policies. Agridigital should essentially be able to make use of the
existing situation and make digital marketing the only option of reaching out to people in Russia
as that will reduce the costs incurred by the firm.
Conclusion
In order to conclude, it can be asserted that Russia being one of the countries of BRICS is
definitely full of potential and is emerging in leaps and bounds each year since the last few years.
Even in the face of geopolitical and inflationary pressures, the country is improving the level of
growth and economic development. This is being made possible with the help increasing stability
of trade balance and increasing amounts of employment in the country through foreign direct
investment projects. Hence, the business and trade environment existing in Russia is very
conducive to the growth of Agridigital. This Australian firm should make use of this situation
and expand into this economy to earn greater returns both for themselves and for Russia as a
whole.

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References
Acharya, V., Cecchetti, S. G., De Gregorio, J., Kalemli-Özcan, Ş., Lane, P. R., & Panizza, U.
(2015). Corporate debt in emerging economies: A threat to financial stability?.
Ahmed, S., & Zlate, A. (2014). Capital flows to emerging market economies: a brave new
world?. Journal of International Money and Finance, 48, 221-248.
Chkili, W., & Nguyen, D. K. (2014). Exchange rate movements and stock market returns in a
regime-switching environment: Evidence for BRICS countries. Research in International
Business and Finance, 31, 46-56.
Cousins, B., Borras Jr, S. M., Sauer, S., & Ye, J. (2018). BRICS, middle-income countries
(MICs), and global agrarian transformations: internal dynamics, regional trends, and
international implications. Globalizations, 15(1), 1-11.
EY - Russia ranked seventh among European countries by FDI projects. (2018). Retrieved from
https://www.ey.com/ru/en/newsroom/news-releases/ey-russia-ranked-seventh-among-
european-countries-by-fdi-projects
Idris, J., Yusop, Z., & Habibullah, M. S. (2016). TRADE OPENNESS AND ECONOMIC
GROWTH: A CAUSALITY TEST IN PANEL PERSPECTIVE. International Journal of
Business & Society, 17(2).
Jost, T. (2015). FDI in Russia in difficult times.
Makhmudova, M. M., & Koroleva, A. M. (2016). Foreign Trade Activity of the Russian
Federation in the Current Context. International Journal of Economics and Financial
Issues, 6(2S), 241-245.
Marquis, C., & Raynard, M. (2015). Institutional strategies in emerging markets. The Academy of
Management Annals, 9(1), 291-335.
Pasricha, G. K., Falagiarda, M., Bijsterbosch, M., & Aizenman, J. (2018). Domestic and
multilateral effects of capital controls in emerging markets. Journal of International
Economics, 115, 48-58.
Russia Foreign Direct Investment - Net Flows | 1994-2018 | Data | Chart. (2018). Retrieved from
https://tradingeconomics.com/russia/foreign-direct-investment
Russia Trade openness - data, chart | TheGlobalEconomy.com. (2018). Retrieved from
https://www.theglobaleconomy.com/Russia/trade_openness/

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The Russian Economy in 2018: The Cart’s Still Here Today. (2018). Retrieved from
https://www.worldbank.org/en/news/opinion/2018/02/28/the-russian-economy-in-2018-
the-carts-still-here-today
Tsygankov, A. P. (2016). Russia's foreign policy: change and continuity in national identity.
Rowman & Littlefield.
Xia, J., Ma, X., Lu, J. W., & Yiu, D. W. (2014). Outward foreign direct investment by emerging
market firms: A resource dependence logic. Strategic management journal, 35(9), 1343-
1363.