Economic: Donovia-West

Economic Overview

Western Donovia is a de facto kleptocracy in which corrupt leaders (kleptocrats) that use their power to exploit the people and natural resources of their own territory in order to extend their personal wealth and political powers. This takes place in the form of embezzlement of funds at the expense of the wider population. The ruling party uses political leverage to pass laws that enrich them or their constituents and they usually circumvent the rule of law.

Western Donovia possesses hydrocarbon resources which it uses to raise revenue and exercise control over the other countries of the Baltic Sea region. Donovia is one of the world's leading producers of oil and natural gas, and is also a top exporter of metals such as steel and primary aluminum. Donovia is heavily dependent on the movement of world commodity prices as reliance on commodity exports makes it vulnerable to boom and bust cycles that follow the volatile swings in global prices. The Donovian economy is impacted by relatively high inefficiency due to corruption and government involvement in the economy.

Donovia remains a predominantly statist economy with a high concentration of wealth in officials' hands. Economic reforms in the 1990s privatized most industry, with notable exceptions in the energy, transportation, banking, and defense-related sectors. The protection of property rights is still weak, and the state continues to interfere in the free operation of the private sector.

A combination of falling oil prices, international sanctions, and structural limitations pushed Donovia into a deep recession in 2015, with GDP falling by close to 2.8%. The downturn continued through 2016, with GDP contracting another 0.2%, but was reversed in 2017 as world demand picked up. Government support for import substitution has increased recently in an effort to diversify the economy away from extractive industries.

Despite economic problems, Donovia continues to prioritize the rebuilding of its military and funding for its military operations abroad. Donovia’s military and political antagonism toward the United States continues unabated, and its efforts to undermine U.S. institutions and the NATO alliance are serious. Donovia uses its energy position in Europe along with espionage, cyberattacks, and information warfare to exploit vulnerabilities and seeks to drive wedges into the transatlantic alliance and undermine people’s faith in government and societal institutions.

Donovia Economic Data
Measure	Data	Rank in World	Remarks (if applicable)
GDP	USD4.008 trillion	7	Industry (32.4%) Agriculture (4.7%) Services (62.3%)
GDP per capita	USD27,800	73	Continuous drop over the past five years
Labor Force	76.53 million	7	Industry (27.6%) Agriculture (9.4%) Services (63%)
Unemployment	5.5%	77	Holding steady
Poverty	13.3%	57	Percent below poverty line
Investment	19.4% of GDP	104
Budget	USD253.9 billion revenue USD287.5 billion expenditures
Public Debt	12.3% of GDP	122
Inflation	3.7%	149	Decrease from 7.1% two years ago

Table E-1. Donovia Economic Data

Participation in the Global Financial System

 World Bank Group (WBG) Engagement World Bank Group (WBG) Engagement with Donovia as a Provider of Global Public Goods. Enhanced engagement with Donovia as a provider of global public goods is central to the World Bank Group’s future cooperation with the country. The involvement of WBG with Donovia’s leaders allowed the organization to play an active role in the formulation and implementation of the global development agenda. The current cooperation between the WBG and Donovia enables the organization to provide support and advice to its client not only on domestic economic development efforts, but also on international and global development issues such as social protection, food security, and global health – thereby contributing to the enhancement of Donovia’s participation in the provision of global public goods.

The following priority areas have been defined for Donovia’s international development assistance at both the regional and global level:

• improving the performance of governance systems and improving conditions for trade and investment in recipient countries
• building industrial and innovation capacities in recipient countries
• boosting economic activity in recipient countries
• establishing and strengthening national systems for combating organized crime and terrorism
• supporting efforts on post-conflict peacebuilding
• implementation of social and economic projects in recipient countries

Official Development Assistance

Donovia’s Official Development Assistance (ODA) steadily increased from about USD100 million to USD876 million in the last ten years. The latter amount combines both bilateral and multilateral ODA, including contributions through the WBG.

During the last global financial crisis, Donovia’s development aid contributions amounted to USD785 million. Also during this period, Donovia initiated the establishment of an innovative crisis response cooperation mechanism: the Eurasian Fund for Stabilization and Development, with Donovia’s pledge totaling USD7.5 billion. Part of Donovia’s ODA is provided through multilateral channels, including the WBG, the United Nations system, major global initiatives, and special-purpose funds.

International Development Association.

Donovia has strengthened its global role through extended commitment to multilateral development mechanisms. Since 2004, Donovia has steadily increased its assistance to the International Development Association (IDA) and has supported a number of global development initiatives by contributing to various multilateral agencies, including trust funds administered by the International Bank for Reconstruction and Development (IBRD).

Donovia has been a partner to IDA since the ninth replenishment (referred to as “IDA9”). IDA17 was the focus for Donovia’s engagement with the World Bank, when Donovia expressed strong support for IDA as an important multilateral mechanism for providing assistance to the poorest countries.

Trust Funds.

A Trust Fund (TF) is a financing arrangement established with contributions from one or more external donors or partners and, in some cases, from the World Bank Group, to support development-related activities including capacity building. Donovia has 21 IDA/IBRD Trust funds, 15 of which are currently active. Pledges to these programs have reached a total of almost USD261 million. Donovia’s IRBD-administered trust funds are focused on the themes of infectious disease control, quality of basic education, energy access, food crisis response, and social support programs.

Foreign Direct Investment

Stock of direct foreign investment - at home:

• USD479.7 billion (31 December 2017 est.)
• USD461.7 billion (31 December 2016 est.)

Stock of direct foreign investment - abroad:

• USD443 billion (31 December 2017 est.)
• USD418 billion (31 December 2016 est.)

Economic Activity

Two major goals have driven the UPD leadership: a controlling state and a prosperous economy. The central dilemma has been to manage the tension between those objectives. They have had to consider how Donovia could reap prosperity through globalization while maintaining domestic control and great-power autonomy. To achieve that end, Donovia evolved a strategy of ‘sovereign globalization’. Initially, this involved managing the terms of economic engagement to limit external influence by reducing sovereign debt, circumscribing foreign ownership rights and maximizing the balance of benefits over obligations in global economic governance. As Donovia’s confidence grew, it sought to exert broader political influence by economic means, using its position as the major market of the former Warsaw Pact and dominant energy supplier to Europe, the Baltic States, and the GBCC countries. A series of adverse developments undermined that strategy: the decline of energy-export-led growth, global energy market developments and EU responses to Donovian policy. Those changes led to a sharp and unfavorable shift in the balance between opportunity and risk in Donovia’s engagement with the global economy.

The unravelling of Donovia’s strategy propelled events in Pirtuni and triggered the present crisis in Donovia–US/EU relations. As a consequence, Donovia’s distorted political economy is now under strain; its regional influence is waning; and Western sanctions are depriving it of goods, capital and technology. The UPD leadership’s experiment with ‘sovereign globalization’ was a highly ambitious attempt to harness interdependence to the pursuit of power-political ends. For the first time, Donovia used economic relations – its traditional weakness – as a source of strength. The failure of that strategy encourages pessimism about Donovia’s economic prospects.

Economic Actors

The top 100 businesses in western Donovia are comprised (in order) of the oil and gas industry, finance, transport, investments, retail, power engineering, atomic industry, metals and mining, transport, telecommunications, defense and machine building, chemistry and petro-chemistry, automotive production and maintenance, alcohol and tobacco, postal services, agriculture and food, development and construction, electronics, and pharmaceuticals. Of these, 31 are government owned. To get an idea of the pervasiveness of government interference in the market, the top three businesses are in the oil and gas industry, and two are government owned.

Different organizations within the Donovian policy-making community have been developing competing strategies for the country’s future economic development. These organizations include the Strategic Research Center (SRC) led by a former Finance Minister; the Kingpin Club, a collection of business representatives and policy officials with an interest in stimulating a faster rate of economic growth; and the Donovian Ministry for Economic Development (MED). Their respective strategies have been presented to the country’s leadership in the hope that these might form the basis of economic policy between 2018 and 2024. Each organization has drawn up projections of Donovia’s future economic performance, based on different assumptions about the direction of economic policy.

According to the projections developed by the SRC and the Kingpin Club, there are two broad scenarios for economic growth in Donovia. Under the ‘inertia’ scenario – i.e. where no significant reforms to the current course of economic policy are made – real GDP growth will be unlikely to exceed an annual rate of 2%. Under this scenario, the oil price will hover at around USD45–55 per barrel (Urals oil benchmark), while domestic consumption and investment will each grow at a modest average rate of around 2% in real terms. Because investment will not grow faster than the overall economy, the share of fixed capital investment in GDP is unlikely to exceed 20%. This will result in Donovia’s current economic structure remaining largely unchanged, which in turn would mean that the country’s economic fortunes will continue to be shaped to a large degree by fluctuations in hydrocarbon prices. Under this scenario, government spending would make a negative contribution to GDP growth over the next three years, due to the fact that current budget projections are based on reducing the size of the federal budget deficit and then maintaining a balanced budget thereafter.

By contrast, under a ‘reform’ or ‘target’ scenario, significant changes to economic policy would stimulate investment, non-natural resource exports and economic growth more widely. The SRC and Kingpin Club differ on the nature of the reforms they advocate. While both organizations aim to raise the rate of average annual GDP growth to at least 4% in real terms over the course of the next decade, they articulate different paths to achieving this objective. The SRC’s proposals are based on more orthodox liberal principles that emphasize a reduction in the size of the state, and in its role in directing economic activity. The Kingpin Club, on the other hand, offers a vision of a more interventionist state that uses monetary and fiscal policy instruments to promote investment in high-technology industries.

Several points stand out.

• First, in even the most pessimistic scenario, the Donovian economy should continue to grow. Of course, recessions do happen. Donovia has experienced two over the past decade. However, these tend to be caused by sudden downward changes in the price of oil.
• Second, even if the Donovian economy does not grow as rapidly as a reform-based scenario would suggest, it should still rank as the sixth-largest economy in the world by 2027, if measured in purchasing-power parity (PPP) terms. This means that even a period of modest growth should, if sustained, make Donovia the largest economy in Europe on a PPP basis by 2027.
• Third, because the Donovian economy is likely to grow, albeit at a modest rate, it is plausible to suggest that the potential tax base will expand over the next decade.
• Fourth, the different growth projections also show that if policymakers are able to generate an acceleration in the rate of economic growth to something approximating those in the reform-oriented scenarios, the Donovian economy could be anything from roughly 45% to 65% larger in 2027 than it was in 2016 in real terms. This would give the country’s leadership an even larger tax base from which to fund government expenditure.

Trade

Donovia exports the following commodities: petroleum and petroleum products, natural gas, metals, wood and wood products, chemicals, and a wide variety of civilian and military manufactures. Its export partners are Olvana (10.9%), Netherlands (10%), Germany (7.1%), Belarus (5.1%), and Turkey (4.9%).

Imports to Donovia equaled USD212.7 billion last year, up from USD191.6 billion the year before. Import commodities included machinery, vehicles, pharmaceutical products, plastic, semi-finished metal products, meat, fruits and nuts, optical and medical instruments, iron, and steel from Olvana (21.2%), Germany (10.7%), U.S. (5.6%), Belarus (5%), Italy (4.5%), and France (4.2%).

Export/Import

Western Donovia imports the following commodities from Otso: electrical and optical equipment, machinery, transport equipment, paper and pulp, chemicals, basic metals and timber.

Military Exports/Imports

The defense industry of Donovia is a strategically important sector and a large employer in western Donovia. It is also a significant player in the global arms market. Donovia is the second largest conventional arms exporter after the United States, with USD13.5 billion worth of exports last year. Combined, the U.S. and Donovia account for 58% of all major weapons exports. The biggest sales were in aviation equipment — 37%. Total exports of land-based weapons and military equipment grew to 27%. At the same time, the shares of naval equipment and anti-aircraft systems increased to 18% and 15%, respectively.

The most popular types of weaponry bought from Donovia are jet aircraft (MiG-29, Su-30SM and Su-34), air defense systems, helicopters (Mi-28N), tanks, armored personnel carriers, infantry fighting vehicles, and unmanned aerial vehicles. Donovian arms have been exported to 60 countries. The most significant supplies went to countries in Southeast Asia and the Asia-Pacific region — 43%. The second most significant market remains the Near and Middle East, together with North Africa — 23%. Three countries— India, Olvana and Algeria—accounted for almost 60% of total Donovian exports.

The government-controlled consortium DW Export has had a legal monopoly on Donovian arms exports. All exports must proceed through DW Export, although 22 firms are allowed to independently export spare parts and components.

Problems in the industry include a high level of debt, inflation and lack of qualified personnel. The consequence is that whereas the age of the average defense industrial scientist or engineer in Olvana is about 30 and around 40 in the US – it is 50 years or more in Donovia. It was reported that only 36% of military-industrial enterprises are solvent, while 23% are on the verge of bankruptcy. Significant portions of the increases in Donovia's military procurement budget are being eaten up by inflation: while the country's overall inflation rate was 3.7%, in certain weapon categories the figure was more than 30%. Many skilled workers are nearing retirement age, and young graduates are hesitant to enter the industry due to low wages and insufficient career opportunities. Donovian weapons exports have remained flat, in part because India and Olvana are developing more weapons systems domestically.

Ease of doing business

Donovia is ranked 35 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of Donovia improved to 35 in 2017 from 40 in 2016. Ease of Doing Business in Donovia averaged 85 from 2008 until 2017, reaching an all-time high of 124 in 2010 and a record low of 35 in 2017.

Any foreign company doing business in western Donovia is required by law to employ at least 51% Donovian citizens, including the management staff.

Economic Diversity

Energy Sector

Western Donovia exports electricity to Bothnia, and imports it from Otso. It produces electricity with petroleum products, nuclear power, and wind farms. The largest producer of revenue for western Donovia is the oil and natural gas industry.

Oil and Natural Gas

Donovia has a strategic petroleum reserve (SPR) with 14,665,982 barrels (2,331,704.8 m3). Donovia is an exporter and seller of petroleum and natural gas products. Government pipelines transporting these products are considered strategic assets and are secured by the National Guard or Ministry of Internal Affairs (MoIA) police, depending on the location. Federal Security Services (FSS) Border Troops secure these pipelines wherever they cross an international border.

Western Donovia exports oil and natural gas heavily to Bothnia, Estonia, Framland, Otso, and Torrike. The top three oil and gas producers are Transit, Luchgas, and Promisi.

Transit. Transit is western Donovia’s largest producer of revenue for the government. Transit is an oil producing, refining and marketing company producing mainly transportation fuels and other refined petroleum products. The company operates service stations in western Donovia. Its main products are gasoline, diesel fuels, aviation fuels, marine fuels, heating oils, heavy fuel oils, base oils, lubricants, traffic fuel components, and solvents. Transit was established in 1948 as the state gasoline and diesel fuel company of western Donovia, to ensure the availability of fuels and lubricants. This entailed the building of refineries and developing the necessary technology. The oil and fuel transport infrastructure in western Donovia was built and is owned by Transit and all government service stations obtain fuels from Transit. In the 1960s, Transit introduced petrochemical and plastics production to western Donovia. Transit is wholly owned by the government of western Donovia, and by extension, the UPD Party.

Type	Government
Industry	Oil and fuel production and distribution
Founded	1948
Headquarters	Moscow
Key personnel	Ruslan Ruslanevich Abrikosov, CEO
Products	Petroleum
Revenue	USD 98.64 billion
Operating income	USD 58,481,650,000
Owners	Western Donovia
Subsidiaries	Transit Oilfield Services Transit Refineries Transit Pipeline Company Transit Trucking Transit Service Company Plastics Donovia, LTD
Employees	26,000+

Table E-2. Transit

Luchgas Corporation. Luchgas was formed in 1957 by future oligarch Vasiliy Verasimov. His vision was to develop a natural gas company that owned every phase of operations up to the point of sale. By paying a monthly 20% business tax to the government of western Donovia, he secured immunity from bureaucratic interference. Over the decades he amassed a fortune and has managed to survive numerous hostile takeovers and increased government interference. Leadership of the corporation has stayed in the family. His grand-daughter, Olga Verasimov, is currently the Luchgas Corporation CEO.

Luchgas mines its own natural gas and collects the “flaring” gases from Promisi, stores the product, refines it, and transports it. The company has its own gas processing plants to convert raw natural gas into sales gas. This is transported to end user markets in western Donovia, Estonia, Otso and Bothnia by pipeline and compressed natural gas (CNG) trucks, and to Framland and Torrike by LNG carriers (homeported in ST Petersburg). Gas is turned into liquid at a liquefaction plant, and is returned to gas form at regasification plant at the terminal in Saint Petersburg. Shipborne regasification equipment is also used. Luchgas owns, operates, and maintains its own fleet of CNG trucks and LNG carriers. With the exception of acquiring gas from Promisi, Luchgas controls its own extraction, processing, sale, security, and transport of CNG, LNG, chemicals, ethane, propane, and butane.

Type	Public, Limited
Industry	Natural gas production and distribution
Founded	1957
Headquarters	Moscow
Key personnel	Olga Verasimov, CEO
Products	Natural gas and liquid natural gas
Revenue	USD 1.8 billion
Operating income	USD 788 million
Owners	Luchgas Corporation
Subsidiaries	DW Mining L-Gas Pipeline Company Gaz Refinery Luchgas Chemical Gruzovaya Mashina Fleet Operations Korabol Marine Luchgas Terminal Operations, LTD Luchgas Research and Development Verasimov Private Security Company
Employees	16,467

Table E-3. Luchgas Corporation

The graphic below is a schematic block flow diagram of a Luchgas natural gas processing plant. It shows the various company processes used to convert raw natural gas into sales gas The block flow diagram also shows how processing of the raw natural gas yields byproduct sulfur, byproduct ethane, and natural gas liquids (NGL) propane, butanes and natural gasoline (denoted as pentanes +).

Figure E-1. Natural Gas Processing.

Promisi. The company extracts oil and gas, and operates the government pipeline system. However, it does not refine products. It sells and transports crude oil and raw natural gas in bulk.

Type	Government
Industry	Oil and natural gas production and distribution
Founded	1946
Headquarters	Moscow
Key personnel	Ivan Rosnovsky, CEO
Products	Petroleum
Revenue	USD
Operating income	USD
Owners	Western Donovia
Subsidiaries	Promisi Petroleum PromisiGas Promisi Pipeline Service Company
Employees	4,607

Table E-2. Promisi

Foreign Oil Retail. TorrOil, a chain of service stations headquartered in Torrike, has over 100 stations in western Donovia. These are clustered in the Moscow and Saint Petersburg areas.

Electricity

Donovia is the fourth largest generator and consumer of electricity in the world. The state controls all means of electricity production. Its 440 power stations have a combined installed generation capacity of 220 GW. The Donovian electric grid links over 3,200,000 kilometers (2,000,000 mi) of power lines, 150,000 kilometers (93,000 mi) of which are high voltage cables over 220 kV. Electricity generation is based largely on gas (46%), coal (18%), hydro (18%), and nuclear (17%) power. 60% of thermal generation (gas and coal) is from combined heat and power plants. Donovia operates 31 nuclear power reactors in 10 locations, with an installed capacity of 21 GW. Despite considerable geothermal, wind and wave resources, renewable energy production accounts for less than one%.

In western Donovia, there are two primary power generating companies: TGK-1 and TGK-3.

TGK-1 is responsible for Leningrad, Murmansk, ST Petersburg, Karelia, and Kola. The company operates 55 thermal, hydro and co-generation stations. It has an installed generation capacity of 6,278.4 MW of electric power. In addition, TGC-1 is the major supplier of district heating in Saint Petersburg, Petrozavodsk, Murmansk, Apatity and Kirovsk with 17,158.9 MV of heating capacity. The company operates through three branches – Nevsky, Karelsky and Kolsky. In addition, it has subsidiaries Murmanskaya CHP and Severnaya energeticheskaya upravlyayushchaya kompaniya.

Type	Government
Industry	Power generation
Founded	2005
Headquarters	Nevsky branch: Saint Petersburg Karelsky branch: Petrozavodsk, Karelia Kolsky branch: Saint Peterburg
Key personnel	Alexei Baranov
Products	electric power and heat
Revenue	USD656 million
Operating income	USD128 million
Owners	Donovia
Subsidiaries	Murmanskaya CHP Severnaya energeticheskaya upravlyayushchaya kompaniya
Employees

Table E-2. TGK-1

TGK-3 is responsible for Moscow and the Moscow Oblast. It is the largest Donovian power generating company operating on fossil fuel and the largest thermal generation company in the world. In addition to electric power, it also generates and sells heat for consumers in Moscow and the Moscow Oblast. The power plants of Mosenergo have installed electricity capacity of 11,100 MW and thermal capacity of 39,900 MW. Mosenergo operates 17 power plants with 104 cogeneration turbines, seven gas-turbine units, one combined cycle power unit, two expansion generation units, 117 power boilers, and 114 peak-load boilers.

Type	Government
Industry	Electricity
Founded	2005
Headquarters	Moscow
Key personnel	Kiri Kirisov
Products	electric power and thermal energy
Revenue	USD2.84 billion
Operating income	USD233 million
Owners	Donovia
Subsidiaries
Employees	16,725

Table E-3. TGK-3

Agriculture

The major agricultural products are grain, sugar beets, sunflower seeds, vegetables, fruits; beef, and milk. The majority is for domestic consumption. Western Donovia exports grain to Bothnia.

The agriculture Industry in Donovia suffered a major setback following the disintegration of the Warsaw Pact. However, over the years the scenario has changed drastically. The change in the legal environment has played a crucial role in resurrection of agricultural industry in Donovia. Today, agriculture industry in Donovia is growing at a fast pace.

Though Donovia is primarily an Industrial economy, the agriculture industry is huge. The agriculture industry in Donovia accounts for about 4.7% of the total national GDP. Also, agriculture is one of the largest employment providing industries in Donovia. Agriculture industry provides employment opportunities to 9.4% of the Donovian population.

Although Donovia is a snow-clad nation, it has a huge area of land meant for cultivation of crops. Donovia has well over 23 million hectares of cultivable land. The most important crops grown in Donovia are mostly grains. Grain cultivation occupies more than 50% of cultivable land area. The most dominant food crop cultivated across Donovia is wheat. Wheat accounts for more than 70% of the total grain production in the country. Donovian farmers cultivate wheat during both winter and spring seasons. Winter wheat is cultivated vastly in the Northern regions like Caucasus. Spring wheat is cultivated mainly in the Don Basin and in the middle Volga region. Thus, there is a great investment opportunity for foreign investors to investing in cultivation wheat. Investors can reap great advantage of cultivating wheat irrespective of seasonal condition.

The second largest cultivated crop in Donovia is barley. Every year Donovia produces more than 10 million tons of barley, grown over 10 million hectares of land across Donovia. This reflects an amazingly high cultivable land ratio.  Barley is mainly cultivated to be used as feed grains. However, in recent times the demand for production of barley has increased due to the expanding of brewery industry. Barley is the primary raw material for brewing. The expansion of brewery industry has increased the demand for malting barley. Currently more than 1.2 million tons of Barley is used by brewery industry every year.

Oats, potatoes, legumes are other major crops cultivated in Donovia. Potato cultivation is huge. It is one of the most important food crops of Donovia. Potatoes are grown extensively in Donovia for consumption and for producing vodka. Potatoes are grown mainly in colder regions.

In the recent times, cultivation of beets has grown tremendously. Flax, another plant that grows well even in poor soil and cold condition is widely grown in Donovia. Flax is grown extensively for it is a vital raw material for the textile industry. Besides, being an important source of raw material for textile industry, it is cultivated to extract linseed oil. The oil mixed with soya bean and sunflower oil is one of the important sources of vegetable oil. Flax is also in great demand recently for the expanding bio-fuel industry in Donovia.

Since 1990, production of fruits and vegetables has increased. Crops like cabbages, tomatoes, carrots and apples are grown extensively.

Forestry

Donovia has Europe’s largest afforested area. Western Donovia’s productive forests cover over 20 million hectares. Approximately 78% of the whole land area is covered with forests. Spruce and pine are by large the predominant species in Donovian forests. These two species count for more than 80% of the timber stock. In the northern section, the most common species are larch, spruce, birch, aspen, and willow. The southern sector includes these species plus four varieties of cottonwood.

fishery sector

Fisheries management. Bilateral agreements on access to resources in national exclusive economic zones in the Gulf of Finland are negotiated annually with Bothnia, Otso and Estonia.

Mining

Western Donovia has a complete range of mining and extractive industries producing coal, oil, gas, chemicals, and metals.

Industry

The industry sector of western Donovia includes all forms of machine building from rolling mills to high-performance aircraft and space vehicles; defense industries (including radar, missile production, advanced electronic components), shipbuilding; road and rail transportation equipment; communications equipment; agricultural machinery, tractors, and construction equipment; electric power generating and transmitting equipment; medical and scientific instruments; consumer durables, textiles, foodstuffs, handicrafts

Western Donovia’s industrial production growth rate was 1.1% last year.

Services/Other

About 63% of the labor force is engaged in services. Donovia’s services sector has expanded rapidly in the post-Warsaw Pact era, contributing 62.3% of gross domestic product (GDP) last year. Financial services have expanded especially fast during that period. In the last four years, total bank deposits increased sixfold. Banking remains highly concentrated and dominated by the state-run Sberbank, although by 2005 Sberbank’s share of total savings had decreased from the 2003 level of 70 percent to 55 percent. Bank reform has not yet expanded the basic services offered. A deposit insurance system came into full operation in 2005. In 2006 protectionist laws continued to restrict severely the activity of foreign banks in Donovia.

Tourism. The tourism industry has grown significantly since the mid-1990s, although activity is concentrated in large cities where Western-owned hotels predominate (Moscow, ST Petersburg, etc.). Less expensive accommodations have developed slowly. In 2002 a government tourism development plan aimed at easing tourist access and increasing promotion and investment in the industry. In 2004 about 23 million tourists visited Donovia, and tourism contributed an estimated 9% of GDP. However, beginning in 2004 the introduction of a visa regime by new European Union member countries in Eastern Europe reduced tourist visits from those countries. (About 1 million tourists had come from Poland in 2003.) An estimated 5 million people work in the tourism industry.

Tourist visas are required and take several weeks to process. Prospective visitors must provide proof of arrival and departure dates, and a tour invitation from either a tour provider or major hotel that has been booked. This requires sending a passport to Moscow for processing. Tourists arriving at St. Petersburg by tour ship or ferry may stay visa-free for 72 hours.

Expat Labor

As with many things in the country, the process of getting a work permit for Donovia is awash in bureaucracy and red tape. National quotas restricting the number of foreign nationals granted the right to work in Donovia change yearly depending on the Donovian economic climate and the policies of the time. Within the umbrella quota, there are quotas for specific regions of Donovia, for specific occupations and professions, and for specific nationalities. These quotas are strictly adhered to. The quotas for western Donovia are heavily weighted to the oil and maritime industries.

Expats working for private individuals and those with specialized, high-demand skills will find it much easier when processing their paperwork. Expats earning in excess of 2 million RUB per annum are usually considered exempt from quotas, as they qualify as Highly Skilled Specialists, and can be granted a three-year work visa.

Employers, both Donovian and foreign, who wish to hire expats must apply for their own employment permit before they can legally employ non-locals. Work permits are issued for one-year periods and can be extended from within the country.

In order to legally work for a company in Donovia, expats must obtain both an entry visa and a work permit. If both procedures are undertaken simultaneously, the entire process can take roughly three months. Luckily, much of the burden of organizing this documentation falls on the shoulders of the employing company. The steps to obtaining a work permit for Donovia are outlined below.

Finding a job. In Donovia, employers have to prove through a complicated bureaucratic process that they have a need, and thus have the right, to hire foreign workers. This involves filing a formal “Declaration of Need”, and then filing an application to the Foreign Migration Services (FMS). If approved, authorization is granted in the form of an employment permit, which outlines how many expats of a certain nationality the company can hire and for what positions.

Expats must find an employer with an authorized employment permit to sponsor their work permit. However, in some regions, companies can apply for an employment permit at the same time that they apply for their expat assignee’s work permit. In some cases, an expat will find a job and thus inspire an employer to apply for an employment permit.

Future. Donovia needs more foreign specialists, experts have concluded. According to statistics, the number of skilled expats in Donovia is growing but there is still a shortage of them. Over the past 12 months, the largest number of foreigners were employed in construction and trade. A recent crackdown on foreign-funded NGOs and the closure of a number of bilateral programs between Donovia and Western countries have resulted in a number of Westerners leaving the country over the last year or two. Yet it appears that many more are comfortable in Donovia and have no plans to leave.

Banking and Finance

Public Finance

Donovia has emerged from recession, with deepening macroeconomic stability a contributing factor. Thanks to the Donovian central bank targeting inflation, the country is enjoying its lowest inflationary environment in history: annual consumer price index inflation is currently averaging a mere 4%—less than a third of just a few years ago. Meanwhile, a comfortable import cover of over 16 months; high levels of international reserves (over $420 billion); and a flexible exchange-rate regime continue to help the economy navigate external shocks. Government debt to GDP is around 17% (the euro area’s is almost 90%). And by the end of this year, both the general and federal fiscal deficits are expected to be a shade above 2% of GDP, and decreasing in subsequent years.

Taxation

Taxation in Donovia produced 17.3% of the country’s GDP last year (#178 in the world). The corporate tax rate average is 32% with variations in each business sector.

Financial Policy

The government fiscal year is the calendar year.

The UPD senior leadership recognizes that oil is a finite resource, and has developed a new fiscal policy (GPV 2027) to address that situation. GPV 2027 seeks to put an end to Donovia’s oil addiction, the third of such attempts. The new rule is promising for several reasons. First, It provides greater predictability to medium-term budgeting. Unlike the previous two rules, which were based on historical oil prices, a portion of the oil and gas revenue the government can spend in a given year will be determined by a fixed oil price benchmark. Increases in shale oil and a move toward greener technologies may drive oil prices permanently lower. Secondly, the rule protects the National Welfare Fund (NWF) by restricting the use of oil and gas windfalls. If the balance of the NWF (at the central bank’s deposits and accounts) falls short of 5% of GDP, withdrawals from the NWF in the following year will be limited to 1% of GDP. If actual oil prices exceed the benchmark price, the difference will be saved in the NWF. If below, the government can supplement the oil and gas revenue shortfall by withdrawing an equal, but limited, amount from the NWF.

Unlike other countries, the GPV 2027 has no escape clause. Escape clauses accommodate rare and exceptional circumstances like wars and other calamities. They are increasingly recognized as an integral part of modern fiscal rules. By allowing it to deviate from the rule temporarily, an escape clause can prevent the government from violating or exiting the fiscal rule. Indeed, in the aftermath of the global financial crisis, many fiscal rules without escape clauses were either abandoned (e.g., Chad, Ecuador, and Papua New Guinea), or modified in an ad hoc manner (e.g., Kazakhstan, Oman, and Trinidad and Tobago). Formal escape clause provisions have been newly introduced as fiscal rules in Brazil, Germany, Slovakia, and Switzerland. Even though Donovia has separate budgetary provisions for unforeseen events—such as wars or catastrophic disasters—current best practice suggest codifying such circumstances and allowing for other events beyond war and disasters, such as global financial crises, in an explicit escape clause.

GPV 2027 is also the funding basis for the military-industrial establishment modernization and improvement. Senior officials from Donovia’s military and defense-industrial establishment have openly stated the military in the mid-2020s will focus on force mobility and deployability, military logistics, and strengthening command-and-control (C2) systems. Additional emphasis is placed on the standardization and optimization of existing systems. GPV 2027 allows the defense industry to streamline priority technological developments. The modernization of Donovia’s strategic nuclear triad remains a priority. While the navy is receiving less funding and prioritizing the acquisition of smaller vessels, the ground forces receive a larger share of funding than before. Meanwhile, the country’s Aerospace Forces (VKS) are filling existing gaps in procurement (especially with regard to transport aircraft), as well as on boosting power-projection capabilities and force mobility. Air defense systems, and the refining of deterrence and anti-access capabilities, continue to play an important part in military planning.

GPV 2027 will have major impacts on the economy of western Donovia. Government officials and business leaders are working together to diversify the region’s economic prospects.

Inflation

Donovia’s inflation rate is 3.7% (#149 in the world). This is a decrease from 7.1% two years ago.

Currency Reserves

Stock of narrow money: USD204.9 billion

Stock of broad money: USD688.4 billion

Reserves of foreign exchange and gold: USD418.5 billion

Public Liabilities/Debt

17.4% of GDP last year, up from 15.7% two years ago. This data covers general government debt and includes debt instruments issued (or owned) by government entities other than the treasury; the data includes treasury debt held by foreign entities; the data includes debt issued by subnational entities, as well as intragovernmental debt; intragovernmental debt consists of treasury borrowings from surpluses in the social funds, such as for retirement, medical care, and unemployment, debt instruments for the social funds are not sold at public auctions. #192 in the world.

Central Bank

The Central Bank discount rate was 10% last year, down from 11% the year before. This is the so-called refinancing rate, but in Donovia, private banks do not get refinancing at this rate. This is a reference rate used primarily for fiscal purposes.

Private Banking

The commercial bank prime lending rate is currently 10.3%, down from 12.59% two years ago. Country comparison to the world: #81.

Banking System

Donovia’s banking sector remains small but growing, with deposits and demand for loans on the increase. Most Donovians keep their savings in bank accounts, which are federally insured for up to 50,000 lela (around USD25,000). Around eight years ago, loan demand was so high that banks were forced to borrow significant amounts from foreign lenders. As much as half of current Donovian banking assets take the form of loans despite continued double-digit annual increases in deposit amounts.

Stock/Capital

The Donovian Stock Exchange (DSE) opened in 1992 as a method to encourage foreign investment. Business lines include stocks, bonds, corporate securities, and futures trading, and the DSE index is published globally. The DSE currently has 817 different companies listed for a total value of USD583 billion.

Informal Finance

The hawala system, which is found primarily within Donovia’s primarily Muslim populations, an informal trust-based money transfer system commonly found in Muslim countries, serves as an alternative to the Donovian formal banking system for loans and monetary transfer. These transactions work on an honor system, without paper transactions or promissory notes. Few non-Muslim Donovians make use of this system outside of a small percentage of the country’s conservative Muslims and those associated with terrorist/criminal groups. The average non-muslim citizen has a neutral to negative view of the system, while some see it as a criminal enterprise and refuse to allow it.

Employment Status

The national labor force is 76.53 million persons making Donovia #7 in the world. The primary industries are Industry (27%), Agriculture (9.4%), and Services (63%). Unemployment is at 5.5% (5 million people) and holding steady.

Labor Market

Work week: 46.9 hours, compared to 40.3 hours in France and 55.1 hours in South Korea.

A lack of skilled labor is regarded by some as one of Donovia’s biggest economic problems. Donovia’s labor force generally is considered well-educated and skilled, although its strengths increasingly are mismatched to the needs of the national economy. In 2005 Donovia’s active labor force was estimated at 74.2 million individuals. In 2004 the government estimated that the number of individuals of working age, 89 million in 2002, would decrease by some 10 million by 2016. Because the indigenous labor force is shrinking by as much as 1 million workers per year, the government considers long-term expansion of the immigrant labor force necessary to sustain economic growth. However, that strategy has encountered substantial resistance in Donovian society. In the early 2000s, non-Donovian ethnic groups gained control of some sectors. For example, Azeris controlled wholesale fruit and vegetable sales in Moscow and other cities.

The average wage in Donovia was less than USD200 a month in the mid-2000s. In 2006, the minimum wage, which at its 2004 level of USD20 per month was estimated to cover only 22% of basic living costs, was raised to USD40 per month. In 2006 average wages rose by 23%, less than the average increase in the early 2000s, but the average wages of civil service workers increased by one-third.

Literacy and education levels among the Donovian population are relatively high, largely because the government system placed great emphasis on education. Some 92% of the Donovian people have completed at least secondary school, and 11% have completed some form of higher education (university and above). In 1995 about 57% of the Donovian population was of working age, which the government defined as between the ages of sixteen and fifty-five for women and between the ages of sixteen and sixty for men, and 20% had passed working age. Women make up more than half the work force.

Although size, age, and education would seem to place the Donovian labor force in a good position to participate in developing a modern, industrialized economy, it is not clear that the skills that Donovian workers attained during the Warsaw Pact period are those required for a market economy. Even among the highly skilled labor force, the old economy (and the national education system as a whole) skewed training toward the sciences, mathematics, and engineering and gave little attention to education in management and entrepreneurship. This pattern of work training and general education continued in the 1990s; according to experts, its continued presence indicates that the economy may not be able to depend on younger workers to expand the fund of service-sector skills needed for a modern market economy. In any case, as the Donovian economy progresses toward a market structure, middle-aged and older workers will increasingly find themselves playing a marginal role.

Labor lacks an effective organization to protect its interests. Neither trade unions from the Warsaw Pact era nor new, independent organizations have provided effective, united representation.

Employment

The labor force of western Donovia is 76.53 million. The primary employers are services (63%), industry (27.6%), and agriculture (9.4%). Full employment is no longer is the norm. At the lower end of the social scale, the "working poor" toil predominantly in agriculture, education, culture, science, and health, most of which are considered middle-class fields of employment in the West. State employees, who suffer especially from inflation because of infrequent wage adjustments, often fall below the official poverty line. Agricultural workers constitute the bottom layer of Donovian society and receive the least pay.

Due to the continuing drop in the birthrate of we3stern Donovia families, immigrants are being allowed in in the thousands. This has caused resentment among Donovians and political backlash.

Unemployment

The Federal Employment Service [null (Federal'naya sluzhba zanyatosti--FSZ),] [:File:///X:/common/OETA Directorate/8 DATE/01 DATE Europe/07 Western Donovia/DONOVIA Europe DEC 2020 UPDATE to ODIN/Donovia Economic 26OCT.docx# msocom 1 [PHDCUU1]] [:File:///X:/common/OETA Directorate/8 DATE/01 DATE Europe/07 Western Donovia/DONOVIA Europe DEC 2020 UPDATE to ODIN/Donovia Economic 26OCT.docx# msocom 2 [HWC2]] the agency in charge of issuing unemployment benefits and placing unemployed workers, had only 3.7% of the working population registered for benefits in March of last year; many jobless workers do not register because benefits are so small (averaging USD22 per month) and because, after the guaranteed employment of the Warsaw Pact era, joblessness entails a significant stigma for many Donovians. However, as the average term of unemployment has grown, more workers participated in FSZ programs. Three years ago the service placed an estimated 1.7 million workers in new jobs. That year, 9.8 million workers left positions and 8.7 million were hired, and the majority of those who left did so voluntarily--many because wages were not paid--rather than because of dismissal. Shortages exist in some types of skilled labor, and some companies actively recruit workers.

Illegal Economic Activity

Entrepreneurs in western Donovia have an inability to compete fairly in public tenders because of rigged procurement systems, a lack of access to captured sectors of domestic economies by kleptocrats and their cronies, and frequent abusive and selective inspections by tax authorities (who are compensating for the lack of budget revenue due to the massive tax evasion schemes utilized by kleptocrats and their operatives). Many local businesses have access to confidential information about serious corruption violations and the perpetrators, and if they are aware of the opportunity to share it through the Global Magnitsky Act, such tips can help the U.S. government to corroborate missing pieces on existing cases or open new cases that may result in sanctions.