August 20, 2008
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Home / Issue Archive / 2008 / May #5 / Editor's Letter

№ 5 (May 2008)

Editor's Letter

Russia Must Look Beyond Big Oil to Keep Its Economy Booming

Pat Davis Szymczak

Oil&Gas Eurasia this year was proud to participate as a media sponsor in the American Chamber of Commerce in Russia’s 9th annual investment conference.
The day-long event drew a crowd of 200 or so delegates – U.S. and Russian nationals – to discuss among themselves the leading issues facing commercial business today. Talking points covered the water front, including

Will Russia maintain its high pace of economic development?

What are the prospects for economic cooperation between Russia and the U.S., and Russia and EU?

How successful will foreign business continue to be in Russia?

Why is the diversification of the economy still a difficult target to achieve both in Russia and elsewhere?

Are Russia’s human resources sufficient enough to implement ambitious economic development and company business growth plans?

What is holding back growth in the commercialization of scientific research?

How can government stimulate private sector investment and leadership in innovation?

Which financing challenges need to be met to support infrastructure project needs?

How is it best to strike a balance between increasing inflation and the need for infrastructure spending?

With oil prices cresting $120 a barrel, living in the moment can be exhilarating. Russia’s economy seems to be less exposed to the effects of financial difficulties in the U.S. than Europe. But still there is a nagging feeling – what if the price of oil was to fall? Estimates vary but I think it is fair to say that much of Russia’s GDP growth rests on petro-dollars.

What’s good about that figure is that to supply the oil and gas industry requires the development of enormous resources in equipment manufacturing and technology, including the commercialization of lab-bench science into new small and medium size business. But is Russia up to it?

The AmCham conference broke into two discussion groups after the morning plenary sessions. One looked into innovation – that is research and development and the commercialization of applied technologies. The other looked at infrastructure – roads, rail, airports, the ABC’s of servicing a thriving economy.

What struck me was that the problems mentioned by participants seemed to be the same problems I’ve been hearing about since the early 1990s when I first started to write about issues in the post-Soviet economy. How about you? Have you ever heard these?

Corruption and administrative red tape strangle small business growth and development.

Business can’t find enough qualified workers to fill jobs that are necessary in today’s growing economy.

The first problem is as old as Russia itself. Whatever your view on the Soviet period, never forget that the bureaucracy all of us deal with today is largely thanks to Peter the Great. And if you really want to get into it, some of the attitudes and ways of doing things that most annoy us Westerners go back even to Ivan IV. So Communism is in some respects one of history’s little hiccups. Forget about it.

Problem No. 2 is something that can be delt with but not very easily. The Russian workforce is highly educated and thus on many levels highly qualified. The problem is one of supply and demand. With the economy growing and becoming increasingly sophisticated as it grows, there just aren’t enough Russians to go around. In employment, Russia is a market totally ruled by the job seekers (or shall we say, job hoppers.)

Since I operate a small business, I must admit that I was happy to hear other employers complain of employes job hopping every six months; competitors doubling salaries to attract key employees; employees working simultaneously for two companies that are competitors. You name it, employers in Russia see it every day. And while HR specialists and recruiting companies sprout up in Moscow like mushrooms, even they can’t find the right people to staff their businesses.

Russia’s death rate is greater than its birth rate. That is to say that Russia is not replacing the population it inevitably loses. The answer is of course immigration and at least one plenary session paper focused on immigration as a policy issue (see what Blair Ruble, Director of the Kennan Institute in Washington DC had to say at www.amcham.ru).

Returning once again to my favorite academic subject – history – this sounds awfully familiar. Slavic tribes eons ago invited in the Vikings. Peter the Great had his Dutch and English shipbuilders. Visitors to St. Petersburg marvel at the work of Italian artists and architects invited in by Catherine the Great in the 18th Century. We know all about the Volga Germans – and their descendants who left Russia after the Bolshevik revolution for places like Nebraska where today they grow the same sugar beets.

Today, there’s a 21st century migration to Russia: Europeans of all backgrounds, North Americans from the US and Canada, Asians of a variety of a national backgrounds. Some, it is true, are looking for a “fast buck” but others are not. Most of us want to leave Russia as a better place than what we found when we first landed at Sheremetyevo II or these days more likely at Domodedovo.

And now we find ourselves back to problem No. 1 – corruption and a never ending mobius strip (you never reach the end) of red tape and contradictory regulations that strangles business and economic growth before it can even start. I want to mention here that most of the presenters at last week’s AmCham investment conference were Russians and the issues they discussed related to Russians trying to do business with Russians.

What’s the answer? I don’t know. I just remember another line from history. When Catherine the Great asked her Finance Minister three hundred years ago what he thought was the greatest danger facing the Russian Empire, he replied simply: “Stealing!”

Copyright © 2007 Eurasia Press, Inc. (USA). All rights reserved.
Copyright © 2007 Eurasia Press (www.eurasiapress.com)