Price and cost

Price and cost

The Soviet Union had a centralized state control over virtually all means of production, exchange, distribution arid investment. The Soviet Union also had a planned economy. Economic policy was made according to directives from the Communist Party, which controlled all aspects of economic activity.

Russia undertakes the transition to fully-developed market economy with challenges and obstacles. However, Russian economy has great potential for growth. Russia possesses huge supplies of many of the world's most valued natural resources, especially those required to support a modern industrialized economy. It also has a well-educated labour force with substantial technical expertise. At the same time, Soviet-era management practices, old infrastructure, and inefficient supply systems hinder efficient utilization of those resources.

Russia ended 2006 with its fifth year of growth, averaging 6.5% annually since the financial crisis of 1998. Although high oil prices and a relatively cheap ruble are important factors of these economic successes, since 2000 investment and consumer-driven demand have played a noticeably increasing role.

Real fixed capital investments have averaged gains greater than 10% over the last four years and real personal incomes have increased over 12% on averaged Russia has also improved its international financial standing since the 1998 financial crisis, with its declining national debt.

Strong oil export earnings have allowed Russia to increase its currency reserve. These achievements, along with a renewed government effort to advance structural reforms, have raised business and investor confidence in Russia's economic prospects.

Nevertheless, serious problems exist. Oil, natural gas, metals, andtimber account for more than 80% of exports, leaving the country vulnerable to swings in world prices.

Russia's manufacturing base is dilapidated and must be replaced or modernized if the country is to achieve considerable economic growth. Other problems include a weak banking system, a poor business climate that discourages domestic and foreign investors, corruption,-local and regional government intervention in the courts, and widespread lack of trust in institutions.

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