[R-G] Russia: The Economy Needs Restructuring. But How?

[Yoshie Furuhashi]

<http://en.rian.ru/analysis/20080108/94770668.html>
The economy needs restructuring. But how?
16:05 | 08/ 01/ 2008

MOSCOW. (Gleb Fetisov) – There have been no deliberate attempts to
develop high-tech industries in Russia. This is not surprising, since
an economic model that depends on natural resources is all too
comfortable.

Russia's hydrocarbon exports increased from $28 billion in 1998 to
$191 billion in 2006, that is, by 583%. Over that same period, the
share of commodity exports in the country's GDP rose from 10% to
almost 20%.

Why is this situation of dependence harmful for Russia?

First, by relying on global energy prices, the system is inherently
unstable and vulnerable to regular financial and even social and
political crises. Indeed, the key reason behind the recent inflow of
oil money was not increased production — this was only modest — but a
boom in global prices. Put simply, Russia's revenues will plummet if
prices begin to fall.

Second, mineral resources become depleted over time, while prospecting
for new deposits requires greater investment.

Third, commodity dependence is fraught with what some call "Dutch
disease," or the excessive concentration of labor and resources in one
sector at the expense of others. In Russia, for example, the growth of
manufacturing has been 3% slower than the GDP.

Fourth, technology slowdown is common in a commodity-dependent
economy, while technological progress is a key source of economic
growth.

If nothing is done, Russia's role will eventually boil down to
supplying the West and China with raw materials. But can anything be
changed now?

The government is searching for ways of replacing the commodity-based
model with a new, diversified one; and included this in its
medium-term program and the draft concept for Russia's long-term
social and economic development until 2020.

This may have some effect, but what the country really needs is a
joint effort from government and business in sectors where this
country already has competitive advantages, like high-tech. Such
re-orientation will naturally be a long, difficult and costly process.
Of course, this might explain why so few policymakers are prepared to
support it.

Dr. Gleb Fetisov, economist, member of the Russian Parliament's upper house

The opinions expressed in this article are the author's and do not
necessarily represent those of RIA Novosti.

Source: Rossiiskaya Gazeta

--
Yoshie
<http://montages.blogspot.com/>