Economic development

The international financial and economic crisis hit Russia with a delay. However, the effects were ultimately more severe than in most Western countries and comparable emerging markets. While the other BRIC countries, for example, survived the crisis with only slight growth losses (China, India) or a brief recession (Brazil), Russia experienced its worst recession since 1998 in 2009. After GDP growth of 5.6 percent in 2008, there was a drop of 7.9 percent in 2009.

The crisis hit Russia mainly through the fall in commodity prices and a sharp outflow of capital abroad. The value of Russian exports fell by 35.5 percent year-on-year in 2009 to $304 billion. The value of imports fell by 34.3 percent to $191.9 billion. Thanks to large reserves from commodity trading, the Russian government was able to stabilize the banking system and stimulate the economy with tax cuts and an expansionary spending policy. However, the measures taken also included the introduction of protectionist tariffs on new and used cars and agricultural machinery, among other things. A German-style scrappage scheme gave a strong boost to new car sales in 2010, but the bonus remained limited to models manufactured in Russia. The Russian economy recovered noticeably in 2010. Over the year as a whole, GDP grew by almost four percent.

Despite enormous government spending, public debt in Russia remained comparatively moderate. Both high gold and currency reserves and the two state reserve funds fed by raw material revenues continue to provide a safeguard for the country. Structurally, the Russian economy remains dependent on the development of oil and gas prices. Commodities account for around 80 percent of Russian exports and finance a significant portion of the state budget.

The crisis has greatly increased the pressure for reform in Russia. In mid-September 2009, Russian President Dmitry Medvedev delivered an unsparing analysis of the state of the Russian economy, calling for his country to adopt a completely new economic structure and overcome its dependence on raw materials. In the article “Forward Russia” for the Internet newspaper gazeta.ru on September 11, 2009, and in his State of the Nation report on November 12, 2009, Medvedev called Russia’s previous dependence on commodities trade “humiliating.” “Backwardness” and “corruption,” “low energy efficiency” and “low productivity” must be overcome, he said. Medvedev calls for an “intelligent economy” based on “innovative products” and the “export of new technologies.” This goal, he said, can only be achieved by promoting innovative small and medium-sized enterprises and a broad-based middle class.

In recent years, Medvedev has initiated a number of steps toward a more open market economy. Russia’s new foreign policy doctrine, which Medvedev outlined on November 12, 2009, in his State of the Nation address and which was subsequently elaborated by the Foreign Ministry and whose outlines reached the Russian press in mid-May 2010, also fits in with these efforts. It envisages a stronger orientation of Russia toward the EU and the USA in order to put the country on a modernization course. Foreign policy is to be shaped pragmatically and above all ensure that more foreign investment flows into the country. To this end, the establishment of strategic partnerships, for example with the USA and the countries of the EU, is being considered. In addition, Russia is now determined to join the World Trade Organization (WTO). The negotiations, which have been ongoing since the mid-1990s, have long been at a standstill, most recently as a result of the establishment of a customs union between Russia, Kazakhstan and Belarus. In the fall of 2010, agreement was reached in the negotiations with the USA and the EU, so that Russia’s accession to the WTO appears realistic for 2011/2012.

On the domestic front, Medvedev pushed several laws to reduce bureaucratic controls on businesses, make it easier to spin off companies from universities, tighten anti-corruption measures and increase energy efficiency in Russia by 40 percent by 2020. The foundation of the innovation city Skolkovo, which took place in spring 2010, is considered a lighthouse project. In Skolkovo near Moscow, an infrastructure is to be created that will enable 30,000 people to research and develop products Made in Russia that are suitable for the global market. The five areas Medvedev said should be prioritized in Skolkovo are: Energy Efficiency and Renewable Energy, Space, IT, Medicine and Nuclear Technology. These are believed to be special areas of expertise and future opportunities for the Russian economy. The Russian government plans to invest almost three billion euros in the development of the project, primarily for infrastructure, and to attract high-tech companies from Germany and abroad to participate.

Another major project in the course of modernization efforts and budget consolidation is a large-scale privatization program announced by Finance Minister Kudrin in September 2009. This is expected to inject up to 23 billion euros into the state budget over the next few years.

Despite individual successes, however, the modernization course that has been initiated has not yet borne much fruit. In the World Bank’s current Doing Business Index 2011, Russia slipped from 116th to 123rd place. In 2010, Russia again suffered a net capital outflow of $38 billion.