Translated material
Friends, electricity and competition
Russian officials and Western experts identified the main types of deficits in the domestic economy
Russia has been experiencing steady economic growth for many years, the budget is formed with a surplus, gold and foreign exchange reserves have long broken all records, and the country’s credit rating has reached investment level. However, against the backdrop of a stable macroeconomic situation, Russian officials, and even foreign businessmen working or wishing to work in Russia, are increasingly and more persistently drawing attention to problems, without solving which the Russian economy may stall.Moreover, officials talk almost exclusively about the economic reasons for possible failures, and foreigners do not forget to emphasize that Russian officials themselves will be to blame for these failures, the number of which will in no way translate into the quality of work. Yesterday, the victories, defeats and prospects of the Russian market economy were assessed by participants in the international investment forum “Russian Economy: Engines of Growth”, organized by the Interfax information group and the British Royal Institute of International Affairs.
It is hardly worth overestimating the main macroeconomic indicators voiced by the Minister of Economic Development German Gref and the First Deputy Chairman of the Central Bank Alexei Ulyukaev, with the help of which they illustrated the current state of the Russian economy. Representatives of economic departments previously said that, for example, GDP growth for the year is now projected at 6.7-6.8%, inflation, as well as the rate of strengthening of the real effective exchange rate of the ruble, will not exceed 9%. Of much greater interest is the vision of German Gref and Alexey Ulyukaev for further economic development, as well as their concerns related to this.
The head of the Ministry of Economic Development and Trade is confident that the “first and most significant” problem of the Russian economy is the lag in labor productivity growth from wage growth. According to him, in 2005, real wages increased by 12.6%, and labor productivity by only 5.5%. The figures for the nine months of this year are 12.8 and 6.3%, respectively. “This indicates that the increase in income and consumption is increasingly provided by hydrocarbon rent,” the minister concludes.
Mr. Gref called the second problem of the economy the intensive increase in external debt by the private sector (in the first half of the year, borrowings increased by 18.2%, to $32 billion), the third was the strengthening of the ruble, the pace of which “significantly outstrips labor productivity, which increases costs Russian enterprises". According to the Ministry of Economic Development and Trade, if the forecast level of oil prices remains in 2007 - 46-47 dollars per barrel - the ruble will strengthen by five percentage points, and in 2008-2009 by another one to three percentage points.
However, all of the above problems will turn out to be “flowers” when the “berries” ripen in the form of a severe shortage of electricity and gas, the consumption of which is growing at an unprecedented pace (electricity this year by 4.6%, gas by 6-7%).
The bell has already rung. “The Russian economy is facing a real limitation on economic growth due to a lack of energy resources,” Mr. Gref said, noting that RAO UES of Russia was the first to “sneeze” by allowing disruptions in “the most economically active regions - Moscow, St. Petersburg, the Urals, Tyumen. “If these two monopolies (UES of Russia and Gazprom - Ed. ) sneeze together, then the whole economy will cough,” German Gref added imaginative thinking. The threat is very real. According to the Ministry of Economic Development and Trade, by 2010 the demand for gas will increase by 72 billion cubic meters per year, but how to ensure such an increase in production is still unclear. (For comparison: this year Gazprom and independent producers plan to supply 344 billion cubic meters of gas to the domestic market.)
Meanwhile, Alexey Ulyukaev assesses the threats, as they say, “from his own bell tower.” For example, he is concerned about the uneven execution of the budget. According to the banker, according to the results of the third quarter, the backlog in cash budget execution is 300 billion rubles, which in the last months of the year will create “excessive pressure on the consumer market.” Mr. Ulyukaev, however, is confident that this will not lead to a deterioration in the annual inflation rate (practice shows that avalanche-like spending of budget funds at the end of the year spins up inflation at the beginning of the next year).
Mr. Ulyukaev also announced a fundamental change in the situation in monetary policy. The reason is the fall in oil prices, which led to a decrease in the extreme trade balance (exports for the nine months of the year decreased by 28-29% with a similar increase in imports) and a decrease in the growth rate of the monetary base (in September-October the growth was only 2.5% ), which in turn reduces inflationary pressure. “From the point of view of monetary policy, this means less chance of the national currency strengthening. It is possible that periods of strengthening of the national currency will be replaced by periods of weakening,” Mr. Ulyukaev noted. In general, the first deputy chairman of the Central Bank assessed the situation, “the period when the monetary authorities were engaged in sterilization of the excess money supply is ending, the period of liquidity management is beginning.” That is, reducing or increasing the refinancing rate depending on market conditions.
The head of the World Bank representative office in Russia, Kristalina Georgieva, touched upon the problem of the lack of competition in Russia, without which, in her opinion, normal economic development is impossible. According to a World Bank survey, 30% of companies in Russia do not face competition at all. Another 29% encounter it only at the local level, and only 41% of companies compete with other Russian and international firms.
It is perhaps already difficult to surprise or frighten foreign investors operating in Russia. This year, their investments in the Russian economy have grown by more than 40%. However, complaints about the activities (or inaction) of Russian officials seem to be only growing stronger.
“The number of bureaucrats in Russia has doubled since 1992?!” - Charles Ryan, chief executive officer of the Deutsche Bank group in Russia, is surprised. According to him, Russia is in sixth place in terms of investment attractiveness, but “foreign investors consider it the most difficult country for investment.” In turn, British Ambassador to Russia Anthony Brenton spoke about a conversation with the head of one of the British companies operating in 35 countries, including Russia. This businessman also believes that Russia is one of the most difficult countries in terms of “starting a project.”
At the same time, the ambassador drew attention to the data of a recent study by the INDEM Foundation, according to which 39 million corrupt transactions were committed in Russia last year. On average, 7% of companies' turnover turns into corruption income.
Director for International and Social Projects of RUSAL Alexander Livshits did not complain, making it clear that his company is able to fend for itself, including abroad. “Russia has no friends, never did and never will. We proceed from this and rely on ourselves,” he said. However, this position of his company did not prevent Mr. Livshits from proposing to the government to create a system for insuring foreign investments of Russian business. The second proposal of Alexander Livshits is to take into account whether there are Russian assets there when making decisions on introducing economic sanctions against a particular country. “After all, retaliatory measures will follow, but we are at hand,” he explained.