But in sum, it is rather remarkable that Russia’s economy has expanded an average 7 per cent over the past five years, despite negative population growth and a per capita income of $7,000 — a relatively high base compared with most other developing countries. That dynamic has made Russia an attractive destination for foreign direct investment, or FDI. This year about $30 billion in FDI is expected to flow into the country, with most of it headed toward the non-oil economy.

Investors who have looked beyond the sensational headlines in the international media have made extraordinary gains in Russia. China and India may have registered faster growth, but companies catering to domestic demand have been able to achieve higher profitability, as the reduced hype surrounding Russia has resulted in less intense foreign competition on the ground compared with the opportunity presented by the economic boom.

To be sure, the bull market in oil is not insignificant in fueling the demand surge. However, the Russian economic-renaissance story goes well beyond oil. What distinguishes Russia from many other oil-rich countries is the quality of its human capital, something that’s helping the country rapidly converge with the more developed nations in terms of a thriving business and consumer culture. Several companies backed by solid managements have cropped up in Russia over the past years to cater to massive pent-up domestic demand. These companies have been facilitating the explosive growth in new mortgages and credit cards, as people have access and the confidence to leverage for the first time.

... contd.