Bruno S. Sergi shares his opinion with Valdai Club project.
Russia has seen foreign direct investment shrink dramatically: levels have halved since the economic boom, and due to the current downward pressure, are now virtually at a standstill. This fact is indeed discouraging. Russia needs to take resolute action to attract more foreign investment, Russias Finance minister and deputy Prime Minister Alexei Kudrin said recently. The country needs to see economic growth back up at 7% per year, as in other emerging market economies, Finance Minister Kudrin added. Kudrins concerns are, in part, directed at those of his government colleagues responsible for economic development. They forecast a government deficit below 2% to 2020, based on an oil price of around $100 per barrel, a not unreasonable level given the current Libyan crisis. This oil-based economic growth trajectory is now no longer in Russias best interests; the country should instead look to foreign investment, Kudrin posits.
Finance Minister Kudrin is right in that respect. Russias growth is 3-4 percentage points below that seen in the other BRIC countries and major changes must be implemented as part of a long-term agenda. However, while Kudrins call to stimulate robust economic growth (in the region of 7% which would double GDP in about a decade) is laudable, a massive inflow of FDI is unlikely to turn up as long as the country remains sluggish. This not to say that Russia cannot or should not count on FDI as an engine of growth. Rather, the countrys authorities should attract as many foreign companies as possible in order to bring money and expertise into the country. Now a couple of crucial points on how this growth is rooted, we must keep in mind that this new growth strategy needs to be developed and applied during the worst economic crisis for decades.
Russia must act on the basis of a shared understanding of how best to handle resources, challenges, and opportunities in the context of the economic crisis after-effects. Keys to this new course of action would be cutting the toxic practices of corruption and fraud that undermine the systems efficiency and channeling the countrys massive oil revenue back into the economy and society. The hardest part of this new path is designing a dazzling growth plan, in which no oil-ruble is misspent. Russias economic policy leaders should not think twice about drawing on the countrys excellence and natural resources, simply said, without waiting for Godot to arrive from abroad, to ensure they dont leave the country trapped in a catch-22 situation with no more oil and no modernity.
Everyone agrees that Russias recent decade-long oil bonanza will end sometime in the future and that the country must look for a long-term, firmly-rooted economic and social improvement. And should Russia make headway with this ambitious development program, FDI would once again start flowing into the country, greatly adding to domestically sparked growth.
Full version of the article was published on valdaiclub.com
Russia has seen foreign direct investment shrink dramatically: levels have halved since the economic boom, and due to the current downward pressure, are now virtually at a standstill. This fact is indeed discouraging. Russia needs to take resolute action to attract more foreign investment, Russias Finance minister and deputy Prime Minister Alexei Kudrin said recently. The country needs to see economic growth back up at 7% per year, as in other emerging market economies, Finance Minister Kudrin added. Kudrins concerns are, in part, directed at those of his government colleagues responsible for economic development. They forecast a government deficit below 2% to 2020, based on an oil price of around $100 per barrel, a not unreasonable level given the current Libyan crisis. This oil-based economic growth trajectory is now no longer in Russias best interests; the country should instead look to foreign investment, Kudrin posits.
Finance Minister Kudrin is right in that respect. Russias growth is 3-4 percentage points below that seen in the other BRIC countries and major changes must be implemented as part of a long-term agenda. However, while Kudrins call to stimulate robust economic growth (in the region of 7% which would double GDP in about a decade) is laudable, a massive inflow of FDI is unlikely to turn up as long as the country remains sluggish. This not to say that Russia cannot or should not count on FDI as an engine of growth. Rather, the countrys authorities should attract as many foreign companies as possible in order to bring money and expertise into the country. Now a couple of crucial points on how this growth is rooted, we must keep in mind that this new growth strategy needs to be developed and applied during the worst economic crisis for decades.
Russia must act on the basis of a shared understanding of how best to handle resources, challenges, and opportunities in the context of the economic crisis after-effects. Keys to this new course of action would be cutting the toxic practices of corruption and fraud that undermine the systems efficiency and channeling the countrys massive oil revenue back into the economy and society. The hardest part of this new path is designing a dazzling growth plan, in which no oil-ruble is misspent. Russias economic policy leaders should not think twice about drawing on the countrys excellence and natural resources, simply said, without waiting for Godot to arrive from abroad, to ensure they dont leave the country trapped in a catch-22 situation with no more oil and no modernity.
Everyone agrees that Russias recent decade-long oil bonanza will end sometime in the future and that the country must look for a long-term, firmly-rooted economic and social improvement. And should Russia make headway with this ambitious development program, FDI would once again start flowing into the country, greatly adding to domestically sparked growth.
Full version of the article was published on valdaiclub.com
