Don’t worry, just give us seven years

Arkady Dvorkovich.   Photo by Nikolay Korolyov

Arkady Dvorkovich. Photo by Nikolay Korolyov

Arkady Dvorkovich is one of the faces of Russia’s liberal reform programme and, as special economic advisor to President Dmitry Medvedev, is in a position to make a difference. He met Ben Aris to discuss the economy, the crisis and how corruption has impacted Russia’s progress.

A year ago, there were a string of opinion pieces calling for the “R” to be removed from the acronym BRIC. It looks like Russia is the least loved of the four emerging market powerhouses. Do you think that is fair? 

China and India are a lot bigger than Russia and that is important to investors. They have a total of 2.5 billion people compared to Russia’s 142 million. Russia is better compared to Brazil where the size of the population and the technological levels are similar. But the expectations for Russia are much higher [than Brazil] as we are treated like a European country and we need to reach the same level of comfort for the foreign investors. Yes, that is fair: we are a European country and so we should have the same standards.

There is a lot of talk about reform, but why are they going so slowly? 

The reform drive has slowed, as there is a lack of focus. We have made progress in cutting red tape and there are less licences than before, but there is not enough focus. A huge responsibility rests on the governors and mayors of regions. We need to introduce best practices across Russia but we can't impose this top down. We could do more to make this work, but we are not like Georgia or Estonia. 

One of the biggest complaints foreign investors have is that the Russia state plays too big a role in the economy. What is being done to reduce the state’s share? 

We have already agreed to sell some of the state-owned stakes, but it is a question of timing. However, it is clear that eventually we don’t need state participation in most sectors. 

[State-owned retail banking giant] Sberbank is a special case and we need to be careful, as it has a big social component [as so many Russians keep their money in Sberbank]. Gazprom too and the state-owned rail monopoly, the federal power grid company and the oil pipeline monopoly are also all special cases – but the rest like VTB Bank don’t need state participation. Still, the market will only bear so much and we can’t sell all these things at once. 

However, the president has already ordered an increase in the pace of privatisation. Just this week the National Banking Council board agreed to sell a 7.58% of Sberbank over the next three-year period and we are preparing this now, and will wait for the best time [to sell the stake]. It will happen in 2011 or 2012 depending on market conditions – but the decision has already been made to do it. 

Has any progress been made in the anti-corruption drive? 

The anti-corruption drive works and the trend [towards improvement] is there. There has been a positive change but it will not be finished in a year. 

Corruption exists at all levels and comes back to the state’s involvement in the economy. If we can reduce this, then the potential for corruption will also fall. 

The Russian government just signed off big investment deals with many of the world’s leading automotive producers who have agreed to significantly increase their production. Is Russia ready to compete in the global car market, assuming Russia joins the WTO and import tariffs are lowered? 

We hope to attract new investment to Russia and this is not just assembling cars. I am not sure that this can be achieved just by raising tariffs, because it is about increasing the quality of the investment climate. 
We are not quite ready to compete head to head with international producers, but the WTO includes a seven-year transition period and that is enough to be ready. Big companies like [maker of the Lada] Avtovaz and GAZ are still not competitive, so we need these seven years. We also need good strategic investors. 

The government seems to be following a similar blueprint to cars with the pharmaceutical sector: raising import tariffs for companies that don’t increase their production capacity in Russia. 

The situation with pharmaceuticals is a bit different. There is a high domestic demand from the state; it is a different landscape and we can attract investment simply by the size of the market. If there is some degree of certainty [in the growth of demand], then the international companies will place production here without the need to raise tariffs. 

With over $600 billion in hard currency reserves going into the crisis, it seemed that the government at first thought it could simply bail the entire economy out. However, Russia was badly mauled. As the crisis recedes, what will be the biggest effects? 

Look at the results of the crisis: there was no run on banks, no major bankruptcies. Some people bought dollars but in a few days, they sold them again and the demand for the rouble went up again. There is a trust in the bank sector and the rouble, that we didn’t have last time round. 

One of the main problems we face is that people don’t realise that we are already competing globally, but now – after the crisis – people are starting to understand this more and more. They realise that we can't rely on our own market.

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