Economic modernization a key Russian priority

Russia’s economic modernization and diversification away from dependence on natural resources has been the focus of a meeting of Russian key economy ministers and international business leaders.

Dependence on western financial markets and oil prices are two disappointing features of Russia, which were highlighted in the crisis.

The first deputy prime minister Igor Shuvalov said that by 2020 the country was determined to modernize the economy, shifting focus from natural recourses to human intellectual capital.
Informational technologies, nuclear power, hi-tech industry are just some of the priority sectors the government aims to develop.

But analysts warn the robust oil prices are the enemy of good intentions, with Mikhail Dmitriev, the Head of the Center of Strategic Research, adding Russia’s huge resource potential doesn’t create necessary stimulus for building strong diversified economy.

“With current oil and metal prices on global markets Russian economy will already face opportunity of pretty fast economic recovery. Maybe, economic GDP growth rate next year could reach 5% or even more. And this will be relaxing because this growth will come automatically but it will not secure and guarantee the longer term sustainable economic growth for the future.”

Sergey Guriev, a head of New Economic School, says Russia needs to become competitive on the international market through further economic integration with other countries.

“When you open your market, you really become committed to transforming the economy because you can fit, you have an outside anchor, you know where to go. So, we need to do three things: privatization, deregulation and joining WTO and OECD and building common economic space with the European Union. And Prime Minister Shuvalov said we will do exactly this. Unfortunately, he didn’t mention specific deadlines.”

The government didn’t announce the cost of modernization project, but said the first stage of the process is set to finish by 2012. Some initiatives have been already implemented. Russia set up a customs union with Kazakhstan and Belarus and also eased taxation regime for small and medium size businesses. However, experts say little will change without first reforming the state bureaucracy along with outdated laws and regulations.