Russian economics minister: ‘We are painfully moving toward a new model’

Alexei Ulyukayev: "The investment climate in the country is slowly improving."

Alexei Ulyukayev: "The investment climate in the country is slowly improving."

Alexander Korolkov/RG
Two years ago, for the first time in the history of the Russian Federation, economic sanctions were introduced against Russia. RBTH speaks with Russian Minister of Economic Development Alexei Ulyukayev about how the sanctions have influenced the country and which opportunities Russia still offers for international investors, as well as the importance of reform.

RBTH: It is now two years since the first sanctions were imposed on Russia. Was the shock related to them more forceful than the shock related to the fall in oil prices?

Alexei Ulyukayev: Of course not. It was the cheaper energy sources that led to the main changes in budget revenues, in private companies and in households. The sanctions had an impact first and foremost on the companies that were actively present on the global financial market. However, today the economy has completely adapted to the sanctions and in a way even benefited from them.

RBTH: What was the adaptation due to?

A.U.: Firstly, the sanctions led to the increase of capital outflow from the country and Russian companies had to immediately pay off their debts. In the short term this brought about the devaluation of the ruble, in the long term this resulted in the decrease of costs for Russian enterprises.

The debt that Russian companies owed was drastically reduced and consequently, so was their exposure to external risks. This meant switching to domestic sources of financing. Before, the gap between the rate of domestic savings (30 percent of GDP) and investments (20 percent of GDP) was generally covered by capital inflows from abroad, but now this model no longer exists.

We are painfully moving toward a new model of economic development, which is significantly less risky.

RBTH: Recently more than half of the foreign companies surveyed by the Russian Union of Industrialists and Entrepreneurs said that the entrepreneurial climate in Russia has deteriorated. What would you say to that?

A.U.: I often meet with representatives of foreign business and know that the companies who have worked in Russia would never say that the investment climate is deteriorating in the country. More likely they would point to concrete problems. We regularly discuss them during the sessions of the Council on Foreign Investments and try to eradicate them.

In general, it is the companies that are still not represented in Russia that speak about the negative climate.

RBTH: Why? Do they have little information or is Russia's image getting worse?

A.U.: Both. Firstly, the lack of information about us and the abundance of negative information from abroad. There's plenty of it. We just need to make decision-making mechanisms more transparent.

The investment climate in the country is slowly improving. As part of the National Entrepreneurial Initiative we are trying to remove the barriers that impede doing business. Russia's position in the Doing Business World Bank Rankings is improving [In 2015 Russia jumped from 62nd to 51st place out of 183 countries – RBTH].

RBTH: In February you spoke in Germany at a conference dedicated to medium-sized business, organized by the Eastern Committee of German Economy.

Do you see opportunities in small and medium-sized businesses for improving business relations between Russia and the West?

A.U.: Of course. Small and medium businesses have a lot of potential, which is demonstrated by Russian and German business's great interest in this annual event. Currently we are developing the Russian Export Center with representatives from the Agency for the Development of Small and Medium Business.

Many Russian companies can become exporters. Our goal is to make real exporters out of potential ones. We help them in the promotion process, in logistics, in reducing transportation costs, in protecting patents, certificates, etc.

For now it is very difficult for Russian companies to enter Western markets, but we have the power to solve this problem.

RBTH: You were one of the people who in the 90s conducted radical economic reforms in Russia. For a long time you also worked in the Gaidar Institute, a breeding ground for reformers. Are structural reforms just as necessary for Russia now as before?

A.U.: Structural reforms are basically a common element. We often understand reforms as a drastic change of policy, a continuous introduction of normative novelties. But what is actually needed is systematic dirty work. The goal is not to radically transform but to see the shoots of that which already exists, and help them, not try to transplant exotic plants into our soil. Russia is already carrying out structural changes in fields such as agriculture and petrochemicals, and our objective is to support them.

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