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RUSSIA INDIA REPORT
RIA Novosti news wire
www.russiatoday.ru
IN ASSOCIATION WITH ROSSIYSKAYA GAZETA
www.eng.globalaffairs.ru
THE ECONOMIC TIMES SATURDAY, DECEMBER 29, 2007 Economics
02
Find story ‘Russia today: up to the down staircase’ by Vladislav Inozemtsev
Inheritance Social transformation will rely on continuing reform in the post-Putin era
Business Events of the Year
St Petersburg Means
Mind the Gap
Business
The St. Petersburg Interna-
Next year’s forum will
tional EconomicForum has
continue in this vein, offer-
become the highlight of the
ing seminars on the state's
Russian business calendar.
new Investment Fund, spe-
Contracts worth billions of
cial tax-light economic
dollars are signed there
every year.
zones, the Development Cor-
poration, and high-tech ori-
ented funds.
Long-term economic plans must be
ALEXEI ALEXEEV
But, given the personal
MOSCOW
nature of Russian business,
Reporting on the results of just as valuable is the
the 2007 International eco- chance to talk with senior
structured to bridge the social divide
nomic forum in St. Peters- Russian ministers in an in-
burg, the Russian Ministry formal atmosphere. One in-
for Economic Development vestor said that he had been
and Trade has estimated bogged down in endless de-
that the forum generated as bates with a regional civil
Russia will soon have a new There are several positive ex-
much as $13.5 billion worth servant over a plot of land
parliament, a new president
T
.RU
amples, such as the introduc-
of contracts and 30 proto- for his plant, but after talk-
and a new government. The tion of child benefits and at-
cols of intent. ing to a minister at the fo-
era Vladimir Putin launched
OSOF
IZ
tempts to set up modern col-
The majority of the latter, rum, he managed to resolve
in 1999 is drawing to a leges in Krasnoyarsk and Ros-
including construction of a the issue in a matter of min-
close. However, Russians tov-on-Don.
giant automotive plant in utes.
still expect continued social However, most of the budg-
the Kaluga Region, are al- And, of course, St. Peters-
progress. That will require et is spent on patching up the
ready well underway. burg is undeniably one of
new ideas. worst holes. This is why con- The forum has long been the world's best cities to
sumers have not seen too appreciated by the interna- hold a conference. A North-
many changes - there are still
YEVGENY GONTMAKHER
tional business community ern city with dramatic, bit-
MOSCOW
the same long lines in shabby
as an opportunity for busi- ter winters, summer sees it
outpatient clinics, and no free
nesspeople to learn about become a paradise of mag-
Last year, Russia finally re-
prescriptions.
new sources of government nificent monuments and
stored its GDP to pre-default
Reforms need to be thor-
investment support. breathtaking architecture.
levels, thus ending a chapter
oughly prepared or they will
from its past. This year has
not have the intended result.
seen the start of a journey
This especially applies to af-
into an uncertain future.
fordable housing - still only a
In recent years, policy has
dream for most Russian fami- IPOs: Russians Rushing
generally been confined to the
lies. Mortgages were sup-
short-term perspective, but
posed to help translate this
to the Stock Market
now that is changing. Many
dream into reality, but inade-
government publications have
quate housing construction,
In January to September ing their new shareholders’
started to look beyond 2009
the amount of red tape in-
2007, Russian companies held hope. Regrettably, the launch-
to 2010, and some as far into
volved in the registration of
16 IPOs worth a total of ing of the VTB IPO coincided
the future as 2020 to 2025.
land plots, an insufficient en-
$19.2 billion. Of this, over $10 with the beginning of the
Just a couple of examples
gineering infrastructure and a
billion was split between the global liquidity crisis, so today
include the Ministry of Eco-
shortage of building materials
have more than doubled real
two largest Russian banks - VTB shares are down 10%
nomic Development and
estate prices. As a result, even
Sberbank (the Savings Bank), from May.
Trade’s long-term develop-
most medium-income families
in which nearly every Russian Nonetheless, tens of thou-
ment strategy and “Coalitions
keeps his or her savings now, sands of Russians have been
for the Future,” a document
Russia has been experiencing a dynamic consumer boom for a number of years
are still unable to buy a house.
Russia’s social landscape
and VTB, known in the Soviet involved in stock market op-
prepared by the Center for the
years as the foreign trade erations this year. Russia has
Development of Information
the first month-to-month called “national projects,” Despite the initial skepticism But national projects alone
differs dramatically from one
bank, or Vneshtorgbank. never seen a time when so
Society (RIO Center).
drop in real wages in many which are devoted to the of some experts, several bil- cannot solve the situation.
region to another. Remote re-
Of course, the overwhelm-
Sberbank shares have gone many of its citizens have
years. most urgent problems of lion rubles have reached uni- The government needs to car-
gions have seen almost no
ing majority of people per-
up 10% compared with their turned into capitalists
In the last two years, social everyday life - education, versities, schools and hospi- ry out reforms and introduce
changes in the last few years
ceive evolution only through
placement price, thus justify- overnight.
policy has been focused on so health care, housing and food. tals. new mechanisms of work.
and can in no way compare
changes in their lifestyles. Like
with Moscow, St. Petersburg,
people everywhere, Russians
Samara, Nizhny Novgorod and
are primarily worried about
other cities where progress is
prices, crime, salaries, pen- RIR Dossier 2007 economic performance comparison
evident. This is why people
2014 Olympics: The
sions, housing, health care and
continue to migrate to big
education. The social make-up
cities, abandoning Siberia, the
is very uneven, as is typical
Industrial production, % change in 2007 Consumer prices, % change in 2007 Far East, and the European far
Economics of Sports
during a transition.
north.
Sochi, Russia’s Black Sea re-
On this front, we should
These social realities show
note that Russia has been ex-
that Russia is approaching an-
sort, will host the Winter
periencing a dynamic con-
other frontier. Only by sur- Olympics in seven years, is be-
sumer boom for a number of
mounting these problems will coming one of the world’s
years now. Large shopping
Russia be able to guarantee largest investment venues to-
centers are under construc-
economic development for day.
tion and supermarkets have
years to come. It would be
Hundreds of companies are
replaced small shops in most
naive to hope that the current
bidding for the rights to build
medium-sized or big cities.
trends (even though mostly
the Olympic facilities.
The middle class is approach-
positive) will be sufficient if
Most of them are foreign
ing 20% of the total popula-
Russia hopes to tackle this ma-
companies, many of which are
tion, and those who are less
jor challenge.
planning to invite world-fa-
well off are also improving
We need fresh ideas and new
mous architects to design facil-
their living standards, all the
approaches to guarantee the
ities. Sochi residents are com-
more so since bank loans for
continuity of our social policy.
cars, furniture, fridges and
Unemployment, percent rate Gross domestic product, % change in 2007 We should not forget the main
plaining about a surge in real
even mobile phones are readi-
lesson of the last 15 years - that
estate prices, though many of
ly available. But this glowing
if they are to be positive,
them have become millionaires
picture of nearly European
changes must combine social
overnight. About 320 billion
prosperity is marred by sever-
expectations, financial and eco-
rubles (over $13 billion) has al-
al circumstances. The income
nomic realities and the enthusi-
ready been allocated to build
gap is growing. Only recently,
astic backing of all social
sports and infrastructure facil-
the average income of the top
forces. This is our main request ities.
10% of the social pyramid was
to those who will soon lead Thanks to the 2014 Winter
13 times higher than that at
Russia into the future. - Olympics, Russia’s southern
the very bottom. Now it has
coast will become home to a
gone up to 15.3 times as high.
Yevgeny Gontmakher, di-
modern year-round resort.
Rising inflation is hitting the
rector of the Center for So-
poor hardest, making this pic-
cial Studies at the Institute
ture even worse. By official
of Economics of the Russian
estimates, last October saw
Academy of Sciences
Source: Federal State Statistics Service (Rosstat)
Nanotechnologies:
Worth a Closer Look
Not long ago, most Russians The latest developments in
had still never heard of the this sphere are used in phar-
Opinion 2007 was volatile, but positive year for business interests in Russia
field of nanotechnology. Re- maceuticals, radioelectronics
cently, however, it has be- and other industries.
come a hot topic in Russia, At the Russian President’s
both in people’s homes and in initiative, a state nanotech-
Annual review unbeat as Russia
the Kremlin. nology corporation has been
According to Andrei set up with the authorized
Fursenko, Russia’s Minister of capital of 30 billion rubles
Science and Education, Russia (about $1.2 billion).
finishes the year strong
spends over 10 billion rubles Experts have no doubt that
($400 million) annually on re- Russia will become a leader in
search and design work in the this sphere of science and
sphere of nanotechnologies. business in a few years.
Two thousand and seven
sia, with analysts worrying kets, offering maximum re- few businessmen worry that cases, the state has taken production. In September
saw the Russian economy
about increased government turns on investment. A sec- they will not turn a profit control of heavy industries Russia’s Economic Develop-
shrug off an inauspicious
interference in the economy ond forum, held in St Peters- here. Many report that their which private business had ment and Trade Ministry
start, only to be hit by the
and the related risks to pri- burg in June, discussed prac- plants in Russia are becom- shown no interest in. As a stopped accepting requests
Litvinenko crisis. Nonethe-
vate property. This, as well tical projects. This time offi- ing the most profitable units further incentive, the gov- for permits to build car-
less, when nerves settled
following the June summit
as the uncertainty surround- cial Russia, headed by Presi- in their business empires – ernment’s investment in de- manufacturing plants be-
in St Petersburg, rapid
ing the forthcoming elec- dent Vladimir Putin, was even more profitable than velopment institutes has cause the supply of cars ex-
growth returned, meaning
tions, was the impetus for a very much in attendance. production in China. provided investors with ac- ceeded demand.
the year ended favourably.
lot of money to flee the This seemed to turn the At the same time, the cess to state funds. The duration of this boom
country. In May the outflow tide. The international busi- Russian government began A healthy consumer mar- will depend on global mar-
of capital exceeded inflow ness community was reas- consolidating the assets un- ket is another reason for op- kets, the results of the par-
ALEXEI MOROZOV
for the first time in months. sured about the continuity der its control. It set up cor- timism. Wages and con- liamentary and presidential
MOSCOW
But there were also posi- of policy following the elec- porations uniting shipbuild- sumer lending are outgrow- elections, and many other
tive developments. tions and pleased with the ing, vehicle manufacture and ing production in Russia, yet factors besides, such as oil
This year was one of massive The London Russian Eco- government’s commitment aircraft construction plants a mortgage crisis has (so prices. This will benefit the
contradiction in the Russian nomic Forum, held in April, to improving the investment and invested hugely in the far, at least) been averted. rich but also, indirectly, ordi-
economy. On one hand, Rus- praised Russia’s progress climate, thus reducing capi- economy through develop- Russian consumers remain nary Russians.
sia reaffirmed its growing (even though Russian offi- tal flight. ment institutes. the most energetic in the The business community
reputation as a highly at- cials boycotted the event be- Russia is now regarded as State consolidation has world. They are richer than doesn’t think that 2007
tractive business destina- cause of strained relations a country that all major in- not deterred investors who the Chinese and more lavish marks the end of the good
tion. On another, the year with the West following the ternational companies want are worried about increasing than Europeans, who are times, as their new projects
saw the emergence of sever- Litvinenko affair). Speakers to have some form of repre- government interference in weighed down by taxes and are designed to last for at
al risks that could halt the at the forum said that Rus- sentation in and, preferably, the economy. On the con- high utility fees. least five years. Russian offi-
country’s stellar progress. sia had become one of the production facilities. Though trary, the two processes To be closer to such a cus- cials also have faith in this
It all began badly for Rus- world’s most attractive mar- red tape remains a problem, have run in tandem. In many tomer, one needs to localise view. -
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