2016 in review: Top 5 economic results

December 22, 2016 Alexei Lossan, RBTH
RBTH has compiled a preliminary list of the key 2016 events in the Russian economy. The official economic analysis of the year is usually announced in February, when information about key statistical indicators becomes available.

1. Russia agrees to cut crude production

Pump jacks are seen at the Lukoil company owned Imilorskoye oil field, as the sun sets, outside the West Siberian city of Kogalym / Source: ReutersPump jacks are seen at the Lukoil company owned Imilorskoye oil field, as the sun sets, outside the West Siberian city of Kogalym / Source: Reuters

For the first time in several years, the Russian government agreed to reduce oil production by 300,000 barrels per day. The move was among the conditions of the agreement signed in early December between OPEC and non-aligned oil producing countries. A dedicated committee will be seeing to it that the parties keep their promises.

Russia decided to cut back oil production, even though the state does not have a monopoly on the extraction of hydrocarbons; there are several oil-producing companies in the country, not all of them are controlled by the state. Nevertheless, all the Russian major oil firms promised to toe the line. They expect the decision to help stimulate a growth in crude prices.

2. Moscow returns to the global financial market

The office of the MICEX-RTS Stock Exchange. / Source: Sergey Kuznetsov/RIA NovostiThe office of the MICEX-RTS Stock Exchange. / Source: Sergey Kuznetsov/RIA Novosti

The Russian Finance Ministry in 2016 floated $3 billion worth of bonds. The first flotation, worth $1.75 billion, took place in May, followed by another in September. The government was offering bonds to foreign investors; there was no domestic demand.

Both times the order book exceeded $7 billion, with buyers coming from British, U.S., and Asian investors. The Finance Ministry believes that Russian bonds continue to be popular abroad, despite the sanctions.

This is the first time since autumn 2013 that Russia has returned to the international capital market. The government took the actions on the understanding that funds generated would not be used in the interest of the businesses and individuals on the EU and U.S. sanctions lists.

3. The first glimpse of deflation in five years

A supermarket in St. Petersburg / Source: EPAA supermarket in St. Petersburg / Source: EPA

For the first time in the past five years, Russia enjoyed a brief moment of minor deflation in 2016. During the first week of August, consumer prices decreased by 0.1 percent. The previous occurrence was registered in September 2011. To compare, the 2015 inflation level in Russia stood at 12.9 percent.

The easing of inflation pressure on the Russian economy is good news. All other factors being equal, it is expected to speed up the process of bringing the overall inflation level down to 4 percent in 2017. This target was originally identified by the Central Bank of Russia in late 2014, when it intentionally stopped keeping the ruble exchange rate in check.

4. Russia rises in Doing Business ranking

The International Business Center in Moscow. / Source: ReutersThe International Business Center in Moscow. / Source: Reuters

Russia once again improved its standing in the World Bank's Doing Business ranking in 2016. As per the fresh results, made available in November, the country rose from 51th to 40th position. Doing Business gauges the quality of a country's business environment and the number of bureaucratic barriers to the national economy.

The World Bank reports that Russia has managed to significantly reduce bureaucratic pressure on business over the past year, making it into the top five countries with the number of reforms carried through. Among the country's key advantages are the ease of getting electricity, registering property, and enforcing contracts.

The Russian government chose Doing Business as a universal key performance indicator for measuring the business environment quality in the country.

5. Government sells Rosneft shares to foreigners

Head of Rosneft Igor Sechin. / Source: TASSHead of Rosneft Igor Sechin. / Source: TASS

In a bid to reduce the budget deficit, the Russian government this year put up for sale 19.5 percent in the country's largest oil company, state-owned Rosneft. In a surprise development, the shares went to a consortium of Swiss trader Glencore and Qatar Investment Authority, who paid over 10 billion euros for them.

The outcome of the deal came as a complete surprise to market players. Industry experts had been viewing Chinese and Indian investors as potential buyers, but the latter demanded a say in managing Rosneft. Furthermore, the Russian company itself was insisting on buying back its shares as the only possible form of the transaction.

The Russian state will now remain holding 50 percent plus three shares in Rosneft; the company's principal European partner, BP, will control 19.5 percent, while Qatar Investment Authority and Glencore will each hold 9.75 percent. The rest of the shares will be listed.

Read more: Olivier Salad Index: Russians prepare to shell out for New Year

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