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The Economy of the Republic of Karelia
The economy of Karelia has passed through several important stages during the recent years. 1999-2001 were characterized by fairly intensive increase in industrial production, due to exports and post-default factors, as well as due to increase in investments of the companies’ own resources.
After the influence of these factors was over, the economy entered the stage of slow development (1-3%), which made it necessary to take more active measures in the sphere of regional and investment policy. In 2002, the Government of Karelia made investments and improving investment attractiveness of the Republic its main priority. The corresponding program was developed which set a goal of doubling the volume of investments and creating new jobs. The main principles of the program are active cooperation of the Government with businesses and the principle of “open door” for external investors. This program lead to nearly complete rewriting the laws of the Republic; there were developed new mechanisms of stimulating investments, their protection and solving major problems of investors that are within the jurisdiction of the republican authorities. All these measures led to accumulating of industrial potential and gradual transition to the investment stage in the development of the economy of the Republic. Economic development made it possible to better solve economic and social problems by means of budget policy.
The Government of the Republic has developed and approved the “Strategy of the Social and Economic Development of the Republic of Karelia up to 2020” and the “Program of Economic and Social Development of the Republic of Karelia up to 2010.” The priority areas of development of economy and social sphere are established in the Guidelines of Social and Economic Development of the Republic of Karelia up to 2012.
According to the Guidelines, several economic programs are being implemented in the Republic: development of mining and forest industries, investment and industrial policy, support of small businesses, modernization of housing and utilities services, and others.
Industry plays the key role in the economy of the Republic, it provides 40% of the production of goods and services. Processing companies (20.6%), mining (11.8%), transport and communication (9%) play an essential role in the total turnover of the Republic.
While the population of Karelia comprises only 0.5% of the population of Russia, Karelia produces 22% of iron ore pellets, 36% of paper, 61% of paper sacks, 6% of timber, 4% of timber products. 70% of trout raised in hatcheries is produced in the Republic of Karelia.
The economy of the Republic is oriented for export. The share of export is more than 60% of the total industrial production. Traditionally, the main partner of Karelia in its export activity is Finland – nearly 1/3 of external trade turnover. More than 60% of external trade is carried out with EU countries. External trade is constantly growing during recent years. It is important to mention that the group of products of investment purpose has become the main part of export. It means that the processes of changing technical equipment and modernization are going on in the Republic.
The progressive development of the Republic is confirmed by the result of rating carried out by the international rating agency “Fitch Ratings” in December 2007. They increased long-term ratings of the Republic in foreign and national currency from “B+” level to “BB” level, and the long-term rating of the Republic by national scale from “A(rus)” level to “A+(rus)” level. It means that according to experts’ opinion, Karelia is actively developing, and not just maintaining a certain level of industry, salaries, and social services.
One of the main results of the economic development of the Republic is the increase in real incomes and salaries of the people, which is confirmed by such criteria as average monthly salary and income per capita.
Increase in the real income of the population creates further basis for the growth of consumer market, increase of savings of the citizens, which eventually reach financial market and are used for investment purposes.
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