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Denis V. Kadochnikov
Senior Research FellowInternational Centre for Social and Economic Research – Leontief Centre (St. Petersburg, Russia)
Structure of the Presentation
Economic dynamics in Russia during the last decade
Russia’s trade with the World, EU and BSR
Russia – BSR economic cooperation and integration
Post-crisis realities for Russia and Russia’s North-West
Possible scenarios of Russia’s development
1998 20082004 20062001
Ruble Devaluation and Imports Substitution
High Oil and Gas Prices
Capital Inflow and Domestic Fiscal and Monetary Expansion
View of Baltic Sea Region by the North-West Businesses
(Based on a survey conducted by Leontief Centre in 2008)
Source of Imports of equipment, machinery and raw materials
Training ground
Not a Market for Exports other than Commodities Exports, as there is large and underexploited Russian market
View of the North-West of Russia by Foreign Businesses
(Based on a survey conducted by Leontief Centre in 2008)
Key purpose of appearance of foreign companies / foreign investors in St. Petersburg is gaining the access to local and Russian market.
Exploration of external markets in the future is not excluded however.
Russia — Baltic Sea RegionBusiness Interaction
Interaction of companies working in St. Petersburg with businesses of the Baltic Sea Region is usually limited to:
Purchase of raw materials and equipment,
Transit of cargo through their territories.
Russia — Baltic Sea RegionBusiness Interaction
The target of exploring Baltic markets is not perceived as a priority by Russia-based companies.
Respondents rather note interest of investors from Baltic States to St. Petersburg and Russia.
Foreign Investments in the North-West of Russia
Major investing countries, except Germany, are located outside the Baltic Sea Region.
The largest sector of FDI is consumer services sector, focused on the Russian consumer market
Russian Investments Abroad
Russian companies now operate world-wide and no longer focus on the CIS and the former Soviet Republics in the BSR. Russian companies, specializing within the resource-based sector, cooperate with relevant partners no matter where they are around the world. They act as part of a global specialised networks not restricted to any kind of regional imperative.
Russian Investments Abroad
Resource-based industries continue to dominate outward investments, although financial, telecom and retail trade companies are also venturing abroad.
The volume of Russian FDI in Baltic Sea Region is relatively low and concentrated in sectors such as energy, transportation, industry and trade.
Russian Investments in the Baltic Sea Region
Russian FDI in the BSR is very much strategically motivated by Russian interests in obtaining access to the EU and other international markets.
Examples:
Sea-port of Sillamae in Estonia, co-owned by a Russian company;
Oil pipeline from Russia via Belarus to the Latvian harbour of Ventspils, also co-owned by a Russian company;
Nord Stream Pipeline project connecting Russia and Germany.
Global and Russian Economy Prospects
World Bank report “Global Development Finance 2009: Charting a Global Recovery”
2007 2008 2009 2010 20117,5 3,7 -9,7 3,8 6,9
3,8 1,9 -2,9 2 3,22,7 0,6 -4,5 0,5 1,98,1 5,6 -7,5 2,5 3
6,7 4,6 -1,6 0,6 3,28,6 5,6 -6,2 2,5 3,5CIS
WorldReal GDP Growth (%):
Global Trade Growth (%):
Euro AreaRussian FederationCentral and Eastern Europe
New Economic Realities for Russia
Lower commodities prices and negative net capital flows
Deteriorated external financing conditions and higher interest rates
Federal and subfederal budget deficits
Smaller state and CB reserves
Greater economic, social and political uncertainty
Greater state role in the economy
Greater Social and Political Pressures
New Realities forRussia's North-West
Weaker demand for exports from the North-West
Lower transit trade
Lower tourism figures
Major Challenges to Russia-EU Economic Cooperation
Protectionism on both sides
Investments restrictions and barriers
Political and economic instability in neighboring countries
Problems of transit trade
Possible Development Scenarios and Strategies
Scenarios / Strategies of Russia’s Development formulated by SIGMA group / Institute of Modern Development (Moscow):
Inertia
Rentier
Mobilization
Modernization
Inertia Scenario
No radical socio-economic reformsPolitical stability as a priorityProblems are addressed as they appearNo strategic actionsMaintaining status quo
Obstacles: Lack of resources in the short run; stagnation in the long run.
Rentier Scenario
Accumulation of oil and gas revenues in the state budget and further redistribution to finance social programs
Paternalism as the state policyState-directed investment programs
Obstacles: Falling budget revenues due to lower profits (or losses) of oil and gas companies in the short run; Recession and social instability in the long run.
Mobilization Scenario
Mobilization of state resources to support and modernize selected priority industries
State corporations domination in the priority industries
Innovations support in the priority industries
Obstacles: Inefficiency of state ownership and state planning, growing bureaucracy, rent seeking.
Modernization Scenario
• Institutional reforms• Improving business climate• Focus on the efficiency of budget expenditures
Obstacles: Results will be felt in the long-run; social and political support may be hard to secure.