Denis V. Kadochnikov

Senior Research FellowInternational Centre for Social and Economic Research – Leontief Centre (St. Petersburg, Russia)

Structure of the Presentation

Economic dynamics in Russia during the last decade

Russia’s trade with the World, EU and BSR

Russia – BSR economic cooperation and integration

Post-crisis realities for Russia and Russia’s North-West

Possible scenarios of Russia’s development

1998 20082004 20062001

Ruble Devaluation and Imports Substitution

High Oil and Gas Prices

Capital Inflow and Domestic Fiscal and Monetary Expansion

Russia’s Share in the World Trade

Russia’s Exports and Imports as % of GDP

View of Baltic Sea Region by the North-West Businesses

(Based on a survey conducted by Leontief Centre in 2008)

Source of Imports of equipment, machinery and raw materials

Training ground

Not a Market for Exports other than Commodities Exports, as there is large and underexploited Russian market

View of the North-West of Russia by Foreign Businesses

(Based on a survey conducted by Leontief Centre in 2008)

Key purpose of appearance of foreign companies / foreign investors in St. Petersburg is gaining the access to local and Russian market.

Exploration of external markets in the future is not excluded however.

Russia — Baltic Sea RegionBusiness Interaction

Interaction of companies working in St. Petersburg with businesses of the Baltic Sea Region is usually limited to:

Purchase of raw materials and equipment,

Transit of cargo through their territories.

Russia — Baltic Sea RegionBusiness Interaction

The target of exploring Baltic markets is not perceived as a priority by Russia-based companies.

Respondents rather note interest of investors from Baltic States to St. Petersburg and Russia.

Foreign Investments in the North-West of Russia

Major investing countries, except Germany, are located outside the Baltic Sea Region.

The largest sector of FDI is consumer services sector, focused on the Russian consumer market

Russian Investments Abroad

Russian companies now operate world-wide and no longer focus on the CIS and the former Soviet Republics in the BSR. Russian companies, specializing within the resource-based sector, cooperate with relevant partners no matter where they are around the world. They act as part of a global specialised networks not restricted to any kind of regional imperative.

Russian Investments Abroad

Resource-based industries continue to dominate outward investments, although financial, telecom and retail trade companies are also venturing abroad.

The volume of Russian FDI in Baltic Sea Region is relatively low and concentrated in sectors such as energy, transportation, industry and trade.

Russian Investments in the Baltic Sea Region

Russian FDI in the BSR is very much strategically motivated by Russian interests in obtaining access to the EU and other international markets.

Examples:

Sea-port of Sillamae in Estonia, co-owned by a Russian company;

Oil pipeline from Russia via Belarus to the Latvian harbour of Ventspils, also co-owned by a Russian company;

Nord Stream Pipeline project connecting Russia and Germany.

Global and Russian Economy Prospects

World Bank report “Global Development Finance 2009: Charting a Global Recovery”

2007 2008 2009 2010 20117,5 3,7 -9,7 3,8 6,9

3,8 1,9 -2,9 2 3,22,7 0,6 -4,5 0,5 1,98,1 5,6 -7,5 2,5 3

6,7 4,6 -1,6 0,6 3,28,6 5,6 -6,2 2,5 3,5CIS

WorldReal GDP Growth (%):

Global Trade Growth (%):

Euro AreaRussian FederationCentral and Eastern Europe

New Economic Realities for Russia

Lower commodities prices and negative net capital flows

Deteriorated external financing conditions and higher interest rates

Federal and subfederal budget deficits

Smaller state and CB reserves

Greater economic, social and political uncertainty

Greater state role in the economy

Greater Social and Political Pressures

New Realities forRussia's North-West

Weaker demand for exports from the North-West

Lower transit trade

Lower tourism figures

Major Challenges to Russia-EU Economic Cooperation

Protectionism on both sides

Investments restrictions and barriers

Political and economic instability in neighboring countries

Problems of transit trade

Possible Development Scenarios and Strategies

Scenarios / Strategies of Russia’s Development formulated by SIGMA group / Institute of Modern Development (Moscow):

Inertia

Rentier

Mobilization

Modernization

Inertia Scenario

No radical socio-economic reformsPolitical stability as a priorityProblems are addressed as they appearNo strategic actionsMaintaining status quo

Obstacles: Lack of resources in the short run; stagnation in the long run.

Rentier Scenario

Accumulation of oil and gas revenues in the state budget and further redistribution to finance social programs

Paternalism as the state policyState-directed investment programs

Obstacles: Falling budget revenues due to lower profits (or losses) of oil and gas companies in the short run; Recession and social instability in the long run.

Mobilization Scenario

Mobilization of state resources to support and modernize selected priority industries

State corporations domination in the priority industries

Innovations support in the priority industries

Obstacles: Inefficiency of state ownership and state planning, growing bureaucracy, rent seeking.

Modernization Scenario

• Institutional reforms• Improving business climate• Focus on the efficiency of budget expenditures

Obstacles: Results will be felt in the long-run; social and political support may be hard to secure.

Thank you!

Denis V. Kadochnikov

dkadochnikov @ yahoo.com

International Centre for Social and Economic Research – Leontief Centre (St. Petersburg)

www.leontief.net