Russian Economic Reform


Putin’s view of Group 1

Published on June 11 2011
Posted by: jeff

Russia aims to become one of the world’s five largest economies within ten years, though it will admittedly be impossible to do so relying on a resource-oriented economy, prime minister Vladimir Putin stated on 26 May. ­“We have set an ambitious goal, that in ten years Russia should become one of the five largest economies in the world,” Putin said, speaking at the first social business forum in Moscow. “And the GDP should rise from the current level of 19,700 dollars to 35,000 dollars per capita.” He specifically pointed out that such figures will be impossible to achieve relying on “past sources of growth-exploiting the resource-oriented economic model.”

Jeff says that ….

(There are two issues here. One is the “resource-oriented” economy issue. The other is the ambitious GDP forecast. The report discussed in “Expert Group 1 mainly thinks that ….but there are dissenters!”, says that “Russia’s demographics are not good as the size of its labor force is declining. Even with rising labor productivity growth of the 5% average annual rate achieved over the last decade, annual economic growth cannot exceed 4% over the next decade. In reality, it will probably be in the 3-3.5% range”. Yet, Putin is assuming a annual GDP growth rate of around 7%. Is this remotely possible?)

On the “resource-oriented economic model”, Putin said that “at the beginning of the 2000s, it did play a significant role in economic growth, but even before the crisis, it was evident that the potential of such an economy is becoming increasingly limited,” Putin stressed.

He said that now, half of Russia’s budget revenues are provided by only 700 export-oriented companies working in the raw material sector, a situation that needs to be reversed:

“We can’t build further strategic development on just a few export-oriented industries,” Putin stressed. “A raw material-based economy not only puts us at low-level position in the world economy, but also prevents us from rising to a new stage in the development of the human capital and achieving the standards of the 21st century.”

He went on to say that small and medium business should become “the engine of a new industrialization”.

Attracting more investment and improving the investment climate in Russia is another goal that is set for the nearest future.

“No doubt, Russia needs modern technology and investment. In the near-distant future, the share of fixed capital should increase to 25 per cent of GDP. It is a realistic task since we are now at 19.5 per cent. I want to stress that we are talking about private investment, both Russian and foreign,” the premier noted.


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