Reform the focus on economy

Taking the chance. Reform of the Russian economy in the middle of a crisis offers the chance to identify and solve systemic problems. But it's a big challenge for the government.

Bad times can offer the best chance of reform. As Russia has been drawn into the world crisis, its domestic economic problems have been thrown into sharp relief. It is highly dependent on raw materials exports, with an economy that has been slow to diversify despite the Governments best intentions, according to Chris Weafer, Chief Strategist at UralSib

“The industries that are the biggest contributors to the economy, right now, will remain so. So, you know, oil and gas, and materials, are always going to be important industries for Russia. But, if we go back and look at the programme for government, as set out by President Medvedev, then we can see that the government intends putting a great deal of money into process industries, primarily. And this is processing more of Russia’s raw materials inside the country, and then exporting the products.”

Experts say Russia should make the most of its raw material base, developing domestic processing industries. This is the country's best chance of creating value-added products and new jobs. But it needs investment and political will, and could lead to Russia resuming its place amongst the world technological leaders according to Roger Munnings, CEO of KPMG, Russia and the CIS.

“Russia has a history of producing high quality advanced technology. The workforce remains, still, very highly educated. I think that advantage is what Russia can play to for the future.”

Evgeny Nadorshin, Chief Economist at Trust Bank, says that diversification is not a vaccination against the crisis, but it can boost future immunity.

“The crisis is sign of problems in the world economy, because we are pretty seriously integrated now, in the world, so we are suffering, and that’s the problem. If we had been a diversified economy we would also be suffering again, but probably our suffering would not have been that deep.”

The country needs not just economic diversification but regional development. More industrial centres could achieve a more balanced development of the whole country.