Economic: Donovia

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Economic Overview //PAGE UNDER CONSTRUCTION//[edit]

Donovia is a de facto Kleptocracy, in which corrupt leaders (Kleptocrats ) 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 which enrich them or their constituents and they usually circumvent the rule of law.

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.

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 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.

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 rebuilding its military and funding its military operations abroad. Donovia’s military and political antagonism toward the United States (U.S.) 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. It also seeks to drive wedges into the transatlantic alliance and undermine people’s faith in government and societal institutions.

Economic Activity[edit]

The Unionist Democratic Party (UDP) has two major goals driving their leadership: a controlling state and a prosperous economy. The dilemma has been to manage the tension between those objectives. The UDP has 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 the 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[edit]

The top 100 businesses in 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 100 businesses, 31 are owned by the government. 

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. The investment will not grow faster than the overall economy and 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 because current budget projections are based on reducing the size of the federal budget deficit and 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 emphasizing a reduction in the size of the state and in its role in directing economic activity. The Kingpin Cluboffers a vision of a more interventionist state using monetary and fiscal policy instruments to promote investment in high-technology industries.

Several points stand out.

• 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.
• Even if the Donovian economy does not grow as rapidly as a reform-based scenario suggests, 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 sustained growth should, make Donovia the largest economy in Europe on a PPP basis by 2027.
• 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.
• The different growth projections 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.

International Trade[edit]

Commercial Trade[edit]

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 main export partners are Olvana (10.9%), Netherlands (10%), Germany (7.1%), Belarus (5.1%),and Turkey (4.9%).

Imports to Donovia equaled USD 212.7 billion last year, up from USD 191.6 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%).

Military Exports/Imports[edit]

The defense industry of Donovia is a strategically important sector and a large employer in Donovia. It is also a significant player in the global arms market. Donovia is the second largest conventional arms exporter after the U.S., with USD 13.5 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 with the most significant supplies going to countries in Southeast Asia and the Asia-Pacific region at 43%. The second most significant market remains the Near and Middle East, together with North Africa at 23%. Three countries, India, Olvana and Algeria has 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.

Manipulation/Weaponization of Economic Activity[edit]

As a major power, economic activities are utilized both for and against Donovia to further political and ideological interests. Donovia is on the receiving end of significant sanctions limiting its economic growth and are intended to shape behavior. In turn, retaliatory sanctions by Donovia are intended to push back. Trade wars and other means of non-military tactics are utilized to further individual and collective country interests.

Economic Sectors[edit]

Raw Materials Sector[edit]

Agriculture[edit]

The major agricultural products are grain, sugar beets, sunflower seeds, vegetables, fruits; beef and milk. The majority is for domestic consumption. The agriculture industry in Donovia suffered a major setback following the disintegration of the Warsaw Pact. However, the scenario has changed drastically over the years. The change in the legal environment has played a crucial role in resurrection of agricultural industry in Donovia. Today, the agriculture industry in Donovia is growing at a fast pace.

Donovia is primarily an industrial economy, and the agriculture industry accounts for about 4.7% of the total national GDP. Also, agriculture is one of the largest employment providing industries in Donovia providing employment opportunities to 9.4% of the Donovian populatio n.

Although Donovia is a snow-clad nation, it has large 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 occupying 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 (North Region) and spring seasons (Don Basin and Volga Region). Wheat is a great investment opportunity for foreign investors who 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 as feed grains, but in recent times the demand for malting barley has increased due to the expanding of brewery industry. Currently more than 1.2 million tons of Barley is used by brewery industry every year.

Oats, potatoes, and legumes are other major crops cultivated in Donovia. Potato cultivation 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.

C ultivation 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 due to the expanding bio-fuel industry in Donovia.

Forestry[edit]

Donovia has Europe’s largest afforested area. Western Donovia’s productive forests cover over 20 million hectares. 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.

Fishing[edit]

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

Oil and Natural Gas Extraction[edit]

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 oil and natural gas are considered strategic assets and are guarded 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[edit]

Transit is 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. Transit Company, built, operates and owns the fuel and oil transportation infrastructure in Donovia. The government service stations obtain fuels from Transit. In the 1960s, Transit introduced petrochemical and plastics production to Western Donovia. The Government of Donovia is the single owner Transit Company 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[edit]

Luchgas was formed in 1957 by future oligarch Vasiliy Verasimov. His vision was to develop a natural gas company responsible for every phase of operations up to the point of sale. By paying a monthly 20% business tax to the government of 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 Donovia, Estonia, Otso and Bothnia by pipeline and compressed natural gas (CNG) trucks, and to Framland and Torrike by LNG carriers (homeported in Saint 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. [edit]

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[edit]

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.

Mining[edit]

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

Manufacturing and Industry Sector[edit]

The industry sector of Donovia has many aspects it to it. The industry sector includes: all forms of machine building from rolling mills to high-performance aircraft and space vehicles;  defense industries, shipbuilding; road and rail transportation equipment; communications equipment; agricultural machinery, tractors and construction equipment electric power equipment; medical and scientific instruments; consumer durables, textiles, foodstuffs and handicrafts. 

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

Energy Industry[edit]

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 Donovia is the oil and natural gas industry.

Chemical Industry[edit]

The chemical industry is significantly represented in 44 of 83 Donovian regions. Chemical clusters in Donovia are based on the availability of natural resources (mainly petrochemicals) or proximity to the main transport corridors to export bulk chemicals. Thus, there are several clusters close to the oil and gas extraction and nearby main ports of the Donovian Federation. There are six main clusters: West-Siberian, Volga, Caspian, East-Siberian, Far-Eastern, North-Western clusters. In the future the emergence of new clusters can be expected on the basis of the large factories, located in the Urals, in Solikamsk, Nizhny Tagil. The plans also include the development of existing and the creation of new petrochemical clusters in Nizhny Novgorod region, Bashkortostan and Omsk.

Electricity[edit]

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 Gigawatts (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. Thermal generation (gas and coal) is from combined heat and power plants at 60%. 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 Donovia, there are two primary power-generating companies: TGK-1 and TGK-3.

TGK-1[edit]

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
Type	Government
Owners	Donovia
Subsidiaries	Murmanskaya CHP Severnaya energeticheskaya upravlyayushchaya kompaniya
Employees

Table E-2. TGK-1

TGK-3 [edit]

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 Megawatt (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

Services Sector[edit]

Its estimated 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.

Banking/Finance[edit]

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 USD 25,000). 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.

Information Communications Technology (ICT)[edit]

Donovia’s IT market is one of the world’s largest, with significant potential. It is predicted that within the next five years, there will be 124 million Internet users in Donovia.  According to the International Data Corporation (IDC), a global leader in market intelligence for IT, the value of the Donovian IT market grew 7% to a value of $24.8 billion.  The main growth drivers are concentrated in software, services and hardware solutions.

There are an estimated 1.3 million people employed in the IT sector. In terms of its share in GDP, the sector is comparable to energy supply (2.9% of GDP), and is lower than agriculture (4.4%), the financial sector (4.2%), construction (6.4%) and mining industry (10.4%).

Increases in IT spending have been noticeable in the banking and oil and gas industries as well as the public sector.  Reflecting the structure of the economy, IT expenditures are concentrated among the 100 largest Donovian companies, which account for 85% of total IT spending.

The industry’s fastest growing segments are hosting, software maintenance and administration, consulting, software customization and information security services. Market leaders believe ongoing digitalization of the Donovian economy will lead to an increase in demand for IT services.

The Donovian government is striving to enhance the use of modern technologies in everyday life, while attempting to maintain significant control over the information available on the web. For the past few years the industry’s regulatory framework exhibited very positive development trends which resulted in the adoption of the Telemedicine Law, Law on Critical Infrastructure, Online Cash Register Law, and amendments to the Public Private Partnerships Law, allowing the IT infrastructure to be managed under Concession agreements, and introducing a number of tax incentives for the industry.

Professional Services[edit]

Donovia has a wide range of professional services available, most prominently in the larger cities. Laws governing business transactions and services need to be considered carefully and expert advice sought to insure  limited government regulatory interference. The government monitors business interests in ways that would seem intrusive to those used to western governments, but are simply the cost of doing business in Donovia. 

Tourism [edit]

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.

Government Services[edit]

Government services are often inefficient and plagued with corruption. Long waits for services can be expected. 

Participation in the Global Financial System[edit]

 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

World Economic Organizations[edit]

International Monetary Fund (IMF)[edit]

Donovia became a member of the IMF on June 1, 1992.

World Bank[edit]

Donovia became a full member of the World Bank in 1992. In June 1993, the Bank organized a multilateral meeting in Paris to discuss the most critical reforms in Donovia and coordinate related external assistance. The World Bank has provided more than $16 billion in loans to support structural transformation in Donovia. While demand for financing has fluctuated over the years, World Bank knowledge and technical assistance has been consistently at the core of World Bank engagement with Donovia, focusing on social and economic development and on addressing the global challenges of fighting poverty, debt relief for the poorest countries and environmental protection.

International Development Aid[edit]

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.

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.

Other major world or regional economic organizations[edit]

APEC, Arctic Council, ARF, ASEAN (dialogue partner), BIS, BRICS, BSEC, CBSS, CD, CE, CERN (observer), CICA, CIS, CSTO, EAEC, EAEU, EAPC, EAS, EBRD, FAO, FATF, G-20, GCTU, IAEA, IBRD, ICAO, ICC (national committees), ICRM, IDA, IFAD, IFC, IFRCS, IHO, ILO, IMF, IMO, IMSO, Interpol, IOC, IOM (observer), IPU, ISO, ITSO, ITU, ITUC (NGOs), LAIA (observer), MIGA, MINURSO, MONUSCO, NEA, NSG, OAS (observer), OIC (observer), OPCW, OSCE, Paris Club, PCA, PFP, SCO, UN, UNCTAD, UNESCO, UNHCR, UNIDO, UNISFA, UNMIL, UNMISS, UNOCI, UN Security Council (permanent), UNTSO, UNWTO, UPU, WCO, WFTU (NGOs), WHO, WIPO, WMO, WTO, ZC.

Foreign Direct Investment[edit]

Stock of direct foreign investment - at home:

• USD479.7 billion (est.)

Stock of direct foreign investment - abroad:

• USD443 billion (est

Economic Sanctions[edit]

The U.S. and its allies have imposed significant economic sanctions on Donovia for a range of offenses, to include election interference, malicious cyber-enabled activities, human rights abuses, use of a chemical weapon, weapons proliferation, illicit trade with North Torbia and support to Syria and Venezuela. These sanctions have created serious disruption to Donovian economic growth. In addition, sanctions against Donovian citizens deemed complicit include blocking of assets subject to U.S. jurisdiction ; limits on access to the U.S. financial system, include the limiting or prohibiting transactions involving U.S. individuals and businesses; and denial of entry into the United States. 

Finance and Banking[edit]

Private Banking[edit]

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[edit]

Donovia’s banking sector remains small but growing, with deposits and demand for loans on the rise. Most Donovians keep their savings in bank accounts, which are federally insured for up to 50,000 lela (around USD25K). About eight years ago, loan demand was so high, 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[edit]

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[edit]

The hawala system serves as an alternative to the Donovian formal banking system for loans and monetary transfer found primarily within Donovia’s Muslim populations.  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.

Public Finance[edit]

Donovia has emerged from recession , with deepening macroeconomic stability a contributing factor. Due to the effort of the Donovian central bank’s focus on lowering inflation, the country is enjoying its lowest inflationary environment in history. The 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%). By the end of this year, both the general and federal fiscal deficits are expected to be just above 2% of GDP, with predictions of decreasing in subsequent years.

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.

The GDP last year was at 17.4%, up from 15.7% two years ago. This data covers general government debt including: debt instruments issued (or owned) by government entities other than the treasury, treasury debt held by foreign entities, debt issued by subnational entities, and intragovernmental debt. Intragovernmental debt consists of treasury borrowings from surpluses in the social funds (retirement, medical care and unemployment).  

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

Public Policy[edit]

The UPD senior leadership recognizes oil as 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, 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 production and moving 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 such as wars and other calamities. They have been 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. 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 establishments have openly stated the military in the mid-2020s will focus on: force mobility and deploy ability, military logistics and strengthening command-and-control systems. Additional emphasis will be 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, 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.

Taxation[edit]

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.

Currency Reserves[edit]

• Stock of narrow money: USD204.9 billion
• Stock of broad money: USD688.4 billion
• Reserves of foreign exchange and gold: USD418.5 billion

Employment Status[edit]

Labor Market[edit]

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

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 to be at 74.2 million individuals. A study produced by the Donovian Government in 2004, determined the number of individuals of working age in 2002 was at 89 million. Due to the indigenous labor force 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, the 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. Its estimated 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 sixteen and sixty for men. Women make up more than half the work force.

The size, age and education would seem to place the Donovian labor force in a good position to participate in developing a modern, industrialized economy, but it is not clear if the skills 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 but 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.

Expat Labor[edit]

The process of getting a work permit for Donovia is awash in bureaucracy and red tape. National quotas restrict 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.  Western Donovia quotas are heavily weighted to the oil and maritime industries.

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.

Expats working for private individuals, especially those with specialized, high-demand skills will find it much easier to obtain a work permit. Expats earning in excess of 2 million RUB (28K USD) 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.

Finding a job[edit]

Employers have to prove through a complicated bureaucratic process they have a need and right, to hire foreign workers. The company files a formal “Declaration of Need” application to the Foreign Migration Services (FMS). If approved, authorization is granted in the form of an employment permit outlining how many expats of a certain nationality the company can hire and 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[edit]

Hiring experts have concluded Donovia needs to hire more foreign specialists. According to statistics, the number of skilled expats in Donovia has been 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 past few years. Yet it appears that many more are comfortable in Donovia and have no plans to leave.

According to the World Bank annual ratings, Donovia is currently ranked 35 among 190 economies in the ease of doing business. 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. This stems from the fact that any foreign company doing business in Donovia is required by law to employ at least 51% Donovian citizens, including the management staff.

Employment and Unemployment[edit]

The labor force of western Donovia is 76.53 million. The primary employers are services (63%), industry (27.6%) and agriculture (9.4%). Full time employment is no longerthe 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 such countries as the United States and United Kingdom. State employees often fall below the official poverty line because of infrequent wage adjustments, especially from inflation. Agricultural workers constitute the bottom layer of Donovian society and receive the least pay.

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

The Federal Employment Service (FES), who is in charge of issuing unemployment benefits and placing unemployed workers into jobs, had only 3.7% of the unemployed population registered for benefits in March of last year. Unemployed workers do not register for benefits due to amount of money received is very small (averaging USD22  per month). However, as the average term of unemployment has grown, more workers participated in FES programs. Three years ago the FES placed an estimated 1.7 million workers into new jobs. In the same year, 9.8 million workers left positions voluntarily due to wages not being paid and 8.7 million were hired.

Illegal Activities[edit]

Entrepreneurs in Donovia have an inability to compete fairly in public markets because of rigged procurement systems, a lack of access to captured sectors of domestic economies by Kleptocrats and frequent inspections by tax authorities, who try to compensate for the lack of budget revenue because of tax evasion schemes by Kleptocrats. Donovian businesses have the opportunity to share confidential information about serious corruption violations and the perpetrators through the Global Magnitsky Act. The information can help the U.S. government corroborate missing pieces on existing cases or open new cases of corruption, which may result in sanctions against Donovian Government.

Table of Economic Activity[edit]

Measure	Data	Remarks
GDP (Official Exchange Rate)	$1.578 trillion	Estimated
GDP – Real Growth Rate	1.34%	Estimated
GDP – Per Capita (PPP)	$27,900	Estimated
Gross National Saving	26.5% of GDP	% Of GDP (Estimated)
GDP – Household Consumption	52.4%	Estimated
GDP – Government Consumption	18%	Estimated
GDP – Investment in Fixed Capital		Estimated
GDP – Investment in Inventories		Estimated
GDP – Exports of Goods & Services		Estimated
GDP – Imports of Goods & Services		Estimated
GDP – Agriculture Sector	4.7%	Estimated
GDP – Industry Sector	32.4%	Estimated
GDP – Services Sector	62.3%	Estimated
Labor Force	69.923 million	Estimated
Labor Force – Agriculture	9.4%	Estimated
Labor Force – Industry	27.6%	Estimated
Labor Force – Services	63%	Estimated
Unemployment Rate	4.6%	Estimated
Poverty Rate	13.3%	Below Poverty Line (Estimated)
Net Foreign Direct Investment		Estimated
Foreign Direct Investment Received	$479.7 billion	Estimated
Foreign Direct Investment Abroad	$443 billion	Estimated
Budget – Revenues	$258.6 billion	Estimated
Budget - Expenditures	$281.4 billion	Estimated
Public Debt	15.5% of GDP	% of GDP (Estimated)
Inflation Rate – Consumer Prices	3.7%	Estimated
Economic Equality/Inequality	25.9	Gini Coefficient (0 = Perfect with everyone in the country has the same amount of wealth; 100 = all income/wealth is in the possession of a single person)

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The Caucasus countries that possess hydrocarbon resources will continue to depend on the oil and gas industries to drive their economies, while those that do not possess such resources will attempt to tie themselves to hydrocarbon-rich nations. Both Ariana and Atropia face geopolitical difficulties in exporting their oil and natural gas. Bordered by adversaries, the Arianians and Atropians must rely on tenuous routes to export their resources. For Gorgas and Limaria, which lack extractive or mature industries, transshipment of hydrocarbon products or providing other services to oil-wealthy countries will be their primary short- to medium-term means to achieve economic development.

Donovia continues to recover from a collapse two decades ago that crippled its economy. All nations of the Caucasus have relatively high inefficiency due to corruption, government involvement in the economy, and/or lack of export industry development.

Donovia’s current economic structure and situation stem from a sudden internal financial collapse that occurred 20 years ago. The Donovian government instituted major changes at that time, liberalizing the banking, tax, and private enterprise systems to assist recovery. These reforms, coupled with vast natural resources, enabled the country to stabilize economically and gradually recover.

Table of Economic Data

Measure	Data	Remarks (if applicable)
Nominal GDP	$1.78 trillion	Agriculture 3.7%, Industry 53.9%, Services 42.4%
Real GDP Growth Rate	-0.2%	5 year average 3.0%
Labor Force	69.1 million	Agriculture 19.6%, Industry 42.0%, Services 38.4%
Unemployment Rate	8.3%	Increasing
Poverty Rate	12.1%	% of population living below the international poverty line
Net Foreign Direct Investment	$345.31 billion	$55.18 billion outbound
Budget	$210.47 billion revenue $273.18 billion expenditures
Public Debt	12.3% of GDP	Excludes Viaprom debt
Inflation	10.2%	Increasing, 5 year average 10.0%

Participation in the Global Financial System

Over the past decade, the Caucasus nations made considerable efforts to integrate themselves into the global financial system. While focused on local conflicts, the Caucasus region opened to other countries to increase global markets for its products, especially petroleum, and looked to the West for economic developmental aid, usually in the form of loans and grants.

IMF/World Bank/International Development Aid

In the past 20 years Donovia has transformed itself from an aid recipient to a donor country. Struggling in the decade after its financial collapse, Donovia took advantage of its membership in  the IMF to receive several loans, all of which have since been repaid. The World Bank (WB) has provided over $11 billion in financing for more than 65 projects in the country since the collapse, including 14 that are currently active for a combined $1.4 billion. The vast majority of the current projects focus on improvements in governance issues such as judicial reform and customs development, while others pertain to economic development and natural resource management. At present, Donovia is working to position itself as a major donor country, with a foreign aid budget of $450 million and a $7 billion fund created specifically to assist struggling neighbors.

Foreign Direct Investment

Donovia has implemented considerable economic reforms in recent years, including large-scale privatization and price liberalization, in order to attract foreign direct investment (FDI). Still lacking, however, is a legal and regulatory environment based on rules and applied consistently throughout the country. Property rights need to be revised in particular, including contractual  rights, dispute resolution, and acceptable accounting practices. Donovia currently possesses total FDI of $238 billion, with $34 billion of that amount being added last year. This is expected to increase to $50-60 billion annually within the foreseeable future. Sectors that have recently seen significant FDI include energy, high-tech, transportation and infrastructure, and food and beverage.

Economic Activity

Donovia’s current economic structure and situation directly results from the Four Traitors incident two decades ago. Prior to this, the country made extensive use of profits from its vast natural resources to heavily influence neighboring countries through political and economic means (aid, grants, industrial projects, etc.). This ended abruptly when Donovia experienced a major economic collapse precipitated by discovery of a massive embezzlement scheme perpetrated against the government.

Member of Parliament Yassar Akbari, General Ibrahim al-Fatem, Ismail Jinat of the Jinat crime family, and Viaprom CFO Muhammad Hafiz, conspiring together, embezzled tremendous amounts of money from the Donovian government over a period of eight years. Referred to as the Four Traitors, these men fled the country when the situation was discovered 20 years ago. The Donovian government spent considerable time and effort in attempts to recover both the Traitors and the lost funds— around 20% of government revenue for the years in question—but met with no appreciable success.

The effect of the Four Traitors on the Donovian economy was instantaneous and enormous. Massive government spending cuts and layoffs were instituted, as well as an immediate curtailing of all foreign aid and the abrupt dissolution of many economic agreements with neighboring countries. Unemployment tripled overnight, while government aid became all but impossible to obtain. Considerable social unrest resulted, and the military had to be called out to maintain order.

In an attempt to recover from this crisis, Donovia decided to base its economy on free-market principles. The country has made considerable progress in the past two decades, but much remains  to be done. Laws and business regulations remain complex and contradictory, and implementation is both inconsistent and heavily influenced by politics and corruption. The situation is gradually improving, though, with a noticeable decrease in difficulties during the past 10 years and an increased number of businesses both seeking and receiving redress through the courts.

The Donovian economy focuses primarily on industry (54% of GDP) and the service sector (42%),  with agriculture playing a minimal role (4%). Unlike its southern neighbors, the country’s labor pool is distributed fairly proportionally to its influence, with 42% of personnel working in industry, 38%  in services, and 20% in agriculture. Donovia maintains trade relations with Limaria, Atropia, and Ariana, while its economic interactions with Gorgas are limited at best.

Economic Actors

In many ways, Donovia’s economy continues to operate in the same way it has for decades. Prior to the Four Traitors, state-run enterprises such as Viaprom (oil) and Vianeft (natural gas) played a large political role, with those in charge both giving and receiving the benefits of tight relations with the political elite. Despite considerable economic reforms, these relationships have remained largely intact and unchanged. Companies that were privatized after the Four Traitors were almost always sold to the same individuals that ran them while under State control. These corporate  heads continue to work within the system to maintain their mutually beneficial relationship with top politicians and prevent economic reforms that would challenge their position by introducing genuine competition at the corporate level.

Trade

A net exporter, international trade contributes significantly to the Donovian economy. Hydrocarbons constitute a major portion of the trade, as oil and natural gas account for 82% of Donovia’s total exports. Other export commodities include metals, manufactures, military hardware, and electricity. Imports are machinery, pharmaceuticals, plastics and plastic products, iron, and medical equipment. Major trade partners include Olvana, Germany, the Netherlands, Italy, the Ukraine, the United States, and South Torbia. Regionally, Donovia has strong relations with Limaria and maintains trade with Ariana and Atropia, but has almost no economic relations with Gorgas. In addition, Donovia is subject to targeted international sanctions due to its active nuclear program, which influences both trading partners and products imported/exported.

Speculation concerning the future of the Arctic sea ice has prompted a flood of businesses to prepare for the opening of a Northwest Passage and a Trans Polar Route providing an economic highway between Europe and Asia. Countries are working to provide more access through the pack ice. A number of icebreakers exist, are under construction, or are planned. For example, Olvana has three icebreakers and a fourth is under construction. Donovia has the largest icebreaker fleet in the world. It is vital for both military and civilian use. The icebreakers accompany softer ships through the ice along Donovia’s northern coasts, then guide them into the mouths of large rivers.

Commercial Trade

Donovia presents a strong commercial trade sector, with exports totaling $400 billion per year and $250 billion of annual imports. Oil accounts for 51% of the country’s exports, while natural gas  claims an additional 31%. Manufactures, such as vehicles, and industrial equipment also play important export roles. Imports such as pharmaceuticals and plastics fill the demand that domestic capacity is unable to fully supply.

Military Exports/Imports

Last year Donovia exported $20 billion in military hardware to other countries, including Olvana, Ariana, India, Limaria, Vietnam, Saudi Arabia, Venezuela, and Algeria. Equipment sold and leased includes ships, submarines, airplanes, tanks and conveyance vehicles, weaponry, and ammunition. Donovia also provided equipment maintenance and force training to foreign countries.

Economic Diversity

Donovia possesses an industrial-based economy coupled with a relatively strong services sector and a weak agricultural sector. Significant industrial areas include energy, manufacturing, and mining. Industry accounts for 54% of the country’s GDP, services claim 42%, and agriculture produces the remainder (4%). Exports are nearly all industrial in nature, with energy claiming 82% of the total. Large deposits of gold and rare earths promise to increase a strong mining sector, and  manufacturing rounds out the country’s varied industries.

Energy Sector

The energy sector dominates the industrial segment of Donovia’s economy. Vast oil and natural gas deposits exist in central and southern Donovia, as well as large oil fields in the Caspian Sea. Profits from these resources were the basis for Donovia’s strong regional influence prior to the uncovering of the Four Traitors. Afterward, continued exploitation of oil and natural gas provided the government with a reliable revenue stream during the economic collapse and subsequent reforms.

Oil

Donovia operates 72 oil production fields—61 onshore and 11 offshore, in the central and southern parts of the country and in the Caspian Sea. Last year the country exported 5.4 million barrels per day (bbl/d), accounting for just over half of its total exports. The remaining 2.7 million bbl/d (of a total daily production of 8.1 million bbl/d) went to domestic use. Donovia produces about 8.9% of all global oil.

Natural Gas

Donovia possesses massive natural gas resources, in both the northern the southern parts of the country and in the Caspian Sea. Consisting of five developed and three undeveloped fields, Donovia boasts the largest proven reserves of any country worldwide. The country exports 179 billion cubic meters of natural gas per year, accounting for 31% of its total exports.

Donovian “Arctic [liquefied natural gas] LNG 2” project in Uttreneye is expected to produce more than seven billion barrels of oil equivalent (boe) hydrocarbons in the form of gas and condensate. Production capacity when the project is completed is expected to be 19.8 metric tons per year, or 535,000 boe per day. Production is expected to begin in 2023.

Agriculture

Donovia has only 12% arable (cultivated) land and possesses only a small agricultural sector. Agriculture accounts for 4% of GDP, but employs 20% of the country’s labor force. Grains such as wheat, corn, and barley are the primary crop, and are grown primarily in the North Caucasus region. Sugar beets, sunflower seeds, tea, soybeans, flax, and potatoes round out the major agricultural products grown. Animal products include dairy and meat, the latter mainly consisting of beef and poultry. Hogs are rarely raised, as they are considered unclean by the majority Muslim population. Small family farms and private gardens provide approximately one-third of the country’s food supply.

Forestry

Forests are prevalent in the far north, the Volga Hills, and in/around the Greater Caucasus and Ural Mountains, and mainly consist of oak, birch, pine, and spruce. The area enjoys small but profitable timber and paper industries, despite rather onerous governmental regulations. These regulations, coupled with lack of real government oversight at the federal level, have resulted in both considerable local corruption and sizeable illegal movement of Donovian timber across international borders.

Mining

Mining plays a considerable role in Donovia’s economy, both domestically and through exports. The country possesses some of the world’s largest deposits of gold, nickel, coal, potash, iron, uranium, diamonds, phosphates, and copper, among others. Only a few years ago, vast deposits of rare earths were discovered in the east, with quantities estimated as the second-highest in the world. Donovia produces metals, minerals, and mineral oils in great quantities and exports them to numerous countries, including the United States.

With Arctic sea ice receding, large deposits of metals and rare earths are being discovered in Donovia. Several new mines are being developed along the Yamal Peninsula and in other Arctic coastal areas. There is also a new ore mine being developed on Novaya Zemlya, Donovia at the 72nd Parallel – it will be the northernmost mine in the world.

Manufacturing

Manufacturing makes up a sizeable portion of Donovia’s industrial capacity, with large metal, food, transportation, medical, industrial, and military equipment sectors. The first five industries were privatized following the Four Traitors incident and, after struggling for the first few years, recovered almost completely. The military equipment sector continues to be state-owned and state-run and produces air, ground, and naval weapons and platforms. These include but are not limited to ground vehicles (tanks and armored vehicles), naval vessels (ships and submarines), and aircraft (fighters, bombers, and multirole). The country also produces radar equipment, telecommunication devices, and electronic warfare systems, as well as arms and ammunition. All manufacturing sectors—especially those for steel, aluminum, and military hardware—enjoy significant export markets.

Services

With economic reforms and the privatization of substantial portions of the economy, the service industry has grown considerably. It currently employs 38% of the work force and contributes 42% of the nation’s GDP. One main sector is services related to energy, such as machining. Business-related services, including financial, advertising, marketing, and retail, saw an explosion after the reforms. Tourism is the final contributing sector, and mainly focuses on the cultural attractions in and around Moscow.

Banking and Finance

Public Finance

Donovia has gone through considerable growing pains during the past decade as it continued to move into a free marketplace. First to come was a major overhaul of the tax structure, decreasing and simplifying taxes and rates in order to increase voluntary participation and reduce fraud. Then the country experienced a slowly improving economy, with inflation decreasing from a high of 60% 12 years ago to single digits only seven years later. Oil revenues increased at the same time, allowing the government to run on a surplus. Donovia’s monetary unit, the lela, grew in strength, and foreign currency holdings increased as well. Public debt decreased, and the government paid off the last of its post-Four Traitors external debt. Inflation began to increase again four years ago, and the recent global financial crisis hit the country hard. The combination of dropping oil prices and economic stabilization measures forced the government to run a deficit starting two years ago. The only positive result of the crisis was a reduction in the inflation rate, which once again reached single digits.

Taxation

Donovia passed major tax reform 19 years ago in an effort to decrease tax avoidance and support private industry. Federal taxes include corporate (15%), flat income (20%), and national sales (10%), as well as tariffs and levies on specific items. Various taxes exist at the republic and local level, including personal property, real estate, and additional sales tax. While these reforms helped fuel economic growth, the existence of both national and regional sales taxes that can reach a combined 21% has encouraged both illegal barter and under-the-counter (black market) transactions of goods and services.

Financial Policy

The Donovian government has taken a relatively conservative approach to fiscal policy during the past two decades. In addition to major tax reform, the government saved a considerable portion of  the revenues generated by the petroleum and mining industries, allowing it to run surpluses for several years. However, the recent financial crisis combined with decreasing commodity  prices during the same period had considerable adverse effects. Donovia was forced into deficit spending two years ago, and may well run deficits for the next five years.

The Central Bank of Donovia handles the country’s monetary policy, which is limited to managing the value of the Donovian lela against other currencies. This is accomplished by pegging the value of the lela to a basket of euros and US dollars, with the euro/dollar ratio determined by the bank. Changes to the basket are performed through buying and/or selling each foreign currency.

Inflation

Inflation has been a major problem in Donovia, with the country experiencing double-digit numbers for most of the past two decades. While inflation was rampant after the Four Traitors, reaching a high of 60% 12 years ago, increases in global energy prices and a revised tax structure led to a reasonable 9% rate seven years later. It began to climb again four years ago with rising food costs and increased borrowing by domestic banks and companies, again hitting double digits until the recent financial crisis. At the present time, the Donovian inflation rate stands at 10% and increasing.

Currency Reserves

Foreign currency reserves for Donovia total $179 billion, with holdings of 43% US dollars, 43% euros, 8% British pounds, and the remainder in South Torbian yen, Swiss francs, Canadian dollars, Australian dollars, and Norwegian kroner. The latter four were added in the past two years due to the weakening of both the US dollar and euro. These reserves, which are managed by the Central Bank of Donovia, are used to control the Donovian lela.

Public Liabilities/Debt

Public debt for Donovia currently stands at 12.3% of GDP. However, the country has considerable stock in domestic banks and corporations, including the largely state-owned oil company Viaprom, that have considerable external debt. When this is included in the calculation, Donovia’s public debt increases to 16.2% of GDP.

Private Banking

Though growing, the private banking sector is not without problems. Large state banks located primarily in the Moscow region dominate the market, resulting in little competition. These banks are unskilled at assessing credit risk and favor loans to large corporations, viewing small to mid-size businesses as high-risk. In addition, bank books are riddled with non-performing loans. Finally, most banks do not enjoy a high level of trust by the general public. Weak governance and a lack of transparency combine with reporting deficiencies and a strong perception of corruption to reinforce this tendency.

Banking System

Donovia’s banking sector remains small but growing, with deposits and demand for loans on the increase. Despite the country’s secular orientation, the number of sharia-compliant banks is approximately equal to the number that charge interest. Most Donovians keep their savings in bank accounts, which are federally insured for up to 50,000 lela (around $25,000). 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 19 years ago 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 $583 billion.

Informal Finance

The hawala system, 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 Donovians make use of this system outside of a small percentage of the country’s conservative Muslims and those associated with terrorist/criminal groups.

Employment Status

Employment status is high in Donovia, with relatively stable unemployment for the past decade. The current low birth rate and short male life expectancy allow for both reduced competition and increased upward mobility in employment, thus opening up more entry-level positions for younger Donovians. While this grants the individual worker more employment opportunities, it harms the economy through a lack of workers. There is a considerable foreign labor market, but most of these positions are black market in nature due to official government favoritism toward Donovian Arabs.

Illegal Economic Activity

A part of the Donovian political system for decades, corruption is integral to the Donovian economic system and only continues to expand and increase. It can be as small as bribing a traffic officer to avoid getting a ticket, or as large as paying off government officials to prevent false criminal charges or physical destruction of a business location. Some activities that would be normal business activities in other countries are either illegal or considered suspect by the Donovian security  services. There are particular risks involved in any commercial activity with the Donovian military- industrial complex. Any misunderstanding or dispute in such transactions can attract the involvement of the security services and lead to investigation or prosecution for espionage. Rules governing the treatment of information remain poorly defined. Foreign businesses, including some major international corporations, have either limited expansion in the country or considered pulling out entirely due to the pervasiveness of these problems and their associated uncertainties.

Incidents of unprovoked, violent harassment against racial and ethnic minorities regularly occur throughout Donovia. People most at risk are those of African or Asian descent. These same groups of people are also at risk for harassment by police authorities. It is not uncommon for foreigners in general to become victims of harassment, mistreatment, and extortion by law enforcement and other officials. Police do not need to show probable cause in order to stop, question, or detain individuals.

Organized crime has made itself an increasingly pervasive part of the Donovian system since the Four Traitors. It is inextricably linked to government corruption, with non-governmental persons and government employees working hand-in-hand for both power and profit. It is highly probable that criminal organizations approve, if not directly sanction, all medium- and large-scale illegal activity in the country.

The Donovian Mafia is well-organized and has branches and contacts in many nations, including the United States and the European Union. With former security service and military personnel among its members, the Donovian Mafia possesses a wide range of capabilities, including electronic surveillance, human intelligence networks, explosives and firearms expertise, and associations with government officials in Donovia and neighboring countries.

Social and labor organizations often act as a cover for illegal economic activities. Foremost among these groups is the Pan-Donovian Law Enforcement Brotherhood. Publicly this group purports to champion charitable causes as a means of cementing partnerships between police organizations and their respective local communities. In reality it is a national network that ensures citizens remain willing to bribe police officials in order to avoid harassment, arrest, incarceration, and physical abuse. Another important phony organization present in Donovia is the National Inter-Business Cooperative. Although this organization’s written charter suggests nothing more sinister than a Donovian version of the Chamber of Commerce, its members are often steeped in government-corporate corruption (typically involving bribes to avoid taxes), extortion, and almost universal corporate espionage.

Finally, the Pan-Caucasus Miner’s League has less to do with improving the lot of downtrodden miners than facilitating wildcat mining that pays slave wages under atrocious working conditions. The League has been thoroughly infiltrated by the Donovian mafia, which is notorious for smuggling, extortion, and extra-legal mining, hydrocarbon, and timber operations. For this reason, many in Donovia view the Miners’ League as little more than an extension of the mafia.

Illegal activities in Donovia take many forms. Those that are usually associated with organized  crime include trafficking in humans, drugs, and small arm; money laundering; extortion; and fraud. Criminal groups may also engage in corruption, terrorism, abduction, export of contraband, and smuggling of radioactive substances. The mining, oil, gas, and timber industries see their share of illegal activities and heavy influence by organized crime groups. All of these areas see participation by both organized crime and government officials. The Jinat crime family, which produced the infamous Traitor Ismail Jinat, is heavily invested in the mining trade. Another organized crime group is the Al Iksir Cartel, which operates in northern Atropia and southern Donovia.

Summary

Complex economic interplay between the Caucasus countries binds them together. Limaria, Gorgas, and Atropia were strongly affected by the reduction of Donovian influence two decades ago. The oil- rich countries of Ariana and Atropia must use their Limarian and Gorgan neighbors to transship hydrocarbon resources to other countries. Limaria and Gorgas must develop a free-standing economy despite significant corruption, lack of developed industries, and natural resource shortages. Over all of this, Donovia seeks to limit Arianian influence and return to its former position as unquestioned regional hegemon. This economic interdependence will likely drive regional conflicts as the nation's struggle amongst themselves to exploit riches created by oil and natural gas.