Spotlight on Russia
Wednesday 8th June 2011 - 3:30pm - 4:30pm
As Russia embarks on a new phase of political and economic change, what new partnership opportunities will emerge?
The following dimensions will be addressed:
- Presidential elections in 2012
- The road to a knowledge economy
- Investment climate
- Institutional trust and support
- Russia’s economy is lagging behind other large emerging BRICS and is facing multiple challenges but has the potential to grow.
- Tentative steps towards modernization and a recent move to curb corruption are positive signs but change will take time.
- Russia has bounced back from the economic crisis and policies introduced in 2007 to support SMEs are moving in the right direction.
- The European Union has a special role to play in supporting its largest neighbour realize its enormous potential.
The Russia Competitiveness Report 2011, released on 6 June 2011 by the World Economic Forum, notes that the Russian Federation’s economy is lagging behind other large emerging BRICS due to stagnating productivity. Russia faces multiple challenges but has the potential to grow. Numerous challenges in the country’s business environment must be met if public-private partnerships are to flourish and generate economic growth. Russia suffers from poor institutions and an unstable financial system that does not meet the needs of the private sector.
The report points to a serious lack of institutional trust in Russia. Corruption is the number one factor deterring investors. Undue influence is rampant across the administration and the judiciary, which is inefficient and unfair. This corruption is “putting the brakes” on everything else. However, in its push to accelerate World Trade Organization and OECD membership, Russia last month adopted new regulations aimed at improving compliance with laws and combating corruption. The regulations include a promise to establish and develop mechanisms for monitoring, compliance and implementation. The country has also pledged to sign international anti-corruption treaties.
This recent move to curb corruption, plus Russia’s tentative steps towards modernization and forays into private bank finance is encouraging, led panellists to strike a note of optimism during the debate. They generally agreed the upcoming 2012 presidential elections are not creating uncertainty in the business community because most believe nothing will change.
Russia has bounced back from the economic crisis and policies introduced in 2007 were timely. The State Corporation Bank for Development and Foreign Economic Affairs (Vnesheconombank) is acting much like development banks in other countries, issuing credits and making US$ 11 billion available to support strategic private companies, as well as providing loans to SMEs and small entrepreneurs in the far east and Northern Caucuses regions. A special programme for SMEs delivered through Vnesheconombank’s subsidiary will provide a discounted fund for those keen to develop innovation projects.
The bank has also been establishing a direct investment fund. Several projects are underway in the lead up to the 2014 Winter Olympic Games, including a highway connecting St Petersburg and Moscow. The country is also paying off its debts to Western banks.
To modernize its economy, Russia must launch structural reforms aimed at reducing state regulation and liberalizing pricing. This could reboot competitiveness if accompanied by appropriate reforms and policies designed to strengthen the rule of law, rigorously reform failing institutions, delink state-owned businesses from political influence and foster home-grown rather than imported innovation.
Russia’s enormous assets are being squandered – an educated workforce, natural resources and a favourable geographic location. If free trade negotiations yield the expected results, Russia has a huge market at its doorstep. Russia, Belarus and Kazakhstan, which have established a customs union, have entered free trade negotiations, an important step in integrating the customs union into the international trade and economic system. A free trade agreement among these countries would be an important element in the shifting, dynamic Asia-Pacific economic architecture, thereby creating a new “Silk Road”.
Change in Russia will take time but whatever happens, the country will “stay on track” – the EU has a responsibility to support its largest neighbour in doing so. The time is now. The positive signs cannot be ignored. The EU-Russia relationship is enjoying its best dynamics in years. The EU has recognized this change and today European Commission President José Manuel Barroso announced 2 billion euros to bolster the EU-Russia Partnership for Modernization.
Anatoly Ballo, Deputy Chairman and Member of the Board, State Corporation Bank for Development and Foreign Economic Affairs (Vnesheconombank), Russian Federation
Vadim Belyaev, Chief Executive Officer and Member of the Board, OTKRITIE Financial Corporation, Russian Federation
Kairat Kelimbetov, Minister of Economic Development and Trade of Kazakhstan; Co-Chair of the World Economic Forum on Europe and Central Asia
Tigran Sargsyan, Prime Minister of Armenia
Wolfgang Schüssel, Chancellor of Austria (2000-2006)
Charles Grant, Director, Centre for European Reform, United Kingdom; Regional Agenda Council on Europe & Central Asia
This summary was prepared by Dianna Rienstra. The views expressed are those of certain participants in the discussion and do not necessarily reflect the views of all participants or of the World Economic Forum.
Copyright 2011 World Economic Forum
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Keywords: Russian Federation, The Russia Competitiveness Report 2011, corruption, institutional reform, innovation, SMEs
Director, Centre for European Reform, United Kingdom
Studies in Modern History, Cambridge University. Formerly, with Euromoney, London. 1986-98, with The...
Chief Executive Officer, OTKRITIE Financial Corporation, Russian Federation
1989, degree in Electroacoustic and Ultrasonic Equipment, Department of Electro Optical Equipment, M...
- Tigran Sargsyan
Governor of the National Bank of Kazakhstan
Graduate, Moscow State University; Pew Economic Freedom Fellows Program, Edmund Walsh School of Fore...
Chancellor of Austria (2000-2006)
1968, Doctorate in Law, University of Vienna. 1968-75, Secretary, Austrian People's Party (ÖVP) pa...
Deputy Chairman and Member of the Board, State Corporation Bank for Development and Foreign Economic Affairs (Vnesheconombank), Russian Federation
1983, graduate in International Economic Relations, Moscow Finance Institute. 1983-91, Economist and...