Trends of the Russian Federation Economic Development Vladimir N. Kniaginin, Director, Foundation Center for Strategic Research «North-West» Economic Policy Dialogue among think tanks of emerging economies November, 2013

Source: Ministry of economic development of the Russian Federation

Russia faces deterioration of the economic situation: while the pace of current economic growth is reducing further instability is likely to occur

5,5  

7,6   7,4   7,6  8,3   8,3  

5,7  

-­‐7,6  

4,6  

5,4  

3,4  3,0  

3,6  3,9   4,0   3,8   3,8  

3,4  3,1  

2,8  

2,6  

5,5  

7,6   7,4   7,6  8,3   8,3  

5,7  

4,6  

5,4  

3,4   3,6  4,3   4,5  

4,8  4,4   4,3   4,2   4,1  

3,8  

3,6  

5,5  

7,6   7,4   7,6  8,3   8,3  

5,7  

4,6  

5,4  

3,4   3,6  

5,4  

6,3  

7,3   7,3   7,4  

6,1   6,0  

4,9  

3,9  

-­‐8,0  

-­‐6,0  

-­‐4,0  

-­‐2,0  

0,0  

2,0  

4,0  

6,0  

8,0  

2002     2003     2004     2005     2006     2007     2008     2009     2010     2011     2012     2013     2014     2015     2016     2017     2018     2019     2020     2025     2030    

Innovative scenario Realistic scenario Pessimistic scenario

%

4%-ghetto level

2

Source: Ministry of Finance of the Russian Federation

Russian regions also deal with the deterioration of economic situation: their inability to fulfill the obligations leads to the increase of regional debt burden

The level of debt load is high or critical in 23 regions of Russia

Krasnoyarsk Territory

Kemerovo Region

Republic of Tatarstan

Samara RegionSaratov Region

Volgograd Region

Nizhny Novgorod Region

Vologda Region

Moscow Region

Belgorod Region

Krasnodar Territory

Over billion rubles 28 120,00

Republic of Sakha (Yakutia)

Omsk Region

Sverdlovsk Region

Orenburg Region

Udmurtian RepublicRepublic of Mordovia

Ryazan Region

Kaluga RegionYaroslavl Region

Tver Region

Arkhangelsk RegionLeningrad Region

From to billion rubles 18 373,00 25 403,00

Regions with most crucial debt level:

3

Source: Russian Federal State Statistics Service, Federal Customs Service of Russia, Ministry of economic development of the Russian Federation

Risks of the economic reduction in Russia are caused by the uncertainty of commodity markets’ development

34%

15% 13%

38%

2008

нефть

газ

металлы

прочее

36%

12% 8%

44%

2012

нефть

газ

металлы

прочее

24%

16%

22%

38%

2000

нефть

газ

металлы

прочее

Dynamics  and  structure  of  export  of  the  Russian  Federa6on  

60,9 69,6

93,9

60,8

78,2

109,6 110,8

104 113

127

151

0

20

40

60

80

100

120

140

160

Urals Oil Price Forecast , US$ per barrel

31517

27404

31794

35297

38118

25000

27000

29000

31000

33000

35000

37000

39000

2010 2011-2015 2016-2020 2021-2025 2026-2030

Non-Ferrous Metals Prices Forecasts*, US$ / t

478

395 376

425 471

0

100

200

300

400

500

600

2010

Ferrous Metals Prices Forecasts, US$ / t

area of fiscal instability

Oil  Gas    Metals  Others      

Oil  Gas    Metals  Others      

Oil  Gas    Metals  Others      

2011-2015 2016-2020 2021-2025 2026-2030

4

Source: Ministry of economic development of the Russian Federation

Deterioration of the partner countries’ economic situation is also a source of the crisis phenomena

0,4

-4,5

2 1,7

-0,4

-5

-4

-3

-2

-1

0

1

2

3

2008 2009 2010 2011 2012

The stagnation of the Eurozone economy is one of the basic reasons of the Russian economic growth

reduction

GDP growth in the EU (28 countries), % per year

5

Source:  Russian  Federal  Treasury,  Russian  Federal  State  StaDsDcs  Service  

After facing the problem of the global economic recession Russia began to deal with risks within its own economy. One of such threats is a slowdown of the consumer market growth.

5498,5 6739,5

8554,9

10633,9

13593,4

17290,1 18637,5

20952,2

23369,2

26628,9

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Wage growth has exhausted its sources. Despite the positive retrospective further wage growth rate might be significantly

reduced.

This leads to serious risks of failure to perform most consumer obligations. Among

the main problems is a high level of loan commitments taken by population in the period of favorable economic conditions.

27 841 523

42 456 010 45 284 113 44 382 795

54 951 980

77 667 162

66 328 347

2007 2008 2009 2010 2011 2012 2013

2013, result for 8 months

Volume of consumer crediting to individuals saw a twice-level growth in the last 5 years

billion  rubles

6

Source: Central Bank of the Russian Federation

In these circumstances the Government acts as a crises damper and a main driver of economic recovery

Financial reserved funds are used to ensure more stability

33  

14   12   11  

33  

54  

32  

22  

0  

10  

20  

30  

40  

50  

60  

2013   2014   2015   2016  

Current operation account

75  dollars  per  barrel   125  dollars  per  barrel  

20  

31  

22  

4  

20  

-­‐45   -­‐43   -­‐43  

2013   2014   2015   2016  

Changes in Foreign Exchange Reserves

75  dollars  per  barrel   125  dollars  per  barrel  

But in the long run it creates new risks

billion rubles billion rubles

7

Source: Ministry of Finance of the Russian Federation

The Government began to optimize its costs but until now this process has been accompanied by an increase of social expenses

Plans to save funds of the Federal budget (according to proposals of the Russian

Federation Ministry of Finance to reduce public spending)

The growth of social obligations creates a threat to the Russian budget

2008    

2012    

Share of expenditures to healthcare, education and social benefits in the total RF Federal

budget

194,5

377,1

581,9

2014   2015   2016  

million rubles

8

Source: Russian economic school and Ernst&Young

Overall import growth is likely to be among new threats for Russian economic recovery after our entering the WTO. This will have particular impact on sectors with low level of competitiveness.

Consequences of Russia's entering the WTO for the Leningrad region and St. Petersburg industries (from 2011 till the end of the transition period in the industry)

Industry   Change  in  produc6on  volume,  %  

Change  in  skilled  labour  force  wages  ,  %  

Change  in  unskilled  labour  force  wages,  %  

Food  industry -­‐1,33   -­‐0,95   -­‐0,43  

Light  industry -­‐4,67   -­‐4,77   -­‐4,27  

Wood  processing,  pulp  and  paper  produc6on,  produc6on  of  wooden    goods

-­‐5,21   -­‐5,05   -­‐4,56  

Oil  goods  produc6on -­‐2,3   -­‐1,73   -­‐1,21  

Chemical  and  petrochemical  produc6on 1,13   1,48   2,02  

Ferrous  metallurgy 33,48   36,07   34,77  

Nonferrous  metallurgy 35,81   36,44   37,16  

Mechanical  engineering -­‐2,4   -­‐2,32   -­‐1,81  

Produc6on  of  building  materials -­‐2,54   -­‐2,28   -­‐1,77  Other  industries -­‐1,35   -­‐1,45   -­‐0,94  

Electricity  genera6on 0,25   0,67   1,20  

9

Source: Ministry of regional development of the Russian Federation

Other new threats include an increased role of factors not related to the global economic environment

Expenses for holding the Olympics in SOCHI-2014

Flood 2013 in Khabarovsk territory

65%  

10%  

18%  

7%  

Investors  

Olympstroy  

Federal  ExecuDve  AuthoriDes  

AdministraDon  of  the  Krasnodar  region  and  Sochi  

Total expenditure

1,5 trillion rubles

37%  

11%  20%  

32%  

Housing  RehabilitaDon  

VicDm  Assistance  

Agricultural  losses  

Others  

General damage 40 billion

rubles

Flood 2013 in the Khabarovsk region

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Creation of Smart State

Decline of global demand World competition growth RF workforce reduction

What affects development of the Russian Federation

Goal of the Russian Federation Development

Government Business Individuals

Who ensures the goal achievement

What hinders the goal achievement

1. Inefficiency of state structures 2. Low quality of public administration

1. Dependence on the budget money 2. Slow rate of implementation of innovations 3. Low labor productivity

1. Gap between existing competencies and market requirements 2. Low entrepreneurial activity

Source: D. Medvedev, «The time of simple solutions passed off» // Vedomosti, 27.09.2013

The Russian Government needs to respond on increased complexity of all state development processes. It leads to changing economic policy.

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Source: Ministry of development of the Far East, Administration of Primorsky Krai

Russia tries to extend its cooperation with emerging APEC economies

RF Ministry of the Far East development has been created and new management bodies have

been formed

New infrastructure is being created: Special Economic Zones (SEZ), ports, transport

corridors

Ac#ve  policies  on  the  global  market  of  direct  investments  

AGENCY  FOR  INVESTMENT  AND  EXPORT  SUPPORT  

Countries  of  the  Asia-­‐Pacific  Region  (APR  countries)  

Crea#on  of  export  territory  of  priority  development,  industrial  and  

technology  parks  

CORPORATION  OF  RUSSIAN  EAST  DEVELOPMENT  

The  coastal  towns  of  far  East  Federal  district  (FEFD)  

Interna#onal  Public  Private  Partnership  in  infrastructure  projects  

FOUNDATION  OF  THE  FAR  EAST  AND  BAIKAL  REGION  

DEVELOPMENT  

APR  countries  and  the  ci#es  of  FEFD  

Policy  for  aIrac#on  of  residents  and  staffing  of  investment  projects  

AGENCY  OF  HUMAN  CAPITAL  DEVELOPMENT  

Ci#es  in  Russia  and  Ukraine  

PRIMORYE 1 • Harbin • Suifenhe • Vladivostok • Nakhodka • Vostochny

PRIMORYE 2 • Changchun • Hunchun •  Zarubino

Harbin

Changchun

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Thank you for your attention!

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