The economy needs restructuring. But how?

Russia's hydrocarbon exports increased from $28bn in 1998, to $191bn in 2006. A massive rise of 583pc. Over that same period, the share of commodity exports in the country's GDP doubled from 10pc to almost 20pc. Why is this dependence on commodity export 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 flow of petrodollars into the country was not increased production, which was only modest, but a boom in global prices. Put simply, Russia's revenues will plummet if global prices 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 the "Dutch disease". This is the excessive concentration of labour and resources in one sector at the expense of all others. In Russia, for example, the growth of manufacturing has been 3pc slower than 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 merely 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 programme 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 that already have a competitive advantage, such as high-tech. No one's under any illusion that re-orientation will naturally be a long, difficult and costly business. This might explain why so few policymakers are prepared to support it.

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

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