Copyright 1995 Walden Publishing Ltd.  
Country Reports

COUNTRY: Russia

LAST-UPDATE: January 30, 1995

LENGTH: 20146 words

TYPE OF CONSTITUTION:
   Following the passing of a new constitution in a referendum in December 1993, Russia is a presidential federation administratively divided into provinces (oblasts and krais), autonomous republics, autonomous districts, regions and metropolitan areas. There are 49 oblasts and six krais, 21 autonomous republics, 10 autonomous districts, one autonomous region, and two metropolitan areas (the cities of Moscow and St Petersburg). The constitution was put forward to a referendum following a year of political stalemate between the executive and the legislative in which the conservative-dominated parliament blocked most attempts at economic reform.

The new constitution is an attempt to resolve the struggles over the division of power. The president's powers are greatly increased and it is his duty to formulate domestic and foreign policy. However, Yeltsin's success in getting the constitution approved was somewhat overshadowed by the success of nationalist and communist parties in the December 1993 parliamentary elections, raising fears that a new power struggle could emerge.

Russia is divided into 12 economic zones which include different sets of neighbouring administrative units (including Kaliningrad oblast as a separate economic formation which has no border with the other Russian administrative units, being surrounded by the territory of Lithuania):
- Volga Vyatsky: centre of the machine building and defence-related industries.
- Central Black Earth: strong in agriculture and largest producer of iron-ore.
- North Caucasus: agriculture, oil, tourism.
- North-west Region: seen as the gateway to Europe - contains St Petersburg.
- Western Siberia: oil, gas, metallurgy and chemicals.
- Central Region: Moscow, manufacturing.
- Lower Volga: industry, oil, natural gas.
- Eastern Siberia: weak in industry, strong in hydroelectric power.
- Far East: gold, diamonds, oil and gas.
- Northern Region: extensive natural resources.
- Urals: heavily dependent on defence industries.
- Baltic Region: Kaliningrad - location, agriculture.
 
HEAD OF STATE: President Boris Yeltsin
 
HEAD OF GOVERNMENT: Chairman (Prime Minister) Viktor Chernomyrdin
 
RULING PARTY:
   There is no ruling party. Possible alliance of Liberal Democratic Party, Communist Party and Agrarian Party who hold at least 211 seats out of total of 444; second possible alliance of Democratic Choice of Russia, formerly Russia's Choice, (radical reformists), with the support of 96 deputies in the Duma, and other pro-reform parties.
 
MAIN POLITICAL PARTIES AND LEADERS:
   Liberal Democratic Party led by Vladimir Zhirinovsky

Democratic Choice of Russia led by Yegor Gaidar

Communist Party led by Gennadi Zyuganov
 
OPPOSITION:
   Whilst there is no formal leader of the opposition, Mr Yegor Gaidar's Democratic Choice for Russia, founded in June 1994, is designed to take over the mantle of Russia's Choice, uniting various disaffected groups. Mr Gaidar will compete with maverick nationalist Vladimir Zhirinovsky for the role of prime minister-in-waiting.

SIZE: 17.08 million square km (76 per cent of former Soviet Union). POPULATION:
   148.6 million, 1993; 148.59 million, 1992 (source: World Bank); 148.5 million, 1991; growth rate 0.9 per cent per annum, 1990-91 (source: Statistical Committee of the CIS) CAPITAL CITY:
   Moscow, population 9.0 million, 1992; 8.97 million, 1989 (source: Census).
 
LABOUR MARKET
Former USSR employment by sector

('000)
1990
Agriculture, forestry and fishing   22,761
Industry (including the manufacturing,   35,400
mining, gas, water and electricity sectors)        
Construction   12,550
Commerce, restaurants and hotels    9,800
Transport and communications   10,225
Finance sector      720
Service sector   31,425
Other activities not specified    2,090
Total employment 124,971

 
Source: International Labour Office, Yearbook of Labour Statistics 1991
Distribution of employment by sector 1980-90

(% of total)
1980 1990
Industry   32.5  30.9
Agriculture   14.6  13.1
Construction    9.6  11.9
Transport, communications    9.6   7.9
Trade    8.3   7.9

 
Source: Goskomstat of the Russian Federation
Education - former USSR population (15 years old and over) who had:

(per cent)
Higher education (completed) 10.8
Higher education (incomplete)    1.7
Secondary specialised education   18.2
General secondary education   30.5
Incomplete secondary education   20.0
No secondary education   19.8

 
Source: Narodnoe Khozyaistvo

In 1993 there were 71 million people in employment, 20.8 million of whom were employed in industry, and 1.085 million were unemployed, with only 352,000 vacancies. By mid-1994 70 per cent of industrial workers were employed in the private sector.
 


RELIGIONS

Information on religious affiliation is sparse, but official Soviet estimates indicated that about 10 per cent of urban dwellers and 25-30 per cent of rural dwellers were believers. Religion, while not actually forbidden under communism, was officially discouraged for years.

Religious observance and interest is growing steeply with the relaxation of state restrictions. Russian Orthodox Christmas (7 January) was an official holiday for the first time in 1991.
Estimates of religious profession in the USSR

(1990, million)
Religion Adherents
Muslim 40-45
Russian Orthodox 35-40
Roman Catholic      5
Uniate    3-4
Jews     *2
Baptists (all)    0.5

 
* by ethnic origin, but many not practising. Many Jews have since emigrated to Israel and USA.
 
Source: Keston College, UK
 
LANGUAGES SPOKEN

Russian is the official language although there are many local ethnic languages. Translators, of varying abilities, will be found in all sizeable organisations. Learning basic Russian, at least the Cyrillic alphabet, is useful especially when using public transport and purchasing basic goods.
 
CURRENCY

Rouble (R) = 100 kopeks
 
EXCHANGE RATE: R0.700 per US$ (official rate, September 1994)

R2,215 per US$ (market rate, September 1994)
 
GROSS DOMESTIC PRODUCT: R162,300 billion (1993)
 
GDP PER CAPITA: US$ 3,220 (1992 estimate)
 
GDP REAL GROWTH: -12.0 per cent (1993)
 
GNP: US$ 398 billion (1992)
 
GNP PER CAPITA: US$ 2,680 (1992)
 
GNP REAL GROWTH: -20.0 per cent (1992)
 
UNEMPLOYMENT: 5 per cent (1993)
 
INFLATION: 940 per cent (1993)
 
INTEREST RATE: Refinancing rate: 155 per cent (1 July 1994)

Discount rate: 210 per cent per annum (28 February 1994)

Short term rate: 243.47 per cent per annum (September 1994)

Deposit rate: one month 180-190 per cent per annum (28 February 1994)
 
TRADE BALANCE: US$ 16 billion (1993)
 
FOREIGN DEBT: US$ 80 billion (end-1993)
 
CURRENT ACCOUNT: US$ 11.1 billion (1993) INTRODUCTION

Politically, 1993 saw the Russian Federation come close to all out civil war when Ruslan Khasbulatov and Alexander Rutskoi's coup attempt was thwarted. Boris Yeltsin's victory against these hardline opponents could best be described as Pyhrric. The ensuing parliamentary elections saw the emergence of maverick nationalist Vladimir Zhirinovsky followed by the resignation of key Yeltsin supporters - including the architect of the country's economic reforms, Yegor Gaidar. Yeltsin's position was further challenged by the judiciary, with the release of Khasbulatov and Rutskoi from jail without trial. The polarisation of president and parliament, reformists and hardliners, remained unchanged.

Ironically, in view of these major political uncertainties, during 1993 Russia has gradually pulled back from the brink of economic catastrophe. Most crucial was the agreement between the Central Bank and the government to limit credits, control the money supply and cut spending. Interest rates were increased sharply in the spring and inflation began to drop back from January's peak of 50 per cent a month. Whilst still giving cause for concern, Russia's rate of industrial decline decreased in 1993. Investment was cut 45 per cent as part of the budget squeeze; nearly half of all investments were in the fuel and energy complex, a key sector but not one to produce a beneficial 'knock-on' effect through the economy. First quarter 1993 capital investments registered a 39 per cent drop.

Although the privatisation programme - judged to be over-ambitious by most observers - lagged behind target, at least in absolute terms it continues to move forward. By end-1993 one in five Russians were working in the private sector and some 80,000 businesses (mostly small businesses and shops) had been privatised compared to only 46,815 in 1992. The two main features of the government's privatisation programme were the transformation of large- and medium-size state enterprises into open joint-stock companies and the issue of privatisation vouchers to 146 million citizens. By late-1993 the standard 10,000 rouble voucher was behaving as normal security and could be bought on the fledgling exchanges. The privatisation programme favours employees; they are entitled to between 25 and 51 per cent of all shares.

At least until the attempted coup and parliamentary elections, the government had tried to maintain the momentum of its reform programme. The overall objective was to liberalise trade and ease regulations. Administrative controls that formerly prevented enterprises from exporting their products to other countries were removed and the list of commodities that could only be exported under licence was shortened. A new system of excise duties was also introduced in early-1993. As a result, the share of export duties in foreign trade turnover increased from 3.8 per cent in 1992 to 9.2 per cent in the first quarter of 1993 and the share of import duties rose from 1.7 per cent to 6.9 per cent.

First quarter totals for imports and exports in 1993 showed a stark contrast: exports were up 3.5 per cent over the previous year while imports showed a decline of 49 per cent. Moreover, the share of total imports for individual companies - as opposed to state orders - increased from 11.7 per cent to over 50 per cent. These indices boosted the trade surplus from US$ 477.3 million in 1992 to US$ 16 billion in 1993. The overall picture of physical volumes and contrast prices showed that the growth in exports was accompanied by a decline in prices for many commodities. Considerable reservations continue to be expressed over the reliability of official figures, particularly in view of the extensive 'black' (undeclared) economy which is active in both domestic and external trading. The anarchic nature of large sectors of the economy and its obvious connections with organised crime gives cause for concern to government and legitimate business circles.

For the foreseeable future, if it is to achieve its targets for privatisation and modernisation of its creaking economy, Russia will need billions of dollars of aid, investment and expertise.

It appears increasingly clear that President Yeltsin's bold gambles - to concede decentralisation, to back shock therapy and even to storm the White House rebels - have backfired. The parliament generally seems even less disposed to reform than ever and the resignations of key reformists Yegor Gaidar and Boris Fyordorov confirm suspicions that the Chernomyrdin government, under pressure from conservatives, will move away from any further serious reform.

VISITORS' GUIDE
 
DRESS CODES:
   The most important factor is neatness. Shoes should be polished and clothes pressed. Russians themselves do not always wear a suit and tie at business meetings, but it is wise to err on the safe side. Dark suits, white shirts, conservative ties are the norm, business suits for women. Formal evening wear is not normally necessary. Summer dress is modest.
 
SOCIAL NICETIES, TRADITIONS AND TABOOS:
   There are no longer real political taboos, and social customs approximate to western ones. But do not talk in a 'West is best' manner.

Many Russians take certain of their superstitions somewhat seriously. Do not give an even number of flowers, for example, as this is for funerals only; do not greet people in a doorway - this is considered unlucky.

Russian society, and thus local customs, are in a period of exceptionally rapid change. As a generalisation the direction of change is toward liberalisation and westernisation of attitudes and customs. Though the taboos and traditions are still old fashioned, they are being discarded, but no harm need come from observation of them.

Overtly chivalrous behaviour toward women is rather old-fashioned and may even irritate some western supporters of womens' liberation. The giving of small gifts is widely practised, not as bribes but as social niceties. Offering basic food is still insulting, no matter what the rumours are in the west. Items of western technology, such as solar-powered calculators, make ideal business gifts.

Strict punctuality is of no great importance and you may be kept waiting for appointments. On the other hand a certain amount of attention is paid to niceties such as seeing someone off at a train station.

If travelling on public transport, make sure to give up your seat to the old, parents with children and the disabled.
 
EATING HABITS:
   Breakfast is rather like the Anglo-American meal, but with a wider variety of foods. Coffee is now as popular as tea, but it can be in short supply. The midday meal remains the heaviest one of the day although a business dinner can also be substantial. There is less public drinking than in the past, due to an anti-alcohol campaign and a shortage of alcohol. However, there are still opportunities to be drawn unwillingly into a drinking match.

There are no food or alcohol shortages in international hotels or hard currency supermarkets.
 
UNUSUAL/STRICT LAWS:
   Travel and visa regulations are still somewhat hidebound. The tendency, however, is towards streamlining, and Russian Consulates will supply the latest regulations. Many ordinary Russians still have a heightened sense of national security and it is advisable not to take photographs of bridges, railways, or military objects.

Permission to enter the buildings of some organisations still involves an elaborate routine.

Drunken driving is illegal. There may also be fines for speeding, driving without a seat belt, driving without proper documents and improper crossing of an intersection.

There have been reports of western cars being stopped by traffic police on spurious grounds and a small 'fine' charged.
 
SECURITY:
   The level of street crime and theft from hotel rooms is rising swiftly. Do not flaunt money or western goods, and be careful after dark in deserted areas. It is wise not to travel on the Moscow Metro at night. Crime in Russia rose by 27 per cent in 1992, but against foreigners it rose by 72 per cent. It has almost doubled again in 1993.
 
HEALTH FOR VISITORS:
   Russian medical care is, by official acknowledgment, not up to western standards. Any medicines known to be required should be taken by the visitor, and it could be wise to have precautionary antibiotics if going outside major urban centres. A travel kit including a disposable syringe is a reasonable precaution because of the danger of infection if medical care is needed. Water purification tablets may be useful, especially in St Petersburg, where the water supply is infected by giardia.

Several new joint ventures in Moscow offer western medicine for hard currency. If treatment is required, hotels can advise on the latest developments. Health insurance which includes jet-ambulance if necessary, is still advisable for many illnesses.

No inoculations are required for European and North American visitors. By late 1993 a series of cholera and diphtheria epidemics in western Russia make inoculations against these diseases advisable. Those coming from Africa or South America need a certificate for yellow fever inoculation; a cholera vaccination certificate is needed if coming from an area of infection. Tetanus inoculation is recommended, not required. Gamma globulin treatment against hepatitis is desirable for the vulnerable. An AIDS test is required for long-stay visitors only.
 
BANKING/BUSINESS HOURS:
   These are generally from 0900-1800. The office lunch break may be from 1300-1400, though most shops shut from 1400-1500. There is little overtime or weekend work as yet, though shops are open for long hours and often at weekends, as are private markets and large post offices.

Banks are generally open for short hours, from 0930-1230, although foreign currency exchanges work longer hours. The currency exchange at Sheremyetevo II International Airport (Moscow) is open 24 hours a day.

Most international hotels have banks where money can be changed.

The American Express office in Moscow can supply dollars for American Express travellers' cheques or American Express cards.
 


PUBLIC HOLIDAYS
1994 1995
New Year's Day 1-2 Jan 1-2 Jan
Russian Orthodox Christmas    7 Jan 7-8 Jan
International Women's Day    8 Mar   8 Mar
May Day 1-2 May 1-2 May
Victory Day 8-9 May   9 May
Independence Day   12 Jun  12 Jun
Anniversary of October Revolution    7 Nov   7 Nov

 
GETTING ABOUT:
   In October 1992, travel restrictions on all foreigners were lifted - business people and journalists were no longer required to give advanced notice of travel plans once they have a visa to enter the country. They no longer had to show visas to buy tickets and book accommodation. For the first time, travellers were also permitted to by-pass the state monopoly agencies such as Intourist.

National transport

Air: Extensive internal service operated by Aeroflot.

Road: Major highways connecting Moscow with Kiev (Ukraine), St Petersburg, Minsk (Belarus), Riga (Latvia) and Warsaw (Poland). Secondary roads often untarred. Roughly 60 per cent of the road network needs to be rehabilitated or upgraded.

Rail: The railways are wide-gauge. Almost all the rail network is electrified. Major means of transport. Cheap and efficient service to all major towns. Sleepers should be booked well in advance.

Water: The largest inland waterway is the River Volga. Number of inland ports and canals.

City transport

Taxis: May be identified by checkerboard on side of car. Green light at top righthand corner of windscreen indicates availability. Can be hired at taxi ranks or by telephoning - all regions (927-0000, 457-9005); for Kutuzovsky, Gruzinsky, Sadovaya and centre (137-0040); Izmailovo (167-9011). Charges for foreigners are often subject to negotiation and usually only acceptable in hard currency (often US dollars). Also possible to hail private (unofficial) cars by raising arm in street. Prices negotiable and usually higher than taxis, but availability plentiful although service patchy. Most international hotels offer taxi services.

On arrival you can now approach a reliable taxi firm in the airport arrivals section after clearing customs. Alternatively you may arrange in advance through Intourist to be met at the airport. The journey by car from the airport to the centre of Moscow takes about an hour. On no account whatsoever should visitors travel with one of the touts plying for trade - in the past foreigners have been driven to remote areas, beaten up and robbed. The same situation holds true for many other cities and it is wise to inquire well in advance of departure.

Buses: Cheap and reliable, though often crowded, available from 0600 to 0100. The cheapest way into Moscow from the airport is by regular bus. However, because of high crime rates at the Sheremetyevo II International Airport it is a better to travel by private means.

Metro: Flat fare service in Moscow connecting some 120 stations. Excellent service. NB. It is unwise to travel on the metro at night.

Car hire

Available in major towns. International driving licence required with Russian translation of details. Notification of route to be taken should be given if travelling outside main cities.

GEOGRAPHY AND CLIMATE

In the north the climate of Russia is arctic, but there are a few subtropical zones in the southern region of the country. The climate of the bulk of the land mass is predictably continental or moderate continental.

The Russian winter is deservedly famous: winter snowcover lasts as long as 160 days in St Petersburg. In the more moderate western portion of Russia, average January temperature is slightly below zero. Warm outer clothes, hats, gloves and footwear are therefore essential, although interiors are well heated. Summer is very hot in some areas, including in Moscow. The snow in European Russia begins to melt in March and the muddy transition period demands waterproof footwear.

MEMBERSHIP OF INTERNATIONAL ORGANISATIONS

In early 1992, Russia was admitted as a member of the World Bank (the first loan from that body came in July of that year). In April 1992, Russia was also admitted as a member of the IMF with a 3 per cent stake in the fund. In June 1993 Russia formally applied to join GATT.

Following the disbanding of the Warsaw Pact and Council for Mutual Economic Assistance in mid-1991, Russia is a member of the following organisations:

European Bank for Reconstruction and Development (EBRD)

United Nations and its agencies including:

Economic Commission for Europe (ECE)

International Atomic Energy Agency (IAEA)

International Civil Aviation Organisation (ICAO)

International Development Association

International Finance Corporation (IFC)

International Labour Organisation (ILO)

International Maritime Organisation (IMO)

International Monetary Fund (IMF)

International Telecommunication Union (ITU)

United Nations Educational, Scientific and Cultural Organisation (UNESCO)

United Nations Industrial Development Organisation (UNIDO)

Universal Postal Union (UPU)

World Bank

World Health Organisation (WHO)

World Intellectual Property Organisation (WIPO)

World Meteorological Organisation (WMO)

POLITICAL STRUCTURE

Head of State: President Boris Yeltsin

Head of Government: Chairman (Prime Minister) Viktor Chernomyrdin

Ruling Party: There is no ruling party. Possible alliance of Liberal Democratic Party, Communist Party and Agrarian Party who hold at least 211 seats out of total of 444; second possible alliance of Democratic Choice of Russia, formerly Russia's Choice, (radical reformists), with the support of 96 deputies in the Duma, and other pro-reform parties.

Main Political Parties and Leaders:

Liberal-Democratic Party - Vladimir Zhirinovsky

Democratic Choice of Russia - Yegor Gaidar

Communist Party - Gennadi Zyuganov

Opposition

Whilst there is no formal leader of the opposition, Mr Yegor Gaidar's Democratic Choice for Russia, founded in June 1994, is designed to take over the mantle of Choice of Russia uniting various disaffected groups. Mr Gaidar will compete with maverick nationalist Vladimir Zhirinovsky for the role of prime minister-in-waiting.

Until the end of 1991 Russia was part of the Union of Soviet Socialist Republics (USSR). During 1990-91 many of the original 15 republics declared independence from the union - Ukraine (24 August 1991; confirmed by referendum on 1 December 1991), Belarus (25 August 1991), Lithuania (11 March 1990), Latvia (21 August 1991), Estonia (20 August 1991), Moldova (27 August 1991), Georgia (9 April 1991), Uzbekistan (31 August 1991), Kyrgyzstan (31 August 1991), Azerbaijan (30 August 1991). The Russian Federation officially came into existence in December 1991.

The Russian Federation was adopted by Presidential decree in December 1991 - Russia was recognised as an independent state by the EU and USA a month later. A new Russian Federal Treaty was signed between the central government and 20 of the 22 autonomous republics (Tatarstan and Chechen refused to sign).

Federative republic with multi-party democracy. New constitution promulgated in December 1993 confirmed. Unicameral parliament is highest legislative power elected every four years, although its first sitting under the 1993 constitution is for a transitional two-year period beginning in 1994. Powerful executive presidency elected every five years. Nominated by the president, the premier leads the federal government, which is responsible to the parliament. De facto, however, all real power is with the president and the all-powerful Security Council. Among other things, the president is able to nominate a non-party federal government and to reshuffle it at will, without reference to the legislature. Under the present constitution, the federal premier would replace the president in the event of his incapacitation pending new presidential elections. The next scheduled elections, under the present constitution, are due in 1996. In the case of the president, his present mandate may be extended for another five-year term without a new presidential election in 1996.

Politics in 1992 and 1993 were dominated by a power struggle between President Yeltsin and the conservative-dominated parliament. In late September 1993 this conflict came to a head following the suspension of parliament by President Boris Yeltsin, who called for new parliamentary elections in December 1993.

Yeltsin's parliamentary foes were wrong-footed by this move but wasted no time in installing former Vice President Rutskoi as their presidential nominee. Two weeks of impasse ended on 3 October 1993 when conservatives attempted an armed uprising in Moscow, giving Yeltsin the carte blanche he was seeking to clamp down. The next day army troops besieged and captured the parliament building; 147 people were killed in the two days of fighting.

The power struggle also revolved around disagreement over the economy, in particular over the pace of reforms. The consolidation of democratic institutions occured in 1992, as well as price liberalisation and the convertibility of the currency. On the economic front, Yeltsin's government introduced a 'shock therapy' programme for the economy on 1 January 1992 and the second phase began in July 1992. This phase stressed the large-scale privatisation of state enterprises by 1995 (50 per cent). Progress, however, was halted by conservative opposition, the falling rouble rate, falling domestic production, lagging tax collections, and an inability to hold the money supply in line with IMF requirements.

Last elections: 12 December 1993 (parliamentary)

Next elections: June 1996

Cabinet ministers (September 1994)

First Deputy Chairman: Oleg Soskovets

Deputy Chairmen: Anatoly Chubais, Yuri Yarov and Alexander Zaveryukha

Minister for Agriculture and Foodstuffs: Victor Khlystun

Minister for Culture: Evgeny Sidorov

Minister for Defence: Pavol Grachev

Minister of Economics: Evgeny Yasin (Alexander Shokhin resigned 4 November 1994 over the 'Black Tuesday' rouble crisis)

Minister of Education: Evgeny Tkachenko

Minister for External Economic Relations: Oleg Davydov

Minister for Finance: Vladimir Panskov was appointed by President Boris Yeltsin on 4 November 1994 (Andrei Vavilov took over the post for only three weeks after Sergei Dubinin was dismissed over the rouble collapse)

Minister for Foreign Affairs: Andrey Kozyrev

Minister for Health and Medicine Industry: Eduard Nechaev

Minister for Internal Affairs: Victor Erin

Minister for Justice: Yuri Kalmykov

Minister for Nationalities and Regional Policies: Nikolai Egorov

N.B. For addresses of Ministries, see USEFUL ADDRESSES at end of report.

BANKING AND FINANCE
 
BASIC REGULATORY STRUCTURE:
   A banking law, passed in October 1987 and effective from the start of 1988, provided for considerable expansion and restructuring of the exceptionally underdeveloped banking system of the former USSR. In practice a three-tier banking structure emerged, consisting of the State Bank (Gosbank), the specialist sectoral state banks, and the emerging commercial and co-operative banks. A second new banking act, the USSR Law on Banks and Banking Activity, became law in December 1990, and confirmed this trend.

In November 1991 the Russian parliament took over the USSR state banking system. Both Gosbank (the functions of which are close to a traditional central bank, except it does not operate as the lender of last resort) and Vneshekonombank (the foreign economic affairs bank) were placed under the control of the Russian Central Bank. The Russian Federation Central Bank is the only body responsible for state monetary, credit and currency policy. A major reform of the Central Bank is imminent.

The major specialist state banks established by the new banking law are listed below (see MAJOR BANKS AND FINANCE HOUSES). Other banks are being set up at a rapid rate. These banks, 47 of which are represented by the new Moscow Banking Union, argue that the second tier presents a harmful barrier to the proper development of banking. The general trend is towards greater decentralisation and specialisation, with greater initiative in decision-taking being given to local bank executives. But the banking system is still in the first stages of redevelopment and its final structure is as yet uncertain - regulations and legislation are changing rapidly and can sometimes be inconsistent.

From early 1992 commercial banks, which had to have a minimum of R5 million in initial capital, could attract funds and thus lend up to 20 times their capital. A co-operative bank had to have only R500,000 initial capital, and their corresponding ratio was only 12:1. The 1990 banking law allowed Gosbank to regulate this. It has been alleged that these new banks are frequently 'fronts' for organised criminal gangs who use them as a money laundery.

In early-1993 the European Bank for Reconstruction and Development (EBRD) directors approved an equity investment of US$ 3.06 million in a new banking institution, the Russian Project Finance Bank (RPFB). The bank will play a vital role in seeking to fill the gap in the Russian market for medium and long term finance plus high quality investment banking advisory services, while at the same time, setting new standards of efficiency and practice for all Russian banks.
 
MAJOR BANKS AND FINANCE HOUSES:
   All of the major banks listed below were state-owned in late 1991. Their total statutory foundation capital was given in April 1990 as R11 billion, and the volume of their credit resources at R350 billion.

Major specialist state banks:
- State Bank (Gosbank)
- Bank for Foreign Economic Affairs (Vneshekonombank)
- Bank for Industry and Construction (Promstroibank)
- Agroindustrial Bank (Agroprombank)
- Bank for Housing, Communal Economy and Social Development (Zhilsotsbank)
- Bank for Labour Savings and Credit to the Public (Sberbank)

Mosbuzinesbank has been set up on the basis of the Zhilsotsbank, with an equity fund of R800 million.

More than 350 banks were registered at the end of 1991. Over 60 banks were founded in the first year following the 1988 Bank Reform Law, many of them small co-operative banks. By April 1990 the number had grown substantially, with 278 commercial banks and 78 co-operative banks in all. Their total capital was given in April 1990 as R2.5 billion, and their total volume of borrowed capital as R40 billion.

In 1993 the first foreign banks were beginning to appear and there was even a report of a bank being set up by the Russian Orthodox Church.

In January 1993, an IMF team published a series of proposals to reform the Russian Central Bank. These proposals covered the mechanism for refinancing bank assets, distribution of state bonds, cost accounting procedures and reorganising the Central Bank's management and operational structure.
Top banks ranked by capital
Capital Assets Pre-tax profit
US$ m US$ m US$ m
Vneshtorgbank (12/93)    523 6,814   108
Sberbank (1/94)    477 6,319   747
Tokobank (12/93)    249   785    23
INKOM Bank (1/94)    141 1,480    28
Bank 'Imperial' (1/94)    126   818    15

 
Source: The Banker Top (July 1994) INVESTMENT, COMPANIES AND STOCK EXCHANGE
 
FOREIGN INVESTMENT REGULATIONS:
   The legal basis for foreign investments in Russia is the Law on Foreign Investments adopted in the summer of 1991. Under this law foreign investors may be any companies, organisations, and associations, established and authorised to make investments under the law of the country of origin. This also applies to foreign citizens. Investments in Russia may be made through share participation in companies formed together with Russian legal entities and individuals, companies owned by foreign investors and branches of existing companies. Foreign investors can pay their shares in foreign currency and roubles. Full legal protection is granted to foreign investments on the same basis as Russian citizens: foreign investments are protected from nationalisation and (except in rare circumstances) confiscation.

Foreign investors are guaranteed free transfer of payments abroad in foreign currency, arising from their investments and after due taxes are paid. These allowable payments may include profits, dividends, interest, fees, commissions and so on. Payments received by foreign investors in roubles from sources in Russia and other CIS countries, may be reinvested in Russia, or they may be used to acquire foreign currency.

Customs duties and import taxes are not levied on property brought into Russia as a contribution to the authorised capital of companies.

Under separate laws, foreigners are restricted from owning land except on a leasehold basis; foreign investors can obtain land through forming a joint venture with Russians.

Companies with foreign investments pay profits tax in the form of quarterly advance payments, based on the expected profit and the current tax rate which in 1992-93 was 32 per cent for enterprises and 45 per cent for intermediary activities. Income tax is levied at 30 per cent.

In early 1993 Russia modified its tax laws so that enterprises became free from taxes on monies used for investment and expansion or renovation of production capacities. VAT was reduced from a uniform 28 per cent to 10 per cent for foodstuffs and children's clothes; other goods including imports are levied at 20 per cent.

The entire process of joint venture formation is subject to initial approval by an elaborate and formal process. Largely as a result of the difficulties outlined above, the actual progress of joint ventures has been slow.

In November 1992 underwriters at Lloyd's of London backed a billion dollar insurance scheme aimed at encouraging foreign investment in Russia. The scheme covered investment risks from property expropriation and any blocks placed on dividend repatriation. The scheme was developed by the European Investment Guarantee Agency and the Russian Agency for International Co-operation and Development. The first customers were expected to be companies investing in port renovation, hotels, weapons conversion, and mining projects.

Foreign investment for the first six months of 1994 was US$ 280 million.

MAJOR INSURANCE COMPANIES

From 1988 to 1992 over 600 insurance companies sprang up to challenge the traditional monopoly of the two state companies: State Insurance Company (Gosstrakh) and State Foreign Insurance Company (Ingosstrakh) which insures risks involving foreign currency. Many of the new companies lack expertise and in many cases, capital. A regulatory body, Gosstrakhnadzor, was established to oversee the rapidly expanding market.

In September 1989 a joint venture agreement was signed between Ingosstrakh and Pohjola, Finland's biggest insurance company. More joint ventures are in the pipeline. There are now two additional large insurance companies - Rossiya and Dalrosso - and an increasing number of small co-operative enterprises acting as insurance companies on local markets.
 
CURRENCY REGULATIONS:
   On 1 July 1992 the rouble was floated in a controlled way, the intention was to eliminate the currency multiple fixed exchange rates. This move was part of a phase towards hoped-for full convertibility with foreign hard currencies. Under the system, a base exchange rate of 125.26 roubles to the US dollar was set for restricted currency auctions at the Moscow Currency Exchange. The 'new rouble' quickly lost value after 1 July - this was attributed to lack of confidence by foreign investors in the controlled float, the easy credit policy of the central bank and the continuing budget deficit. The currency continued its rapid fall throughout 1993 falling by some 90 per cent in the 12 months to June 1993.

In December 1992, the country seemed to be on the verge of introducing its own rouble. This was deemed necessary to reduce the influence on Russia's monetary control policy exerted by former Soviet republics still operating in the 'rouble zone'. Most of the republics had left the rouble zone by late 1993, negating need for a new rouble. In July 1993 efforts were made to replace old roubles for new, on a rationed basis. This caused public unrest and had to be severely amended by President Yeltsin's personal intervention.

Earlier, the Russian Federation Central Bank (RFCB) had been directly responsible to the Congress of People's Deputies (CPD) and not to the government, which allowed the Central Bank to pursue a policy of uncontrolled primary rouble emission to fund the budget and many off-budget expenditures, notably low cost RFCB credits to the country's ailing industrial and agricultural sectors. Inevitably, this resulted in sharply increased inflation (1992 - 1,354 per cent; 1993 - 940 per cent). Domestically the policy resulted in a dramatic fall in real wages, whilst externally the rouble became increasingly worthless. In July 1993 the RFCB unilaterally replaced the old soviet Rouble with new Russian issuance that was denied to the rest of the CIS, thereby ending the rouble zone. The new monetary policy succeeded in reducing inflation to a projected 600 per cent for 1994, but also deflated the economy through the imposition of high interest rates.
 
TRADING REGULATIONS:
   Trading regulations are still very cumbersome. Although there has been some relaxation of the historic state monopoly of foreign trade, transactions still require export and import licences. Eventually it is intended that the old monopolists, the foreign trade organisations, should retain only 40 per cent of international trade, but complicated rules combined with ignorance are hindering the development of independent trade.

In the past, when Soviet trade was carried out entirely by the foreign trade organisations (FTO), Soviet buyers had a good record for prompt payment. The new, relaxed international trade arrangements have introduced unknown players into the game, both as buyers and sellers. Additionally in late 1989/early 1990 Soviet payments for purchases, even by FTO's, were seriously delayed which caused concern.

Items needing an export licence include most natural resources, many petrochemical products, cement, waste paper, cotton, grain, liquors, medicines, inventions and plays. In the first few months of 1991, severe shortages triggered the authorities to ban the export of such items as scrap metal. The number of items requiring an export licence changes regularly, a fact which must be considered when undertaking any contract for purchase from Russia. In the present chaotic situation there have been a number of well-publicised cases of sales of goods by bodies who turned out not to be authorised to sell them.

Import licences are needed for medicines and cultural products (literature and printed matter, music and art) so that censorship can be enforced.

In February 1993, reports were circulated that Russia planned a 10 per cent export tax across the board, to pay off the inherited US$ 80 billion debt from the former Soviet Union. In June 1993 Russia formally applied to join the General Agreement on Tariffs and Trade (GATT). MAJOR NATIONAL COMPANIES

In the former USSR, all companies were classified as nationalised. Profit/loss and turnover figures for individual enterprises, which correspond to those in western companies, were not readily accessible.

The whole of the former USSR is in a dangerous no-man's land between the old central allocation and planning system and the new market economy. Individual supply and transport agreements have broken down in many cases, especially as endemic shortages render the currency less and less valuable. Individual enterprises were not financially independent in the past, so that individual company profit/loss had a limited meaning. It was therefore possible for a major firm to make losses over the whole of its corporate life. Pricing, too, has been highly arbitrary.
Major national companies of the former USSR
Name Activity/sector
Kamaz (Kama River Factory)   Heavy vehicles, consumer goods
ZIL    Heavy vehicles, refrigerators
Progress Berdichev Chemical                      Engineering
Engineering Production Association                                
Bryansk Engineering Works         Locomotives, engineering
Minsk Tractor Works           Agricultural equipment
Kharkov Tractor Works           Agricultural equipment
Togliatti Production Amalgamation                 Synthetic rubber
Avtolada, Togliatti                      Automobiles
Kirov Electrosila, St Petersburg             Turbines, electrical
Technokhim, St Petersburg                        Chemicals

 
MULTINATIONAL CORPORATIONS:
   The activities of multinational corporations are, as yet, essentially limited to participation in the new joint ventures. One of the largest of these could be the American Trade Consortium's (ATC) agreement with 23 enterprises and all the major economic organisations, but this is running into problems. The ATC includes: Eastman Kodak, Johnson & Johnson, Nabisco, Chevron, Mercator Corporation, Archer Daniels Midland. There are a considerable number of joint ventures in petrochemicals.

Reynolds Metals of the United States and Fata of Italy are to build a US$ 200 million aluminium foil plant in Siberia. Benetton and other consumer firms such as Gillette are moving towards establishing Russian production plants. Procter and Gamble reached an agreement with a state-owned company at Novomoskovsk, to manufacture detergent products in Russia.

In 1992, Coca Cola became the first US business to form a private sector joint stock company in Russia. The Moscow-based CCRM was to manufacture soft drink syrups and control the Coca Cola distribution outlets.

Despite these positive developments, the general mood about foreign investment in Russia was still guarded in 1993. What is certain is that investors need to take a long term view, forget short term profits and have very strong nerves. Most foreign companies realise the potential for profit to be made in Russia - by the end of 1993 the Western and Japanese expatriate community in Moscow alone was 200,000.
 
STOCK EXCHANGE:
   The first comprehensive plans for the Russian stock market were drawn up in 1991-92. The plans, drawn up with the help of the EU TACIS fund, looked at ways of stimulating already existing but mainly dormant markets (of which there were around 106 registered stock exchanges and stock departments of commodity markets). A market trading in central government debt was developed by the Russian Federation Central Bank with advice from the Russian-American Bankers Forum. Up to mid-1992, 46 public issues had been registered worth about 20 billion roubles. The secondary market in government debt was centred on the Moscow Interbank Currency Exchange - by the end of 1992 secondary market trading in corporate issues was very low but voucher trading was increasing.

Features recognised as holding back a fully functioning country wide series of regional stock markets include deficiencies in the banking system and the absence of proper company balance sheets.

In March 1993 Russia's first electronic trading room opened in the offices of the former communist news agency. Plans were being made for a huge issue of treasury bills and a secondary share market in the privatisation of some 6,500 state enterprises.

Individual 'shares' have been sold privately since 1987, usually in restricted and unusual circumstances.

The Moscow Commodity Exchange, formally opened in the autumn of 1990.

Confidence in the country's fledgling securities market was badly shaken in mid-1994 by the apparent collapse of the MMM finance house. MMM had operated on the classic lines of pyramid sales fraud, with shares at a face value of Rbs500 rising in a matter of months to Rbs115,000. In reality, MMM had little to do with the orthodox securities industry, its shares were quoted on no exchange, rising at the bequest of the company's own directors. None the less, the scandal prompted a government announcement in late July 1994 that the rules governing share transactions would be modified in the light of the affair. MMM was rumoured to have attracted over five million investors.
 
PRIVATISATION:
   A July 1994 decree allows companies the right to own the land on which they stand. The decree will enable companies to sell surplus land or use it to raise money for restructuring or modernisation. The new decree dropped earlier provisions for much broader land privatisation and gives local authorities the right to set the price at which shares in a privatised company can be sold to the public.

Plans for the second phase of privatisation - in the first phase some 70 per cent of state enterprises were auctioned off in exchange for vouchers - were called into question in July 1994 after the Duma, or lower house, refused to pass the government's privatisation bill by a large majority. Despite this setback, the government made clear its intention to proceed with the second stage of privatisation, under which the remainder would be privatised for cash.

The government is seeking to push forward the process of industrial restructuring in the second round by attracting Russian and foreign investment.

Companies due to be privatised in the second phase of privatisation include:
- Aeroflot - world's largest aviation fleet.
- Gasprom - the world's biggest gas producer. A minimum of 10 per cent of shares to be offered to foreign investors.
- Lukoil - Russia's largest oil company. A minimum of 15 per cent to be sold to the public. Open to foreign investment.
- Norilsk Nikel - world's largest nickel producer. Already in private sector; seeks further investment.
- United Energy Systems - world's largest energy company. Already in private sector; seeks further investment.
 
GENERAL GUIDE TO TAXATION:
Corporate tax %
Corporate profits tax rate   35
Capital gains tax rate   35
Branch tax rate   35
Withholding tax    
Dividends   15
Interest   15
Royalties from patents, know-how, etc   20
Payments of other Russian-source income    
to foreign companies   20
Branch remittance tax    0
Net operating losses (years)    
Carryback    0
Carryforward    0

Personal tax - maximum rates
Income tax rate 30
Capital gains tax rate   30
Net worth tax rate    0
Estate gift tax rate    0

 
Source: Ernst & Young
 
TRANSPORT

All transport in the former USSR had been nationalised since the 1920s. Inadequate transport systems and infrastructure in this vast country have been major bottlenecks in its economic development. Private car usage is low, due to the lack of cars for sale for private use, but public urban transport is extensive and includes a number of excellent underground systems. Although these problems are widely recognised, the present emphasis is much more on the efficient use of the existing system rather than trying to change it. The development of new transportation was not a spending priority in the Twelfth Five-Year Plan (1986-90). Completed massive development projects such as the 3,100-km Baikal-Amur Mainline (railway) are viewed somewhat sceptically in some quarters as having contributed little to economic development. Other projects included:
- Electrification of 8,000 km of existing railway track and 5,300 km of new track.
- 167,000 km of new hard top road (some of it now being built in Belarus as a joint venture with Italian participation).
- Substantial upgrading of inadequate existing air traffic control systems.

Some joint ventures for road construction are under way, and the possibility of further foreign involvement in modernising transport is likely. Individual contractors, both domestic and international, had notable successes in the quick and competent performance of road-building contracts in 1990, and thus this area is likely to expand.

The state of the national road network is poor, and lack of roads is still a serious problem in rural areas, especially during the spring thaw. Less than half of the total road network is of a standard considered to be suitable for cars in western Europe; more than one-fifth of roads are little more than tracks. Roads carry a great deal of passenger freight over short distances, but do not bear the burden of most freight carriage.
 
RAILWAYS:
   The railways are wide-gauge, which means that trains to and from the rest of Europe must have a change of bogie at the border. The railways, which are very intensively used, are the major means of transport. Two-thirds of rail freight is to be carried on electrified track but an increasing number of bottlenecks in rail traffic threaten to bring a giant national rail grid lock, and to seriously hinder trade.

Major routes are generally radial from Moscow, with 11 major trunklines. There were 32 railway sub-systems within the former Soviet Union. Important routes include:
- Trans-Siberian Railway east from Moscow across Siberia to the Pacific and China, Mongolia and Korea.
- Moscow-Smolensk-Minsk-Brest route which goes on west to Warsaw and Berlin and beyond. This is the premier international passenger route.
- The new Baikal-Amur Mainline (BAM) which is a more northerly route than the Trans-Siberian route.
- The lines south from Moscow through Kharkov to the Caucasus and the Crimea.
- The development of a new high-speed rail link is a major project.
- The Moscow to St Petersburg line is the existing highest speed line.
 
PORTS/SHIPPING:
   There were 35 major shipping lines connecting the former USSR with ports abroad. Seventeen shipping companies used 70 ports and 30 ship repair docks. They were co-ordinated by the organisation VVO Sovinflot.

Major ports in Russia include:
- Murmansk (Barents Sea)
- Arkhangelsk (White Sea)
- St Petersburg*, Ventspils*, Vyborg (Baltic)
- Novorossiysk, Sevastopol
- Zhdanov* (Sea of Azov)
- Krasnovodsk (Caspian)
- Vladivostok (Pacific)

Nikolaev, a river port on the Dneiper, reopened to foreign shipping in the summer of 1991. A major international effort to develop a new port facility adjacent to Vladivostok was also agreed.

The port of St Petersburg has three terminal areas, two of which accommodate containers. One has a berth of 300 metres length, a total area of 10 hectares, and a shedded area of 9,500 square metres. It has two container gantry cranes as well as other handling equipment. The other berthing area is smaller but similarly equipped. Roll-on/roll-off vessels can use lift-on facilities and there is an adjacent rail terminal with transfer cranes.

Nakhodka is equipped similarly to St Petersburg. It is a year-round port but some use must be made of ice-breakers. Ilichevsk, near Odessa, is a warm water port and has three berths for container operations. Containers can be handled by the port of Ventspils. Vostochny specialises in forest products.

All ports, particularly St Petersburg, have suffered from lack of investment, resulting in serious deterioration of cargo-handling equipment.

The proportion of sea freight that was containerised in is still very small (around 6 per cent), but the proportion has risen from 2.7 per cent in 1980. There were over 3,000 ships in the former Soviet merchant navy; they have a total capacity of more than 24 million gross registered tonnes. Twenty-seven former Soviet passenger ships formed the largest such fleet in the world.

Former Soviet port facilities, especially in St Petersburg, are heavily stretched.
 
AIR TRANSPORT:
   3,600 population points in the former USSR were linked by air, but some very tenuously. Air cargo transport is still underdeveloped. Air traffic control is in need of modernisation. In winter severe disruption occurs.

Major airports with scheduled flights:
- Moscow (Sheremyetevo I and II, International), Domodedevo, Vnukovo
- St Petersburg (Pulkovo I and II)
- Irkutsk, Vladivostok and Sverdlovsk.
Aeroflot RIA statistics 1992
Sales (US$ million) 1,172
Net result (US$ million)   71.5
Passengers (million)   3.54
Passenger load factor (%)     63

 
Source: Airline Business

In 1992 Aeroflot had 103 aircraft and flew 14,129 million passenger kms. A large number of foreign airlines fly to Russia, including British Airways, Delta, Finnair, JAL, KLM, Lufthansa, and SAS.

In 1992 the monopoly power of the Ministry of Aircraft Building was broken up for the delivery of aircraft for Aeroflot. Russian aircraft builders have been in talks with Rolls Royce, Pratt and Whitney, General Electric, Boeing and Lockheed among others. Despite this the native aircraft building industry is severely restricted by its lack of competitiveness in world markets and increasing ecological standards expected at Western airports. In 1992 Russian International Airlines (an affiliate of Aeroflot) signed a US$ 500 million deal with Airbus Industrie for the lease of five A-310 jets. Given the hard currency shortages in Russia, many believe that its domestic aircraft industry should be brought up to international standards by fitting Western engines. To this end, co-operation between Ilyushin and Pratt and Whitney has begun to develop a new version of the Ilyushin 96M.

INDUSTRY

One of the major focuses of Mikhail Gorbachev's perestroika was the modernisation of society, which had missed a technological revolution. The goal of many of his economic policies, which encouraged foreign economic links, was to enable industry to produce what currently was still being imported. It was also hoped that the then USSR would begin to produce more goods of the necessary quality for sale on the world markets. This diversification of exports would have made the USSR less dependent for foreign exchange on the price of a few commodities, such as oil and gold.

However, the demand for political and economic independence of individual republics led to the dissolution of the USSR. This, and the general call for a free market economy in the aftermath of the attempted coup in August 1991 had a dramatic effect on the whole structure of the USSR economy. Under tight Communist central control, industries were often developed thousands of miles from sources of equipment and raw materials. In addition, when a region specialised in the manufacture of a particular product, it often had a monopoly of production throughout the USSR. Under President Yeltsin's government, emphasis was initially placed on containing the disruptive effects of then-Prime Minister Gaidar's reform programme.

A clear indication that the reforms are changing the structural basis of the Russian economy was given in July 1994 when figures issued by Tosaomstat indicated that services now contribute more to the Russian economy than manufacturing. All figures relating to the Russian economy are distorted by the overwhelming size of the 'black' economy. Some estimates put this as high as 25 per cent of total GDP.

In November 1992, the central bank announced its intention to help ailing state industries. This would be achieved by lowering the 80 per cent interest rate charged by commercial banks and to reintroduce subsidies on the import of key products. The high interest rates should be seen, however, against a background of 2,000 per cent inflation. Between 9 and 10 per cent of GDP went towards this in 1993 - reforms will be ineffective until inflation is brought under control

Foreign investment in specific industrial projects is encouraged in the form of joint venture opportunities (see FOREIGN INVESTMENT REGULATIONS). Both producer and consumer goods production is encouraged. The targets for 1986-90 reflected this policy, with an emphasis on quality control, rises in productivity and efficiency. So far, however, satisfactory results of these policies have not been forthcoming and while joint venture agreements have emerged on paper, they have not done so in practice. For example, personal computers are widely imported, and there are a number of joint ventures set up in this field, but there has been virtually no progress towards import substitution in practice.

New initiatives for the economy aimed at addressing privatisation and the development of smaller businesses. In 1991 it was announced that more than 23,000 businesses were to be privatised, including over 1,000 retail stores, 9,300 cafes and restaurants and 12,800 other service businesses. In July 1991 the parliament passed moderate privatisation legislation which transferred state property to joint-stock companies with all or the majority of shares held by the state. In late 1991 it was also announced that all Moscow's shops were to be privatised, with the shop's staff given the first option. Despite these reforms, President Yeltsin's main privatisation reforms did not come into effect until the autumn of 1992. Even then privatisation auctions were delayed due to difficulties in passing necessary legislation.

The mass privatisation programme aimed to offer by auction shares in at least 6,000 companies. The number of shares offered depended on which privatisation option was chosen by workers and management in each enterprise.

All Russian citizens received a free voucher worth a nominal sum of 10,000 roubles. The voucher can be used to invest in a company or entrust it to a Privatisation Fund (or sell it on in the secondary market where foreigners may purchase them). Responding to a fall in voucher prices, the government tried to make them more attractive by extending their use to purchases of houses or land. This appeared to have some success as the price of vouchers went up sharply with brisk interest shown by individuals and Privatisation Funds.

In 1992 and 1993 some 82,000 enterprises were privatised in Russia.

By the end of June 1994 14,000 large- and medium-scale businesses had been privatised though the voucher scheme which began in December 1992 with the distribution of 144 million vouchers.

The private sector employed 42 per cent of workers in 1993, up from 15 per cent in 1991. It also produces 35-40 per cent of GDP - this share of output was expected to double by the end of 1994.

In 1992 Russia began to develop a legal framework for its markets. Decree 1186 called on government bodies to facilitate the establishment and operation of Privatisation Funds by giving them premises, promoting a network of auditing firms and providing information support and training. That same decree distinguishes between Privatisation Funds under the State Property Management Committee (GKI) and separate Investment Funds to be operated by the Ministry of Finance. By 1 November 1992, the GKI was to have drafted a procedure for suspending or cancelling licences of the Privatisation Funds plus several other supervisory regulations. Decree 1186 also asked the GKI to work out principles for the establishment of a communications system for the transfer of stock.

The partial character of the changes, however, combined with an immense and growing budget deficit and the decline of the central authority has meant that most changes have been for the worse. The weakness of the rouble is also contributing to the breakdown of national economic links. Many contracts remain unfulfilled and goods simply do not move because of the lack of incentive.

It is also highly unlikely that existing policies can be pursued much longer. On the fiscal side, the 1994 government budget was highly improbable in its assumptions, mainly because of depressed taxation revenues. Under the 1994 budget, government expenditures were to be cut by 20 per cent in real terms reducing the deficit - in theory at least - to no more than 7.5 per cent of projected GDP. On the basis of these pledges, the International Monetary Fund disbursed the second US$ 1.5 billion tranche of its 1993 US$ 3 billion facility in May 1994. The unlikelihood of Russia's ambitious financial stabilisation targets being met even in part in 1994 suggests that Russia will remain a high inflation economy until well into the 1990s.
 
PRODUCTION:
   Formerly accounting for 60 per cent of the GDP of the USSR, the post-soviet Russian Federation has experienced a catastrophic economic decline since 1989, although the notorious unreliability of local official statistics makes it difficult accurately to measure its extent. Over the period 1990-1993, GDP and industrial output have declined by around 40 per cent, with the largest single fall to date taking place in 1992, when GDP declined by 19.4 per cent over 1991, dropping to a figure of some US$ 643 billion, a GDP per capita level of US$ 4,325. In 1993 the rate of economic decline began to slow down, with GDP falling by 12 per cent. Industrial output for the period January-May was 25.9 per cent lower than the figure for the corresponding figure in 1993.

Labour costs are low, but so is productivity. Some of this is due to low capital investment, but traditions and misplaced training have also contributed to this state of affairs. The labour force is increasingly well educated, but a great deal must still be done without any of the necessary capital equipment. Motivation of the workforce is another key problem, as roubles do not purchase the goods that are highly desired.

The industrial sector, which accounted for 46 per cent of GDP, fell by 16 per cent in 1993, little better than 1992's figure of 18.8 per cent. The worst was still to come: in the first two quarters of 1994 (January-June) industrial output fell by a massive 25 per cent over the same period in 1993.

The Russian infrastructure is woefully underdeveloped and supply systems are extremely erratic. This immediately adds to cost. Individual and co-operative activity has so far brought about only marginal changes and there is substantial resistance to them.

Russia has a considerable vehicle production industry that is seventh largest in the world. In 1990 the country produced 3.5 per cent of the world's passenger cars. During the 1960s and 1970s there was a gradual shift of emphasis from the production of lorries and buses to cars. Although still a significant force especially in east European markets, the car industry of the former Soviet Union suffers from many drawbacks: aged design, lack of new technologies (there is, as yet, no mass production of cars with electronic fuel injection, turbocharging and other features common to modern cars) and lack of funds to put improved versions into production.

As a status symbol Western cars are attractive. However, there is a darker side to this: in October 1993 it was reported that some 14 per cent of cars on Moscow's roads had been obtained illegally. Many of these cars were stolen abroad by criminal gangs and smuggled into Russia.

There is an almost frantic search for new Western partners to provide much needed finance and know-how. Some joint ventures have been set up such as Avtokam with the British based FSV. The aim is to produce a jeep-type vehicle, the Ranger. Western involvement in the vehicles industry has, however, been rather slow - this is due in no small part to the unstable economic and political environment. As with many other sectors, the vehicles industry has also suffered from the dislocation of traditional markets in the former communist bloc.
Passenger car production (CIS)
1988 1,262,000
1989 1,217,000
1990 1,260,000
1991 1,184,000

 
Source: Delovie Lyudi
 
CONTRIBUTION TO ECONOMY:
   Russia's industry (including the mining, gas and electricity sectors) accounted for 46 per cent of GDP (1993) and for 23 per cent of employees while construction absorbed 8.8 per cent. Forecasts were for substantial labour-shedding in industry and for the growth of the services sector. As the former Soviet Union's estimates of the proportion of national income due to industry were not compatible with western European definitions, the Central Intelligence Agency's estimate of around 42 per cent for these years is probably more valuable.

ENERGY

The whole of what was the USSR is exceptionally rich in energy sources and in theory does not have to worry about import substitution strategies as it should be completely self-sufficient. In fact there are reserves of energy, such as offshore oil fields, that it will not exploit for some time to come.

However, the economic crisis and division of republics has hit energy and for the first time since World War II the country had to import oil in the autumn of 1990. And, despite imports, the agricultural harvest has been hampered by severe oil shortages. Russia was responsible for outputting 90 per cent of the former Soviet Union's total oil production.

The 1983 long-term Energy Programme envisaged a reduction in the amount of oil used for fuel, with a subsequent increase in gas and coal production, and an accelerated development of nuclear power. However gas production fell in 1991, strikes by coal miners severely reduced production in 1991 (creating knock-on effects in the chemicals, glass and construction industries), while the 1986 Chernobyl disaster seriously disrupted the plans to expand nuclear power. In order to boost oil and gas production, the government announced in mid-1991 that oil export taxes would be cut from 40 per cent to 3 per cent.

The former USSR showed a definite interest in developing joint ventures for the further exploitation of the substantial energy reserves. In 1992 British Gas opened a Moscow office for its new subsidiary BG Energy Development, it also has a 25 per cent stake in a Russian-British-Canadian joint venture Komiarctic Oil which has reserves thought to be in excess of 600 million barrels. In 1993 Russia's largest oil company Lukoil announced plans to become privatised although the state was to retain a controlling interest. .

Lukoil is Russia's largest partially privatised oil company in terms of production - 375,000 bpd in 1993. Lukoil accounts for 15 per cent of Russian oil output. Only Shell, BP and Exxon are bigger in terms of oil extraction and refining. With 100,000 employees, Lukoil comprises three oil-exploration companies, two refineries, eight distribution companies and some 100 regional affiliates. In addition to its own insurance companies and investment funds, Lukoil has stakes in eight banks.

The most capitalised of the joint ventures to date involve petrochemicals.

In November 1992 a joint venture was announced involving Saga Petroleum of Norway, Shell Exploration and three Russian companies: Severgasprom, Arkhangelskgeoligia and Ukhtaneftegas-geoligia. The aim is to develop the explored oil and gas fields of the Timan Pechora basin in the north Russian Archangels province.

In July 1994 a consortium led by Marathon Oil of the US (partners: Mitsui, Mitsubishi, Royal Dutch Shell, McDermott) signed a US$ 10 billion agreement for the development of two oil and gas fields off Sakhalin Island. The fields - Piltun-Astokhskoye and Lunskoye - contain an estimated 750 million barrels of oil and natural gas liquids and 14,000 billion cubic feet of gas. Production is expected to reach 180,000 bpd and 1.5 billion cubic feet per day by the end of the decade.

Western oil companies have taken a critical look at their Russian operations, resulting in a number of projects being scaled down or frozen. This response is attributed to high taxes, restrictive export quotas, bureaucratic delays and reluctance on the part of the Russian authorities to open up resources in Siberia and other parts of the country. Projects in this category include:
- Elf Aquitaine: Volgograd and Saratov
- Demitex: Volgograd
- BP: Surgut
 
PRODUCTION:
   At the end of 1993 Russia had 4.8 per cent of the world's oil reserves, although its exploitation of them faced ever-increasing problems. Russia's oil production was 345 million tonnes in 1993, down 12.9 per cent from the previous year. Russia has had to reduce oil exports sharply in order to meet urgent domestic needs.

As the members of the former Council for Mutual Economic Assistance (CMEA) went over to payment in hard currency for their oil supplies, there was a shift of supplies away from traditional markets in eastern Europe (39 million tonnes in 1989) towards western Europe. It is forecast that oil exports to eastern Europe will fall to just 20 million tonnes by 1995.

Oil production for the first six months of 1994 was 145.5 million tonnes, 85.5 per cent of the 1993 figure.

Russia is the world's largest producer of natural gas, with production totalling 518 million tonnes of oil equivalent (toe) in 1993, down 3.5 per cent on the previous year. Proven gas reserves of 48.5 trillion cubic metres formed 34.1 per cent of the world's total in 1992. Gas meets nearly 40 per cent of the country's energy needs now and is forecast to reach 60 per cent by 2010, with production target of 1,200 billion cubic metres to 1,300 billion cubic metres.

Since the late 1980s the gas industry has relied on a handful of giant fields in western Siberia to provide all gas output. The biggest of these fields, Urengoi, peaked while annual production at Yamburg of 200 billion cubic metres is not expected to increase further. New fields will be far more difficult, and therefore expensive, to tackle.

Russia was the world's third largest coal producer in 1993 (after China and the United States), with an output of 136 million tonnes of oil equivalent. This figure, which is about 9 per cent less than the previous year, represented 6.4 per cent of world coal production in 1993.

Since the nuclear power disaster at Chernobyl (now in the Ukraine) in 1986, the ecologist movement has forced a stop on the construction of 100,000 MW of planned nuclear capacity.

Russia's 29 nuclear power plants produced 119 billion KWh of electricity in 1993. The atomic energy ministry plans to commission 30 new reactors in the period 1994-2014, both to replace old plants and to expand the country's nuclear capacity.
Production in energy sector (% changes from previous year)
1989 1990 1991 1992 1993
Oil   -2.9  -6.5 -10.7 -14.1 -12.9
Coal   -3.7  -3.5 -10.6  -5.1  -9.1
Natural gas    4.4   4.0   0.4  -0.4  -3.5

 
Source: Goskomstat of the Russian Federation, BP
Production and usage of oil and natural gas
1990 1991 1992 1993
            Oil (million tonnes)
Production 515.9461.1396.0               345.0
Consumption 249.7243.4220.4               178.6
Natural gas (billion tonnes)                                
Production 537.6539.8537.6               518.8
Consumption 390.5388.0370.0               358.2

 
Source: BP
 
CONTRIBUTION TO ECONOMY:
   The energy industry's share of GDP increased from 11.3 per cent to 25 per cent in the third quarter of 1993.

NATURAL RESOURCES

Russia is generously endowed with a wide range of raw materials. As in the field of energy, it is self-sufficient in many raw materials, although some must be imported. Like its energy resources, much of Russia's mineral wealth is located far from the centres of population. This is also true of its timber, the majority of which is found in Siberia.

Throughout 1991 the mining sector was a major debating point in the discussions on the political and economic future of the former Soviet Union. The final control of mineral resources is expected to be crucial to the economic health of individual republics.
 
PRODUCTION:
   Data on the production of precious and strategic metals were kept secret in the former Soviet days. This reluctance to reveal output figures has, to some extent, been carried over into the current Russian thinking.

Russia has huge explored reserves of copper, lead, zinc, nickel, tungsten, iron ore, and manganese.

In 1992 the sell-off of Udokan Mining Company, which owned the world's largest copper deposits, was announced. Tenders were also invited for the Khabarovsk and Yurievsk gold deposits - capacity was estimated at about 67 tonnes of gold and some 2,700 tonnes of silver. The world's largest gold deposits are at Sukhoi Log - reserves are estimated at more than 1,000 tonnes.

The Norilisk Nickel Company produced 240,000 tonnes of nickel in 1992 of which about 65,000 tonnes was exported. There were also unconfirmed reports that 450,000 tonnes of copper were produced in 1992. Reliable figures for non-ferrous metals are hard to get partly because of widespread smuggling, a situation partially relieved by stronger government measures to control supplies.

In December 1992, parliament announced a long-term plan for the reorganisation of the country's diamond industry. The blueprint forsaw the creation of a federal diamond centre giving parliament more control over the industry. The effect would be to weaken the control over Russia's diamonds by De Beers which traditionally operated a supply cartel.
Estimated mineral production

('000 tonnes)
1992
Aluminium    2,700
Platinum (tonnes)       28
Gold (tonnes)      146
Iron ore   97,300

 
Source: Mining Annual Review

AGRICULTURE

Agriculture was the weakest link and the most intractable problem in the former Soviet economy. While a certain amount was already done in the way of increasing incentives for farmers with offers of leasing for 'family farming', in late 1991 there seemed to be no answer short of full-scale decollectivisation, thereby turning the clock back to the pre-Stalin days before agriculture was collectivised (1928-33).

According to the medium-term programme of economic reforms announced in October 1992, agrarian reform will centre around the privatisation of land ownership, demonopolisation, the creation of a market infrastructure for the agro-industrial complex, rural social reforms. This reform programme was expected to last four to five years. A key feature of the plan is land reform involving redistribution of land, providing citizens with individual plots, the creation of a fully adequate market for land providing for its purchase, sale, renting and mortgaging.

Under the reform programme, the practice of obligatory deliveries of production will cease, to be replaced by a contractual system providing for the formation of federal funds for especially critical production and regulation of markets through purchasing, futures, mortgages and other transactions. Production is to be regulated by direct budgetary financing for enriching soil fertility; support for price parity in commodity exchanges between the agro-industrial sector and others, tax and other incentives for producers.

Plans exist for radical land reform due to start in 1994-95. In the longer term this may involve the sale of land to foreign investors, although this remains a politically controversial issue.

In the past there were two types of farm: Sovkhozes and Kolkhozes - the former were managed by the Farm Director who employed workers, the latter were collective farms where each worker was supposed to take a share of the profits (in practice these were held back by state procurement prices and subsidies) - in practice, Kolkhoze workers were little more than employees. From 1 Jan 1992, all Sovkhozes and Kolkhozes were required to register either as private farm holdings, private farm collectives or joint stock companies. State farms could retain their structure only if there was a vote in favour by the workers. Moves were also made to define the private ownership of land - the first stage was to classify all land by current operator and to form a register of ownership. Private farmers now have the right to operate freely on their own land.
Growth of private farms in 1992
Month Number
Jan   49,770
Apr   94,946
May 110,478
June 120,161
July 127,856
Aug 132,903


The government is actively seeking to encourage import substitution, even if a return to the distant days when Russia was a food exporter seems very unlikely. Collective farms were even offered precious hard currency for above-target deliveries in 1989, though the results were disappointing. The government has not, however, sought foreign investment in agriculture as projects in this sector are not large-scale. Instead there has been a concerted effort to restore initiative, put right the ecological balance, cut back the massive inertia and waste and improve the distributive infrastructure. Long-term leasing arrangements and even purchase of land are now contemplated, and some appropriate legislation has been enacted.

The full potential of the agricultural sector will only be realised when radical land reform has been completed, creating a stable climate for increased fixed investment, particularly in the distribution and processing sectors.

Meanwhile, the government continues to support agriculture; in 1993 the budget allocation was 115 billion roubles (11.7 per cent of GNP). There are plans to increase this support to 18 per cent of GDP by 1995.
 
PRODUCTION:
   Agricultural output has declined at a lower rate than in the industrial sector. Over the 1990-93 period, agricultural output has fallen by only 20 per cent, with the largest single drop taking place in 1992 (8 per cent over 1991).

Due to its sheer size Russia was an important world producer of some major crops, but despite this it was likely to remain a net food importer for some time to come. Any increase in production was likely to be kept for the home market. At the same time, the sown crop area is being progressively reduced.

Food shortages in the cities have not generally been due to agricultural production, but to problems of distribution. The shortage of many agricultural products is unlikely to be alleviated quickly, even by price reform, given the wish of consumers to enjoy higher quality food as their income rises.
Agricultural output

(% change)
1989 1990 1991
Gross agricultural output 1.7  -3.6  -4.7
State sector 1.1  -5.8  n.a.
Private sector 3.9   4.2  n.a.
Net agricultural output 3.7  -5.2  -7.7

 
Source: Goskomstat of the Russian Federation
Meat/animal production

('000 tonnes unless stated otherwise)
1979-81 annual 1990 1991 1992
average                   
Beef and veal    3,361 4,329 3,989   3,500
Pigmeat    2,598 3,480 3,190   2,700
Poultrymeat    1,151 1,801 1,751  *1,577
Eggs (tonnes)       33   *20   *19     *21
Wool, greasy      223   226   204     179

 
* estimate
 
Source: FAO
Agricultural production 1990-1992

('000 tonnes)
1990 1991 1992
Cereals, total 111,837  86,705 102,117
Wheat   49,596  38,899 *46,000
Maize    2,451   1,969  *2,100
Millet    1,946   1,041  *1,500
Rye   16,431  10,639 *13,900
Barley   27,235  22,174 *25,500
Pulses, total    4,923   2,506  *4,500
Sugar beet   32,327  24,280  25,500
Potatoes   30,848  34,329  37,800

 
* estimates
 
Source: FAO
 
CONTRIBUTION TO ECONOMY:
   The share of Russia's agriculture in GDP is about 13.5 per cent. The proportion of the labour force employed in agriculture is, coincidentally, similar. About 13.5 per cent of total employees now work in the agricultural sector, down from 19.7 per cent in 1980.

Agriculture's contribution to foreign exchange earnings is negligible but the fur trade is a valuable export earner.

COMMUNICATIONS AND THE MEDIA
 
TELECOMMUNICATIONS NETWORK:
   The telephone network remains underdeveloped. There were 40.1 million telephones in the former USSR on 1 January 1990 (excluding private networks; if these are included the total was 48.5 million), 24.1 million of which were in homes. Only 30 per cent of urban and 9 per cent of rural families had telephones (end-1988). However, a further 15.6 million customers had ordered telephones, but had been waiting, often for years, to have them installed. This number is rising and was 16.8 million by January 1990.

Both state-owned and private telephone companies operate a system of highly variable quality. The level of competition is growing all the time and the legendary poor service is bound to improve at least for those who can pay for calls in hard currency. Some of the main operating companies include Moscow City Telephone Network who operate the Category 0 channel for overseas calls. Private companies include Combellga which uses its own satellite communications channels. Some hotels are linked to Combellga via radio relay channels. Sovintel is a joint venture servicing some of the larger hotels such as the Savoy and Metropol. Comstar uses its own digital network working through British Telecom. Iskra was originally designed for party bosses but is now opened up for commercial users. Iskra clients can phone abroad using the Sovintel satellite.

Telephone directories are scarce, and central switchboards for enterprises generally absent. Most international hotels, however, now have them. Many inter-city calls cannot be made from local telephones, and international direct dialling out of the country is restricted from private phones - though not on the satellite lines in most hotels.

There is a public telex bureau at the Central Telegraph Office in the centre of Moscow.

Foreign assistance in modernising the communications network, in the form of joint ventures, is gathering pace and a number of separate projects were under way:
- In July 1991 GTE, the US lighting and telecommunications group, formed a joint venture with the Russian authorities and San Francisco Moscow Teleport to construct a modern digital network in Moscow, by-passing the current antiquated system.
- GPT, the telecommunications arm of GEC Ltd and Siemens, has been working in Russia since 1986. GPT by 1992 was involved in two main ventures in the country: a business services network in Moscow and the supply of System X digital public exchanges in the far east of Russia.
- In mid-1991 Telecom Denmark and GN Great Nordic signed a contract to lay the first optical fibre cable system between Russia and abroad. The 1,260 km cable between Denmark and Russia will go to Kingisepp, near St Petersburg and will have the capacity to carry 16,000 phone, fax, data or video transmissions at one time.
- In 1992 Ecu5 million had been earmarked for telecommunications improvements particularly in the fields of training and network standardisation.
- During 1992 Cable and Wireless (UK) via its new offshoot Baltic Communications Ltd (BCL) launched the first fully digital direct satellite link from St Petersburg. A digital overlay network was installed linked to a Eutelsat earth station. Cable and Wireless are also joint investors in Sovam Teleport, a company offering electronic mail services, access to automated databases, and wide area networks.

There are other joint ventures who in 1992 began providing facilities in Moscow which essentially bypass the existing systems for making international calls. Mobile phone systems are also beginning to be offered in the larger cities with international calls going via Intelsat.
 
BROADCASTING AND THE PRESS:
   The former Soviet government always saw the press and media as important instruments of policy, to be used as 'collective organisers'. This remained the official view and President Gorbachev met regularly with leading representatives of the media to discuss key affairs of state and how to present them. The press was a weapon in encouraging 'glasnost' (openness or candidness).

Although controls had been relaxed and gradually disassembled, and the new press law and other developments allowed for something resembling a pluralistic press, there has beem considerable tension about a new tightening of control. The new Russian's Radio was moved to an obscure waveband and Central Television, which had been remarkably free in 1990, was again coming under central control with the partial removal of popular programmes. The issue of press freedom came to the fore once again in March 1993, when President Yeltsin took control of the media in order, he claimed, to protect its rights from possible control by parliament. Ostankino TV centre was even targeted in an attempted armed uprising by conservatives in Moscow in October 1993.

There was more controversy later in 1993 when opposition parties complained that insufficient media coverage was given them during the parliamentary election campaign.

The Central Television organisation and its television stations are under the direction of Gostelradio, the State Committee on Television and Radio. Most radio stations are state-run and television is state-owned. A few radio stations are run by public organisations. There is only a small amount of advertising. Satellite communications are used for national and international transmission of Central Television programmes.

The TV and Radio Broadcasting Corporation produces 3 Moscow-based nationally networked stations and numerous local radio stations. In 1991 an independent radio and TV service began to operate on a nationwide basis. Many cities have their own local TV service; Moscow has four stations.

Most newspapers and journals are still state-owned. Until the attempted coup in August 1991, some were published by Communist Party units themselves, while others are issued by governmental or other organisations, such as the Writers' Union. New and important developments in 1990 included the development of the weekly business-oriented Commersant, a joint venture in Russian and English, and a number of other business-oriented publications.

Most are published in Russian. Ekonomika i Zhizn (Economics and Life), uniting two earlier economic publications, is useful for business, but many new independent publications compete in this sphere, a number also publishing in English. Moscow News, also published in English and other languages, is now essential reading. The English Moscow Times is delivered free to most hotel rooms every day.

Steeply rising costs, along with a severe shortage of newsprint, are threatening many of the largest papers, and the entire press situation will undoubtedly change dramatically. The mass circulation papers have traditionally had exceptionally low prices and easy delivery conditions, and this is changing. The public has reacted to rising prices by cutting back sharply on many subscriptions. The end of the political 'honeymoon' period has intensified this. All publications seek advertising now, and there has been a growth of independently registered publications. The equivalent of staff or management buyouts are also under discussion and the whole situation is bound to be fluid for the next few years.

The official news agencies are the Russian Information Telegraph Agency (ITAR-Tass, formerly TASS) and the Novosti Press Agency. Interfax, the news agency of Radio Moscow, has rapidly risen to the level of a source as authoritative as ITAR-Tass, and is often used for deliberate news leaks. Postfactum, the news agency of the journal Commersant, represents the first unofficial but acknowledged agency. Most influential dailies: Pravda (circulation down to 500,000 in 1993, from 10.9 million in its heyday), and Izvestiya (11.3 million).
Top multinational advertising agencies in the CIS ranked by billings

(1993, US$ million)
Y&R 8.5
BBDO Marketing    6.7
O&M    5.0
McCann    5.0
GGK Moscow    1.6
BSB/Saatchis    0.3
Grey    0.2
DMB&B   n.a.
Eskart*   n.a.
Sawyer Miller Group-   n.a.
DDBN Ri-Vita**   n.a.
JWT**   n.a.
Publicis**   n.a.

 
-Bozell; *Testa International; **opened 1993-94
 
Source: M&M Europe from network head offices
Top domestic advertising agencies

Consortium APR
Eskart
International Advertising Centre
Intour Advertising
Maxima
Metropolitan Communications Agency
Premier SV
RIM
Third Point
Video International
 
Source: Russian Association of Advertising Agencies.

ARMED FORCES

The military has traditionally received the top priority in the allocation of resources, including qualified personnel. The military has also played a substantial role in politics, in the party and the government. It is now government policy to reduce the defence burden and to convert many resources to civilian use. If this is successful it may mean diminished prestige and power for the military. However, the army's help in stopping October 1993 armed conservative uprising may result in a less vigorous scaling-down of the armed forces. As well, the majority of the population is genuinely concerned about external threats, judging from the few opinion polls available.

Arms sales continue to be an important part of Russia's export drive although there is concern that much know-how and technology is finding its way via the 'back door' to less stable parts of the world. During 1992, Russia sold more than US$ 2 billion worth of weapons including contracts with China, India, Iran and Syria. One of the reasons for the 20 per cent fall in industrial production in 1992 was the 68 per cent decline in orders from the defence industry. Arms sales were also falling with a 13 fold drop in export earnings since the 1980s.

The former Soviet Union had a crushing defence burden, amounting to at least 15 per cent, even as high as 20 per cent, of the GDP. In the last days of the Soviet Union, defence cuts were commonplace. A 14.2 per cent cut was announced in January 1989. In Gorbachev's December 1988 UN speech he promised a unilateral cut of 500,000 troops, 800 aircraft and 10,000 tanks from eastern Europe by the end of 1990.

Personnel and equipment (mid-1993)

In 1993, there were over two million personnel in the armed forces, about half of them conscripted for 18 months (army) or 24 months (navy). Many of the conscripts perform essentially civilian jobs, such as construction. All men are subject to conscription, although in the past many students have received exemption.

Army

In 1993 there were one million personnel in the army's eight military districts including about 450,000 conscripts.

The Russian army consists of the following divisions: 18 tank, eight artillery, 61 motor rifle, seven machine gun and five airborne. There are various air assault brigades, tank, missile and other units.

In 1993 there were estimated to be about 25,000 main battle tanks including T-54/55, T-62, T-64A/B, T-72/L/M, and T-80/-M 9. Light tanks numbered 550 of the PT-76 type and 6,000 reconnaissance vehicles. There were about 22,000 armoured infantry fighting vehicles and over 23,00 armoured personnel carriers.

Total viable artillery numbered 24,000 and towed artillery was estimated at 12,500; there were 6,000 self propelled artillery. Other pieces of equipment included about 4,500 multiple rocket launchers, an estimated 2,000 mortars, nuclear-capable surface to surface missiles, anti-tank guided weapons, anti-tank guns, air defence guns, and surface to air missiles. The army had about 3,500 helicopters including 1,500 Mi-24 and Ka-50 Hokum attack and 1,300 transport versions.

Navy

In 1993, the navy had 300,000 personnel including 180,000 conscripts serving for two years. Although in dispute (especially with Ukraine), Russia has inherited most of the vast fleet of the former Soviet Union - this is mainly because the most powerful fleets (including nuclear submarines carrying ballistic missiles) are based on Russian territory.

The Russian navy in 1993 had a total of 219 submarines (52 strategic, 153 tactical and 14 other), two aircraft carriers, 29 cruisers, 24 destroyers, 114 frigates, about 80 corvettes, 75 amphibious craft, about 16 patrol craft, about 208 mine countermeasure vessels and three minelayers. There were about 650 support and miscellaneous vessels. The navy's air capability included 913 combat aircraft, 239 armed helicopters and 60,000 personnel.

The Black Sea fleet consisted of about 48,000 personnel in 1993 under joint Russian/Ukranian command for a period of three to five years before it is divided between the two countries. It had 21 submarines, 35 principal surface combatants, about 60 patrol and coastal combatants, 30 mine warfare vessels, 16 amphibious craft and some 135 support vessels. The Black Sea fleet has 7,600 personnel in naval aviation, some 244 combat aircraft and 85 combat helicopters.

Azerbaijan received about 25 per cent of the Caspian