Troika Dialog – Sberbank Forum Sees Russia at Crossroads

The fifth annual Troika Dialog Russia Forum is happening right now in Moscow. This year Troika is teaming up with Sberbank. And I wanted to share some insights from Chris Weafer, Chief Strategist for Troika.

I thought Chris’ report on a panel discussion of the challenges facing Russia are worth mentioning. He’s one of the most admired analysts in Moscow – because he really does know what he’s talking about.

Here’s Chris take:

One of the main conclusions is that the state still has a role in creating a better business and economic environment, but then should get out of the way and help rather than hinder or compete against private enterprises.

Regarding business startups, Russia needs to make it much easier for new businesses to start and grow. Right now this is too difficult and has resulted in the economy remaining skewed toward large enterprises in extractive industries.

Corruption and overly bureaucratic procedures remain major obstacles to business development. Panelists also identified the unpredictability factor in Russia, stating that the lack of clear rules and fair arbitration too often puts off foreign investors.

Russia continues to lose too many of its most talented people every year, people who are starting up new businesses in other countries but should be doing so in Russia. This is a normal trend in developing economies where people leave for better lives elsewhere but then, after 20-30 years, start to come back. But the faster the state helps make it easier to do business in Russia, especially to start a business, the sooner the trend will reverse.

There is too often a lack of a clear division between state and private enterprise.

East or West? Panelists generally agreed that the clearest economic growth opportunities lie to the east but that Russia should look much more to Europe for examples when building institutions and regulatory frameworks.

Sergei Guriev (Rector of New Economic School in Moscow) said that the state needs to speed up the privatization process to reduce its dominant role in the economy. He said that Russia also needs to demonstrate very clearly that it is dealing with issues such as corruption by speeding up the adoption of Article 20 of the UN convention against corruption. He said there are some very public corruption scandals in Russia today where the state could act more decisively. He called for the release of ex-YUKOS chief Mikhail Khodorkovsky and the firing of everybody involved in the case of Hermitage lawyer Sergei Magnitsky.

Kenneth Rogoff (Professor of Economics Harvard University) highlighted the fact that while Russia’s annualized growth (4.0% expected in 2012) is very good compared with developed markets and most other developing economies, Russia is capable of much more. He said that Russia should have, and needs to develop, new export-led growth in such
areas as hi-tech.

Lars Thunell (CEO, IFC) commented that WTO entry will help the evolutionary process continue, but added that the state needs to involve the private sector much more. He said the state is now trying to drive too much, which keeps the system overly bureaucratic and focused too much on the older, mainly commodity-based, industries.

Alexei Kudrin (former Finance Minister of Russian Federation) referred to the fact that the current political system is obsolete and needs to change as part of the process of building a new economy. He referred to current political changes as a very positive
development that will force faster changes. He highlighted what he called the positive response from the prime minister.

The panel also reviewed the changes now taking place in the global economy and the serious challenges it faces. Against that backdrop, the panelists reviewed the particular challenges facing the Russian economy, especially given the uncertainty over the trend in oil revenues. The panelists were asked if they consider it possible, under such conditions, to support economic growth in the country and, specifically, to review what policy instruments the government has, and needs, to achieve this goal.

So that’s what the experts think. How about you?

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