Mixed results for Russian economy in 2013

This year Russian ruble got an official symbol. Source: RIA Novosti

This year Russian ruble got an official symbol. Source: RIA Novosti

Although its economy entered a phase of stagnation in 2013, Russia scored higher in the world rankings of business attractiveness.

The Russian economy started to stagnate at the end of the year. Throughout December, Russian and foreign experts lowered their forecasts of most key indicators.

A review of forecasts shows different expectations, however, they all agree that the domestic situation, rather than external factors, was the biggest influence on 2013.

President Vladimir Putin reiterated this point during his annual address to the Federal Assembly in December.

There are two main reasons for this:

- Reduction of investments into fixed assets by large state-owned companies, including the energy sector. This, according to Aleksey Balayev from the Economic Expert Group (EEG), was a key factor that contributed to the economic slowdown in 2013.

- A slowdown in consumer demand, due to large debt loads of the population. According to the Central Bank, the loan burden per worker is about 3.7 average monthly salaries.

However, it is believed that despite the deterioration of individual indicators, the overall situation is not critical.

“The stagnation trend began in 2012 – and the question was would the stagnation continue, or would the country slide into a recession? However, the worst fears did not materialize,” said Sergey Pukhov, an expert at the Development Center of the Higher School of Economics.

At the same time, in the global Doing Business Ranking, Russia’s position rose from 112 to 92.

“This shows that despite all the nuances of Russian politics, the government can mobilize and work towards improvements in important aspects,” said Maksim Petronevich, an expert at the Center for Economic Forecasting of Gazprombank.

Strengthening the role of the Central Bank

From the perspective of foreign investors, an important event was giving the status of “mega regulator” to the Central Bank, which will monitor the current risks being accumulated by financial and banking institutions, as well pension funds.

“This is important from the standpoint of risk control and dynamics of lending and deposit activities of these institutions,” said Maksim Petronevich.

The Central Bank received the status of “mega regulator” shortly after the arrival of a new team. In July, Elvira Nabiullina was placed in charge of the Central Bank. The new leader immediately began to implement a strict policy for the banks.

The essence of the new course pursued by the CB is that there are no longer any “untouchables.” Twenty-five banks have been stripped of their licenses by the regulator, since the arrival of the new leader.

This is more than the amount in all of 2012. One of the most notorious cases was the story of Master-Bank. This was one of the 100 largest financial institutions. The CB accused it of questionable activities. Experts believe that this measure had been brewing for a long time.

“The government has repeatedly stated that it intends to eliminate the hundreds of banks that serve the interests of business groups or individual beneficiaries, but the implementation process was too slow,” explained Chris Weafer, the founder and senior partner at Macro Advisory.

Turn toward the CIS countries and the East

In 2013, Russia’s economic policy was focused on balancing trade and economic relations with other countries, and reducing its dependence on the European market. Therefore, the main trends are the deepening of integration with Commonwealth of Independent States (CIS) countries and the strengthening of relations with Asian countries. Within the CIS, this comes via the development of a customs union with the prospects of forming a single economic space by 2017.

However, “the struggle for Ukraine has intensified. Russia pursued offensive tactics, but that is politics. If Ukraine eventually enters the Customs Union, then this can be called a breakthrough,” Pukhov said.

The integration with East Asian countries in the field of oil and gas exports intensified as well, particularly in cooperation with China, South Korea and Japan. These countries became interested in Russia as well, and began to invest in resource projects, primarily in eastern Siberia.

“The most effective format for cooperation between Russia and China could become a joint venture to develop natural resources on the territory of Russia, with subsequent exports of these resources to China,” said Sergey Lukonin, a senior fellow at the Center of Asia-Pacific Studies at the Institute of World Economy and International Relations of the Russian Academy of Sciences. In addition, Chinese partners could be interested in infrastructure projects, he said.

Russia is interested in the technology sector in South Korea, too. “Russia faces the task of modernizing its economy, and South Korea could move some portion of their high-tech industries onto our territory,” said Lukonin. Russia may also be interested in Korean rare-earth metals.

Breakthroughs

In 2013, Russia announced the country’s first low-cost airline and smartphone. The low-cost carrier, Dobrolet, a subsidiary of Aeroflot, has already started staff recruitments.

It is too early to judge the success of this new air carrier, but its appearance can certainly lead to changes in business models of all existing players, such as a drop in ticket prices.

This year also saw the arrival of the first Russian smartphone, the IotaPhone. Experts have called it an absolute breakthrough of the year.

“We showed that even without government support, we were able to realize this concept,” said Maksim Petronevich.

“There were startups that offered covers for the iPhone, based on e-ink screen technology. However, none of the projects had been brought to the production stage. The Iota team has shown that we can solve engineering problems that startups of more advanced countries cannot. This indicates the presence of the desire, the talent and opportunity.”

All rights reserved by Rossiyskaya Gazeta.

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