By Andrei Sharonov, Deputy Minister of Economic Development and Trade of Russia
The reforms carried out in Russia in the recent decade have brought about quantum economic, political and social changes in the country: altering the structure of ownership and creating new economic structures. The government's policy of the past five years has generated macro-economic stability.
Nevertheless, within the existing economic setup, and with export growth rates expected to drop from 9-14% in 2002-2004 to 4-6%, the Russian economy cannot sustain steady GDP rates higher than 4-5% a year even given high world oil prices and positive momentum in import substitution. Besides, the scope for stimulating economic growth through reducing the tax burden further and depressing the exchange rate of the ruble has been exhausted. The current need is to advance institutional reforms, improve on the quality of human capital, and implement strategic development projects backed by interested organizational and financial support of the state.
Laws on special economic zones and on concessions have been adopted to promote economic growth. They aim to attract private investments in innovative and processing industries, draw non-public capital into infrastructure facilities and speed up the modernization of transport, energy and communal and housing services.
The Investment Fund formed in 2006 also has an important role to play. Its resources will be employed to render state assistance to investment projects of national significance.
Administrative and state service reforms also serve to promote the investment climate in Russia.
In October, the government approved the concept of administrative reform for 2006-2008. Its goals are to improve the quality and availability of state-rendered services to individuals and organizations, cut back business expenses caused by state regulation of the economy, and draw up standards of state services and administrative regulations. Measures are also being planned to make bodies of authority more open and to crack down on corruption.
Apart from institutional reforms and improvement in the quality of human capital, Russia also needs strategic development projects with the active organizational and financial backing of the state.
Growth of investment is the main driver of Russia's economic acceleration in the medium term. The rate of gross accumulation is to rise from 20.6% in 2004 to 26.8% in 2008 and to 28.7% in 2015.
In terms of accumulated inward investments, the processing industries lead the field and account for 26.6% of all investments. Several major international bellwether companies, Toyota and LG included, are going to outsource production to Russia.
In regards to specific sectors needing investments, these are large-scale infrastructure projects (roads, ports and airports), housing and communal services, agriculture, high technologies and education.
Our dialogue with foreign investors is ongoing, including through the Advisory Council on Inward Investments in Russia. In its working groups investors can sound out the problems they encounter in Russia, and we do our best to solve them.
Our country is business-friendly now, and many foreign companies have prospered here. Admittedly, more often than not they act as rivals to Russian producers, which do not like it very much. But all conditions being equal, they are not accorded any preferred status. In Russia, foreign investors are granted national treatment.
Predictions say in 2015 the structure of investments will undergo drastic change. The proportion of outlays on the information and high tech sector will rise from 9.9% in 2004 to 12% in 2008, and to 19.1% in 2015. In the long-term perspective the profitability of investments in the oil and gas sector will be lower and recoupment periods longer than in the high tech sectors. Investments in oil/gas and the raw materials sub-sector will gradually taper off - from 18.9% and 9% in 2004 to 17% and 8.6% in 2008, and then to 14.7% and 7.7% in 2015, respectively.
At the same time, the make-up of growth industries will be altered. The highest rates - over 7% a year - will be observed in the branches producing investment-purpose goods and end-user products - engineering and metal working (108.5%) and building materials (107.1%). This complex of branches will account in 2008 for about 52.5% of gross increment in added value throughout industry.
The added value in the branches turning out materials and supplies (except the coal industry) will grow at more moderate rates - by an average of 4.5% a year, generating 31% of aggregate production growth.
The fuel and energy sectors, which have forged ahead in rates of economic growth in the past few years, will slow down and in a medium-term perspective will be responsible for between 1.7% and 1.9% a year and for about 12% of the total industrial gain in the medium term.
To sum up, in a medium-term perspective the structure of the Russian economy will become more effective, approaching close to the structure typical of industrialized nations.
