New economic model in Russia?

Discussion in 'The Russian Economy' started by AlexBond, May 7, 2013.

  1. AlexBond

    AlexBond Office Registrar (13th class)

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    The topic of this discussion might be the most important in defining Russia's future in the following years. It is well known that Russia's economy in the last decade was pretty much dependent on exports of oil and gas (about 50% of total exports), petroleum products, metals and timber. It's not that Russia does not produce anything else - well, Russian arms are pretty popular around the world - but other products of Russian industry are mostly consumed on the domestic market, for example the production of multiple car plants built in Russia by Ford, Toyota, Nissan etc. Indeed, there has been lots of foreign investment in Russia in automobile industry, while many other economic sectors - such as metallurgy, petroleum processing and chemistry - enjoyed significant domestic investment. Yet much of this industrial growth and modernization depended on incoming petrodollars and cheap loans from western banks, which allowed to buy machines and industrial equipment (50% of Russian imports) and to finance major projects.

    In 2008-2009, during the first wave of the world financial crisis, the flow of cheap loans ceased and the oil price plummeted, which resulted in about 8% downfall of the Russian GDP in 2009. However the economy recovered fairly quickly thanks to large financial reserves, active governmental action, and then also relative recovering of the EU's economy (Russia's main trading partner) and return of the oil price to pre-crisis high levels. Yet the pace of Russia's economic growth slowed from typical 6-8% before the crisis to 3-3.5% in the last couple of years.

    The first three months of 2013 saw a slowdown of the Russian economy. The reasons are obvious: currently the oil prices remain flat and the EU's economy is projected to have close to zero or negative growth, so exports to EU are declining. But there are also domestic reasons: despite the crisis, salaries in budget sector (army, police, healthcare, education) and pensions in Russia significantly grew in the past few years (that was a part of Putin's strategy which allowed him to get re-elected so easily). This is good for many ordinary Russians but, according to many experts, the more expensive labour force also makes the economy less competitive. Also, Russian ruble grew 25% stronger to USD from 2008, in effect again making the domestic labor force more expensive. At the same time inflation in the early 2010s hit about 6-7% a year, which is significantly lower than typical double digit figures in the 2000s. But while inflation rate fell, the banks' interest rates remained high as before - typically 15-20% - which means that in effect domestic loans became more expensive. Foreign loans are not as lucrative as before as well.

    Currently the Russian government has ambitious plans, including the $1trillion-worth programme of the army rearmament, the modernization of healthcare, the restoration of aircraft industry and multiple infrastructure projects - and it wants of course to reduce the dependence on oil and gas and diversify the economy. But how to get trillions of dollars needed for this given the present financial situation?

    One possible answer is found in the article of Sergei Glaziev (Сергей Глазьев), an influential Russian academician economist and a close advisor of president Vladimir Putin. Recently Glaziev published a long expected programme article in the Russian journal Expert, called Жребий брошен.

    http://expert.ru/expert/2013/18/zhrebij-broshen/

    (for the translation of the title look up http://en.wikipedia.org/wiki/Alea_iacta_est)

    I'll make a short summary of the key points of Glaziev's article (with few additions from myself in brackets).

    1) The key to Russia's economic development is extensive public-private partnership.

    2) A kind of new social contract is needed between the state and the private businesses.

    3) Within this contract, the state is expected to reduce corruption, to provide cheaper loans and lower energy tariffs. The business is expected to start acting more responsibly, following the state-set goals.

    4) In the area of capital market, the state applies one-time tax amnesty to the capitals returned from off-shores (such as Cyprus - it's banking collapse already resulted in billions of Russian money returned to Russia; since Europe started anti-offshore campaign, more Russian money are expected to return home). The state provides more affordable long term loans to businesses (in summer Putin's ally Elvira Nabiullina is due to become a new head of Russian Central Bank, she is widely expected to finally lower the Central Bank's interest rate). The business in turn should de-offshorize its capitals and use the domestic sources of finance. Return of Russian properties into the Russian jurisdiction is essential to provide pledges for loans and to strengthen the domestic financial system.

    5) In the area of taxing, the state significantly lowers or even cancels the value added tax (currently 18%) and cancels taxes on research and development. The business stops illegally or semi-legally flowing capitals abroad (in attempt to pay less taxes) and makes its financial transactions more transparent.

    6) In the area of pricing policy and monopolies, the state reduces the growth of energy and transportation tariffs (the state currently controls energy market and railways), makes the access to the state monopolies' goods and services more equal and open. The business makes pricing more transparent.

    7) In customs area, the state modernizes the customs administration and gives special trading status to responsible businesses. The business stops using grey imports scheme.
    ----

    In addition to this programme presented by Glaziev, it seems that the state also might want to boost economic growth via major infrastructural projects, such as building new high-speed roadways or, possibly, high speed railways. There is extensive talk in the government that the infrastructural projects should be financed by the money from pension funds, which is deemed the best allocation of pensioners' accumulated capitals.

    All this means that the Russian government seems to have an aim to create a strong domestic financial system able to provide credits and investment for economic development using domestic (de-offshorized), rather than foreign financial resources. This means a new economic model in Russia, compared to the model which has existed in 1999-2012.
    ----

    Do you believe Russia could succeed in this? Which other means Russia could apply to reduce dependence on petroleum exports, to boost economic growth and to converge more thoroughly with the Western levels of life and economic efficiency?
  2. AKarlin

    AKarlin Generalissimo Staff Member

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    Hi Alex,

    Excellent first thread! I have read Glazyev's article, and I'm afraid to say, I can't say the same of it. Let's go through it.

    I was reading it with increasing skepticism until I came to this part, which frankly veers into conspiratorial territory.



    Apart from the bizarre insinuation that the EU participated in that theft (despite not existing then), or Japan, there is also the fact that Russia had little foreign investment at that time - and as such, not a lot to expropriate from. It was the Bolsheviks who were doing the expropriation (presumably, as regards foreigners, mostly from French and German nationals who had been its biggest pre-war investors). There is of course also the additional fact that the new government defaulted on the Tsarist debt.


    How much money did Russians keep in Cyprus? $20 billion. That is pocket change as far as even just the US budget or financial systems are concerned. Besides, most Russians didn't keep their money at Laiki or Bank of Cyprus, but at Russia-linked banks like VTB's Commercial Bank of Cyprus. The group that suffered most from this were richer Cypriots and the Cypriot business community, not apatride Russian oligarchs.




    Now he moves onto actual solutions, and I do think he is correct on the generals: The (historically accurate) observation that successful development has typically been accompanied by cooperation between business and state, the desirability of ending "comprador capitalism"/deoffshorization of the economy and fighting monopoly price gouging, corruption, and so forth. Some of his ideas for doing this are good - even if most of them are either quite general, or already being carried out.

    However, one big problem is that it's also not always very much in touch in reality. As I recall (correct me if I'm wrong), VAT constitutes something like 38% of Russia's federal budget revenue - and he is suggesting just abolishing it. If you just abolish it, making Russia one of the very few developed countries without a VAT (which includes the US - but the US has sales taxes), where are you going to get the lost revenue from? You'll be running big budget deficits. But at the same time, he recommends a very loose monetary policy to stimulate enterprise and draw Russian enterprises to Russian banks, as well as vast spending on infrastructure projects. But that combination (big deficits, loose money) certainly isn't any good for sustainably bumping up investment - indeed, for a country without a developed financial system like Russia, its arguably downright insane.
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  3. Morgoth

    Morgoth Office Registrar (13th class)

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    I agree that Russia needs a new economic model but the famous Russian bureaucratic system is likely to impede its introduction. I have no doubt that the top elites including Putin are frustrated in the way that the current bureaucratic system functions and are looking for ways to further reform it.

    In the economy itself, the main area of concern as I see it is the emerging problems in the budget. Oil and Gas accounted for half of the federal budgets revenues in 2012 and both are commodities in with there is little chance of seeing significant price rise over the next few years and whose production within Russia is expected to be fairly flat in the near future. This will mean that all virtually all growth in federal budgetary revenues in the near future will have to come from other sources which were equivalent to only 10.5% of GDP in 2012.
    http://www.iep.ru/files/text/RED/Russian_Economic_Developments_02_2013eng.pdf

    At the same time, as Russia evolves into a social welfare state along European lines, government expenditure as a percentage of GDP is guaranteed to rise from around 21% today to around 24-25% by the latter half of the decade to fulfil the ever expanding social contract. This will mean that if Russia wants to keep the budget balanced as seems to be the current policy of the government, signification increases are going to have to be made in taxation across the board, something that no government finds easy or attractive to do.
  4. AKarlin

    AKarlin Generalissimo Staff Member

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    @Morgoth,

    While the federal budget is indeed at around 21% or so of GDP, there are also the regional budgets, which together form the consolidated budget which is actually at around 37%-38% (closer to 45% if you also include income from pension and other extra-budgetary funds but that's not typically done). Most of the education and health spending occurs at the regional, not federal, level.

    So the actual hydrocarbons-dependency isn't as bad as that; it's more like 30% or so.

    Which is not to say that there won't be challenges, especially as not only social spending but also military spending is slated to increase.
  5. Morgoth

    Morgoth Office Registrar (13th class)

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    I agree that hydrocarbons contribute less to the budgets of the regions than they do the centre but it is only the federal budget from which large scale expenditure on infrastructure, modernization of the economy etc can come.

    On the issue of military spending, I was looking at the data on spending on security and law enforcement in the 2012 federal budget and which encompasses the total expenditure that Russia makes on its security and was surprised by what I saw. Expenditures on the issues above made up 28% of the federal budgets expenditures, around 6% of GDP. I had expected to see a figure of about 4.5 - 5%. The expenditure on the armed forces, some 3% was not that surprising but I was surprised to learn that the amount of money spent on law enforcement and internal security agencies matches the defence budget.

    I had expected to see a figure of 1.5 - 2% for the internal security agencies, not 3%. Of course it is possible is that much of the money that is allocated to such agencies is in fact only a cover to hide the real size of the defence budget.
  6. AlexBond

    AlexBond Office Registrar (13th class)

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    I think Glazyev writes about WWI allies in the 1917 context - he simply too freely jumps from one historical period to another. Otherwise you have a point, Anatoly. Obviously, by using such historical rants (not exactly necessary in formulating economic programmes) Glazyev shows that he is in the so called "patriotic" rather than "liberal" camp within Russia. There is a standing belief among Russian patriots that the country and its economy developed in the best possible way in periods of relative politico-economic closeness and reliance on domestic resources. Pretty arguable theory I'd say.

    Cyprus is just one of the world's off-shores, and the theory is that the case of Cyprus is a manifestation that European and Anglo-Saxon off-shores are no more safe, especially for Russian money.

    Good point. Obviously, the introduction or increase of some other taxes instead of VAT is implied. Taxes on luxury consumption are expected to be introduced in a year or so (it was a part of Putin's programme announced before elections, and later he confirmed his intention). Also, there are some expectations, that not only luxury, but all/most of real estate properties will become taxed according to the market prices (say, one would pay a tax equal to 0.5-1% of the market price of one's flat each year... that would be lots of money, but the population wouldn't like that).
  7. AlexBond

    AlexBond Office Registrar (13th class)

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    A very good point. Excessive Russian bureaucracy and bureaucratic inefficiency is a major problem in Russia, impeding economic and social progress. The significance of corruption problem in Russia is greatly exaggerated in the media - most citizens and businesses quite rarely encounter with corruption in the state system, while bureaucracy is everywhere. There is some progress in E-government sphere, of course, but so far it hasn't reduced all the paperwork to more decent levels.

    One interesting example how Russian bureaucracy works is the current situation in the Skolkovo fund (the famous Medvedev's initiative set up to finance research and development in Russia). Skolkovo had started financing many start-ups, just as was expected. But some state officials and prosecutors did not expect that only 1 in 10 start-ups would become to any degree successful (a normal situation in high-tech venture business). So when Skolkovo started closing the unsuccessful projects it immediately became a target of anti-corruption campaign - indeed, how would you explain to prokuratura where the money gone and why there is no result from those state investments? Theft, corruption, treason!!! :eek: As far as I know, currently they simply fear to finally close and write off all the failed projects in Skolkovo and often continue financing - they do not need more attention from prokuratura.:confused:
  8. Ils18

    Ils18 Dead Soul

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    Historically, after 1917, The Bolsheviks told creditors in Europe and the US, that they were not going to pay up; the loans had been taken out by the Tsarist government. As a consequence, the Bolsheviks could not borrow any money from the US and Europe. They managed to buy weapons through selling gold, with a special role for the Swedish Central Bank. It is commonly accepted that Stalin's organised the collectivization campaign because he lacked money to industrialise. There is even a book about it, history's greatest heist or something. When the Soviet Union collapsed, the French government approached Yeltsin with the issue of the pre-1917 debt. I think Yeltsin even paid them.
  9. Ombrageux

    Ombrageux Commissar

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    I'd be interested in any information on the diversification of Russia's economy away from energy. Most of post-Communist Europe has actually pretty mediocre performance.

    Also, is the government doing anything in particular on medium-term deficits? Given the anarchy in the U.S. and Europe, I'd expect the authorities to do something to preempt similar welfare/tax-cut driven indebtedness.
  10. Alexander Mercouris

    Alexander Mercouris Ship Secretary (11th class)

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    Dear Alex,

    I too thank you for an excellent article at the start of this thread.

    If we look at Russia's situation today, it is clear that since the debacle of the 1990s a great deal has been accomplished especially in sorting out the demand side. The government's finances have been restored, effective administration once again operates across the whole country, wages, salaries and pensions have substantially increased, the retail sector has been transformed and the economy is functioning in an orderly way.

    These are immense achievements given the 1990s starting point and they are not to be discounted. What they mean is that the country has for the first time in its modern history a large and properly functioning internal market. One particular achievement, which is never mentioned, is that also for the first time in its history the people of the country are electronically connected to each other. As recently as the late 1980s outside Moscow, Leningrad and a few big cities private telephones were very rare. Today thanks to mobile phones the entire population can speak to each other and internet access has increased exponentially.

    Obviously these achievements drew on oil and gas revenues. However this is not manna from heaven. It is also never a given that these revenues will be used in a good way. The fact that Russia has made such progress fixing its demand side shows that in Russia's case they have been.

    Having fixed the demand side, the priority now has to be to sort out the supply side. When people talk about the economy's "modernisation" or "moving to a new economic model" that is what they actually mean.

    The supply side is very far from being a total shambles. Russia has substantial and successful industries eg. motor vehicle manufacturing, heavy engineering, chemicals, certain types of scientific equipment, rolling stock etc. Russia is actually one of the very few countries that produces the complete range of manufactured goods. Also one hears many glowing reports from those western manufacturers who have actually opened factories in Russia about the skill, flexibility and discipline of the workforce there. It is simply false to say that in manufacturing Russia doesn't produce anything and is starting from scratch.

    Agriculture is shaping into an increasing success story. Design is still very underdeveloped (which is why there are so few well known Russian brands outside the defence sector) but given the population's high level of education and the country's exceptionally strong aesthetic and intellectual tradition and its history in this area, the potential is certainly there and is enormous.

    All these sectors need investment. One can talk about "reforms" for as long as one likes, but without investment it will remain talk

    Investment depends on capital. Prior to the financial crisis of 2008 the assumption was that this capital would come from the west. In the two years before the financial crisis Russian companies went on a borrowing and flotation spree on western exchanges and money markets, which is why the country's traditional capital outflow was briefly replaced by a capital inflow. The disaster the country faced in the autumn of 2008 showed the danger of this approach.

    However if capital is not to come from outside it has to come from within. That means fostering capital accumulation through savings in the country's banks and financial institutions, which is what the government is trying to do. Its policies can be summarised as follows;

    1. Reducing inflation. Capital is not going to accumulate so long as there is significant monetary depreciation that erodes savings and long term loans, which with inflation at 6-7% there definitely is. Because of the exceptionally tight monetary and fiscal policy the government and the Central Bank are following (the government with its budget rule, the Central Bank with exceptionally high interest rates) it is certain to fall lower still, probably below the Central Bank's 5% medium term target.

    2. To develop Moscow as an important financial exchange and banking centre and hub. There has been significant progress here, which is going unreported.

    3. Legal and tax reforms, which have improved both the quality of contract enforcement and tax collection.

    4. Work to improve the business climate in the regions. . The anti corruption drive should be understood in part as part of this process.

    5. Investment in infrastructure, particularly transport. This is going to require floating bonds and thus a measure of privatisation. State backed infrastructure bonds can also be used to strengthen the financial system by offering a safe investment hedge for investors.

    6. Support for the science and industry base through investment in the defence sector and by increasing funding for scientists' salaries and by setting up technology and science hubs (which is not the same as research institutions) in Moscow and St. Petersburg. The Moscow hub (Skolkovo) is experiencing difficulties and appears to have management issues but it is far too early to write it off.

    As I have said elsewhere, the tight monetary and fiscal policies needed to reduce inflation have had the predictable consequence of choking off growth in the last few months. This is an accepted trade off for a policy that in the not so long term is expected to produce big dividends. Given that the country enjoys full employment and that people seem to be happy with their lot (75% according to an opinion poll I have seen), this is a perfectly sensible trade off to make even if there is a risk of a brief recession. Above all one must resist catastrophe scenarios. Because the barometer points to rain, it does not mean we are all going to drown in the flood. In the meantime, as I hope I have shown, the way forward is reasonably clear.





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  11. Alexander Mercouris

    Alexander Mercouris Ship Secretary (11th class)

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    I have just been reading through Putin's recent marathon press conference and I found these words, which I wish to quote in full:

    "But I'll tell you (and here one does not have to be an expert) what is the essence of the problem, of the dispute, or rather the debate. Several colleagues believe that certain factors have arisen.

    First, the continuing global economic crisis, including in the Eurozone, affects us too.

    The second factor is man-made: too tight monetary policy within the Russian Federation itself. It is largely justified, because our policy has been focused on inflation targeting, suppressing inflation, that is fighting increases in prices. This is done for the benefit of our people and our economy.

    But some say that this has excessively suppressed the money supply, that the Central Bank has allowed the currency exchange rate to fluctuate freely and stopped buying foreign currencies in the domestic market, and therefore the money supply has decreased. They believe we have adhered to the so-called budget rule and thus begun to prevent petrodollars from being injected into the market. This has ultimately resulted in further decline in money supply.

    Then, despite the lowering inflation, our banks continue to lend at high rates - 14 to 15 percent - to individuals and legal entities, all economic actions. Yet inflation has fallen. It is now just over 7 percent and is expected to reach 5.9 or 6 percent by the end of the year. So some colleagues say no, we are to make some adjustments to our policies. Strictly speaking this is the essence of the dispute.

    It is probably true that some adjustments are necessary but I want to emphasise and draw attention to the following: the fundamentals of our economic policy will remain unchanged. We will continue to focus primarily on macroeconomic indicators and encourage industries to meet social needs of the people".

    There it is, simply said, by the man himself.

    I would add that producer prices actually fell in April, suggesting that the peak of the recent inflation surge has passed, whilst the fact that the economy grew by 1.6% in the first quarter (more than predicted) despite the exceptionally tight monetary and fiscal policy (reaffirmed at its recent meeting by the Central Bank, which left rates unchanged) shows the strong underlying momentum in the economy, which suggests that when inflation and interest rates do fall, probably in the autumn, growth will rebound strongly.
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  12. AlexBond

    AlexBond Office Registrar (13th class)

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    There are already some indicators of possible improvement starting.

    *Following the decline of industrial output in January-February, March has shown a 2.6% year to year increase, which is the strongest growth in one month since July 2012. http://www.gks.ru/bgd/free/B04_03/IssWWW.exe/Stg/d01/73.htm

    *Retail trade volume continues to grow throughout Russia.

    *Exports declined only about 2 % in the first months of the year, despite crisis in the EU.

    *Russians do more and more savings in Russian banks and prefer to make ruble deposits, while the share of the US dollar continues to decline.
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  13. AlexBond

    AlexBond Office Registrar (13th class)

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    I've gone to explore a new version of the Government of Russia site http://government.ru, launched today, and I found there the Policy Priorities of the Government of the Russian Federation to 2018.

    http://archive.government.ru/media/2013/2/1/54666/engfile/Policy Priorities.docx (English)
    http://government.ru/media/files/41d4469723e7e2a0d5b5.pdf (Russian, in better visual format and with graphs )

    It's a key programme document of the government; it contains an acknowledgement that Russia needs a new economic policy and it sets the goals and explains the methods of that new policy.
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  14. Alexander Mercouris

    Alexander Mercouris Ship Secretary (11th class)

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    Dear Alex,

    Thank you very much for finding this key document.

    It's all there: the plan is to transition to a high productivity, high wage economy based on high levels of investment, the plan being to increase the investment rate to 25-27% of GDP. It is in my opinion fully achievable but as the report says it depends on a strong institutional structure, a well functioning and well resourced financial system and a good business climate, none of which is possible with the levels of inflation we have now.

    The only thing I would say about this report is that I really wish it did not give such precise figures in its forecasts. Every government, not just the Russian government, does this. Needless to say any forecast is never anything more than an informed guess and to giving precise figures in a forecast all but guarantees that the forecast will prove to be wrong.

    Incidentally it will be very interesting to see what will happen (1) if interest rates in Russia start to fall at the same time as they are going up everywhere else - something which, by the way, is very likely and (2) if Russia really does achieve sustained non inflationary growth of 5-6%. I predict that the panic and hysteria we will see in that case amongst some people in the west will make what we saw in the 1998-2008 period look like a spat during a picnic.
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  15. Philip Owen

    Philip Owen Office Registrar (13th class)

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    Agriculture, as Alexander has pointed out is a success story. Russia and the Ukraine between them dominate the world's export markets for barley albeit the lowest value cereal. Wheat, a riskier crop to grow is still developing. R & U are the only serious sources of sunflower oil not in the big trading house cartel. However, access to international markets outside the FSU is difficult because of the cartel. Ukrainian farmers are already accepting free seeds and fertilizers from the cartel members in exchange for a fixed price for the crop to be delivered to the mills owned by the cartel.

    The best land in the best places is already in large modern farms but even intermediate land is still untended and cheap. The shortage are of storage and transport.

    Tsarist Russia was a major exporter of beef. There's a long way to go there. In terms of the time it takes to set up a flock or herd, the figures are something like this. Chickens, 6 months; pigs, 18 months; cattle, 3 years. With the focus of Russian business on short payback times, because capital investment is so productive, pigs struggle for investment and beef is a distant dream. However chicken may soon become an export product. Theoretically, Russia should be able to have a world beating livestock industry. Soyabean is native to the Russian Far East and grows well in the Black Earth.

    Manufacturing, even branded design has success stories. Gloria Jeans started as a coop in Rostov in 1987. It is now a billion dollar corporation which has exported to the UK since 2001 and is planning to export Jeans to China! Everything is made in Russia or the Ukraine. In a smaller way, Bosco, the sportswear company, has also enjoyed export success through leading edge design.

    Russian metals, especially steel, aluminium and nickel have had such export success that, until WTO membership, they faced substantial tariff barriers. WTO membership has given these industries a big boost in export markets.

    Russia also exports electricity and has the potential to export a great deal more as the interconnectors already exist but the collapsed state of the grid and generating capacity makes it impossible.

    Russian software firms continue to thrive and cell phone operators are buying their way into new markets such as Turkey and Egypt.

    The biggest failure and hope for the future that I can point to is electric vehicles. Modern trams and trolleybuses are major technology drivers that blend into electric buses. Russia has a huge home market and manufacturing base in this industry but does nothing to support it (such as developing a municipal bond market to finance transport system renewal). Electric vehicles are low noise, low pollution at point of use and increasingly solutions to transport in major urban centres. Instead Russia subsidizes a dead civil aircraft industry which insists on staying dead. The Superjet has crashed twice.
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  16. Drutten

    Drutten Collegiate Secretary (10th class)

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    Well, once because of reckless piloting and then the 2nd "crash" was a comparably soft belly landing (gear-up) during a flight trial programme in harsh conditions on Iceland (one engine only, strong crosswinds etc). They think she'll be repaired.

    Both of these machines were from the intial 2008-2010 batch of six early flight testing and certification machines. All but one of these have been retired and/or put in storage.

    Since serial production began, 30+ have been built and 25 are in active service at present (with three more joining in a month). The total standing order is at 200+, which includes Western customers believe it or not.

    I wouldn't call it dead by any means, especially considering the unfortunate mishaps and just how ridiculously difficult it is to establish yourself in this market (where the main rivals Embraer and Bombardier have enjoyed a near Boeing-Airbus-esque "joint monopoly" for a while now).

    Through the SuperJet and PowerJet ventures, UAC/Sukhoi and Saturn have forged the partnerships with top notch Western aerospace establishments they so sorely needed for a multitude of reasons. Even though military aircraft remain their biggest strength, this sort of diversification and "Westernization" (in lack of a better word) has been lauded as key for maintaining overall competitiveness. That is not to mention the anticipated and by all means ongoing boost for Russian aerospace industry overall, which you seem to regard as a dead prospect.

    Besides, without these kinds of investments in the civilian department, other UAC subsidiaries like Tupolev would have been dead now with all that would entail for the future of Russian military aviation.

    The other consolidated aerospace corporation, Russian Helicopters likewise started eyeing out the international civilian market and consequently secured a partnership with AgustaWestland, with all-Russian production of AW139 helicopters becoming a reality just recently and a future jointly developed civilian helicopter being on the drawing board at present.

    I find all of this good news even though things do appear a bit slow moving at the moment. Sure, there are many more things to focus on as well but not paying attention to the aerospace industry would be foolish as Russia surely possess the means of turning it into a lucrative affair.
  17. Alexander Mercouris

    Alexander Mercouris Ship Secretary (11th class)

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    There has been the predictable over reaction to the fact that growth in the second quarter came in at 1.2% (below predictions). There's even been some lurid talk of Russia being actually in recession, though Ulyukayev has tried to calm that down in his interview with Kommersant today. If this is a recession then it is a very strange one with unemployment so low.

    As I have said before, the government's priority at the present time is inflation, reducing which is essential if the economy is to go undergo structural reform. With interest rates remaining so high (the Central Bank has again decided to keep them at 8.25%), fiscal policy so tight because of the budget rule and credit expansion deliberately checked as part of the anti inflation policy in the absence of strong external demand it is simply unrealistic to expect the economy not to respond by slowing down to a crawl. That is not a reason to panic. It is what an anti inflation policy is supposed to do. In the medium term other things will have to be done some of which Ulyukayev touched on in his interview to make the economy grow faster but none of them are going to happen whilst inflation remains high as it still is.

    The true measure of progress in the economy at the present time is inflation, which has now fallen from a peak annualised rate of 7.4% at the beginning of the year to 6.5% now (according to a report I saw on Interfax core inflation is now 5.9%). I doubt we are going to see any relaxation in policy before inflation is below 6%. Even that is high and I expect policy to continue to remain tight until inflation is below 5%, to which level all things being equal I expect it to fall in 2014-15.
    Vostok likes this.
  18. Morgoth

    Morgoth Office Registrar (13th class)

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    I wonder what kind of economic growth rates we are likely to see in Russia this yea and in 2014 and 2015, it seems that this year, the Russian economy is likely to grow between 2.2 - 2.4% which is in line with the 2.2% global growth rate predicted by the World Bank, the question is to what extent Russia can accelerate the rate of growth, will it remain below 3%, or will it accelerate to 4% in the next few years.
  19. José Moreira

    José Moreira High Commissar Staff Member

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    Alexander Mercouris likes this.
  20. Vostok

    Vostok Gubernial Secretary (12th class)

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    Appears to be slowing and slowing...

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