MOSCOW. (Alexei Morozov) – The Russian economy in 2007 shrugged off an inauspicious start, only to be held back again by the Litvinenko crisis. Nonetheless, when nerves settled following the June summit in St. Petersburg, rapid growth returned, and the year ended favorably.
Last year was one of contrast for the Russian economy. On one hand, Russia reaffirmed its growing reputation as a highly attractive business destination. On the other, the year saw the emergence of several risks that could hurt the progress made over the last few years.
2007 began badly, with analysts worrying about increased government interference in the economy and the related risks to private property. This, as well as the uncertainty surrounding the forthcoming elections, caused a massive effusion of money from the country. In May the outflow of capital exceeded inflow for the first time in months. But there were also positive developments.
The London Russian Economic Forum, held in April, praised Russia’s progress (even though Russian officials boycotted the event because of strained relations with the West following the Litvinenko affair). Speakers at the forum said that Russia had become one of the world’s most attractive markets, offering maximum returns on investment. A second forum, held in St. Petersburg in June, discussed practical projects. This time Russian officials, headed by President Vladimir Putin, were very much in attendance.
This seemed to turn the tide. The international business community was reassured about the continuity of policy following the elections and pleased with the government’s commitment to improving the climate for investment and reducing capital flight. Russia has now become a country where every major international company looks to at least post its representatives, and preferably to open production facilities. Though red tape remains a problem, few businessmen worry that they will not profit here. Many report that their plants in Russia are becoming the most profitable units in their business empires – even more profitable than production in China.
At the same time, the Russian government has begun consolidating the assets under its control. It has set up corporations uniting shipbuilding, auto-making and aircraft manufacturing plants and invested hugely in the economy through development institutes.
State consolidation has not deterred investors worried about increasing government interference in the economy. On the contrary, the two processes have run in tandem. In many cases, the state has taken control of heavy industries which private businesses had shown no interest in. As a further incentive, the government’s investment in development institutions has provided investors with access to state funds.
A healthy consumer market is another reason for optimism. Wages and consumer lending are growing faster than production in Russia, yet a mortgage crisis has (so far, at least) been averted. Russian consumers remain the most enthusiastic in the world. They are richer than the Chinese, and far more lavish than Europeans who are weighed down by taxes and high utility fees.
To be closer to such a customer, one needs to localize production. In September, Russia’s Economic Development and Trade Ministry had to stop accepting requests for permits to build car manufacturing plants because the supply of cars was exceeding demand.
The duration of this boom will depend on global markets, the results of the parliamentary and presidential elections, and many other factors, including oil prices, which are of benefit not only to the rich but also, indirectly, to ordinary Russians.
Businesses believe that 2007 will not mark the end of good times in Russia, as many of their newest projects are designed to last for five or more years. Russian officials want to believe this too.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
Source: Rossiiskaya Gazeta
