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About: Russia—Quick Facts

GENERAL INFORMATION

  • The Russian Federation is the world’s largest country with over 17,075,400 sq. km.
  • Population – 141,930,000 (ninth globally, based on the World Bank data, 2011)
  • In the past five years, Russia’s GDP has increased significantly and amounted to $1,857,769,676,144 (ninth globally, based on the World Bank data, 2011), demonstrating a growth rate of 42.7% since 2007

INVESTMENT OPPORTUNITIES/CAPITAL INFLOW INTO RUSSIA

No restrictions on free movement of capital

  • Exception: Investment in strategic companies of special importance for national security and economic stability
  • Other BRIC countries either already have restrictions on direct foreign investments or consider limiting free movement of capital

No foreign currency limitations unlike China and India

Foreign direct investments for the last 10 years amounted to $280 Bn

  • Russia is the fourth-largest FDI destination in Europe (Ernst & Young, 2010). Over the last five years, the number of FDI projects has increased by 130%, accounting for more than 200 projects in 2010. In 2011, Russian FDI surged 33% to $18.4 Bn (Federal Statistics Service).

TAX REGIME

Among BRIC countries, Russia demonstrates the most beneficial and favorable tax terms.

Country

Income Tax

VAT

Corporate Income Tax

Personal Income Tax

Brazil

34%

7,5-27,5%

17-25%

Russia

20%

13%

18%

India

30-40%

10-30%

12,5%

China

25%

5-45%

23%

Additionally:

  • Non-recurrent bonus depreciation for tax purposes ‑ 30%
  • No capital gain tax in case of long-term direct investments

IT Industry in Russia

  • The Russian IT market volume in 2011 amounted to over $29 Bn based on IDC estimates (21% higher compared to the previous year.) According to the IDC forecast, the Russian IT market will increase by 14% in 2012 and reach $33 Bn.
  • In 2011, the total amount of venture investments in the Russian IT sector equaled $237 Mn. PricewaterhouseCoopers (PwC) and Russian Venture Company (RVC) experts predict that the Russian IT sector will grow by more than 50% in 2012.
  • Every year, a larger number of software-development companies represented Russia in leading international ratings, such as the Global Outsourcing 100 and Global Services 100.

Government Support

Information technologies have been identified by the Russian Government as one of the key areas of diversification along with energy efficiency, nuclear technologies, space technologies and telecommunications, and medical technologies and pharmaceuticals.

Main Objectives in Information Technologies and Software Development

  • Development of high-performance, application-oriented computing systems
  • Focus on efficiency and quality of information services
  • Development of state-of-the-art social and industrial information infrastructure

The government support of the IT industry is performed within the frames of the Strategy for Innovative Development of the Russian Federation 2020 as well as a number of federal programs including “Information Society 2011–2020.” In 2012, the federal funding of this program amounted to $141 Bn.

The objectives of the federal IT development strategy include (among others):

  • increase of enterprises implementing technical innovations in their activities to 25-30% by 2020;
  • increase of R&D spending from 1.1% to 2.5-3% of GDP;
  • increase of high-tech sector’s GDP share to 17-20%;
  • increase of Russian high-tech export share globally from 0.3% to 2% by 2020.

Russian Government Technology Parks Program

  • January 2005: President Putin announces IT technology park initiative
  • March 2006: Technology Parks projects launched: parks to be built in St. Petersburg, Tatarstan, Moscow, Tyumen, N. Novgorod, Novosibirsk regions, $3.6 Bn total, 20% state investments
  • 2010: A high-tech research and production hub, similar to the Silicon Valley in California, is to be built in Skolkovo near Moscow. The residents of the technological park will enjoy tax holidays during a period of ten years and will be exempt from the payment of profit tax, VAT, and property and land taxes.

Human Capital

Quick numbers

  • IT university graduates, yearly: 60,000 people
  • Number of IT employees in Russia: 370,000 people, which constitutes at least 1.52% of the total Russian workforce; according to Microsoft research, about 850,000 Russians have programming skills.
  • Employees working in software development: 100,000‑100,000 people (RUSSOFT, Annual Survey, 2012)
  • Software engineers working for export: 65,000-70,000 specialists (RUSSOFT, Annual Survey, 2012)
  • Staff turnover: 6% in 2011. Low staff turnover during the last decade is one of Russia’s competitive advantages in the global outsourcing services market.

Russia preserves the legacy of the intensely competitive education system of the Soviet era, especially in science programs that promote technical and business knowledge, the development of management and language skills, as well as the ability to learn new concepts and foster innovative thinking. Thanks to that, Russian programmers are well trained in problem solving and algorithmic thinking. Among BRIC countries, the Russian education system provides the largest talent pool of skilled workers in the IT field.

A simple example of the Russians’ problem-solving prowess is the fact that the Russian university teams annually take part in the ACM International Collegiate Programming Contest and have won seven World Championships since 2000. Comparatively, China has only won four in the same timeframe, and the USA, none. This information confirms that Russia is to be considered a frontrunner in today’s modern computer technology field.

Competitive Advantages:

  • High literacy rate as a whole (99,6%, Euromonitor, 2010)
  • Highest level of educated population among BRIC countries: more graduates with MDs and PhDs in science and engineering than in China, India, and Brazil
  • Significant scientific research base and technical resources infrastructure
  • One of the leading countries by number of Nobel Prize winners

Salary Level

Investors confirm that Russian workers are affordable. Overall, 69% find that Russia has attractive labor costs. Although not a low-cost destination in global terms, Russia is cost-competitive and offers an attractive alternative to wage rates in many European countries.

Culture and Communication

  • Russians have a set of values, mentality and vision of life, and work ethic similar to those in Western culture.
  • Russian managers have a proven ability to negotiate and communicate effectively across cultural boundaries.
  • Russian workers tend to rely on honest communication and constructive criticism/new ideas instead of silent consent.
  • English language proficiency level increases every year thanks to the efforts Russian companies put towards the improvement of language skills.

Russian IT Outsourcing

  • The Russian outsourcing software-development industry is currently valued at $4.04 Bn.
  • The software-development and services export share is the largest in the Russian IT export structure.
  • The software-development export industry has a high potential for growth in the next several years. This growth may reach up to 30% in all export segments: software products, custom software development, and R&D.
  • The growth rate of software-development service export increased by 27,6% in 2011 compared to 2010. The share of application and software product development accounted for 50% of all service exports. Maintenance of developed or existing IT systems accounted for another 20%, while R&D and other IT services (integration, consulting, and infrastructure support) accounted for 15%.

IT Outsourcing Geography

Rating of Russian cities (by the number of company head offices, sales offices, and dedicated development centers) (RUSSOFT, Annual Survey, 2012)

1

Moscow

54

2

St. Petersburg

38

3

Novosibirsk

9

4-6

Nizhny Novgorod

7

4-6

Moscow Region

7

4-6

Rostov-on-Don

7

7-9

Voronezh

5

7-9

Omsk

5

7-9

Samara

5

10-13

Izhevsk

4

10-13

Kazan

4

10-13

Krasnoyarsk

4

10-13

Yaroslavl

4