Russian Economy: Better Than Expected
Valdai Discussion Club Conference Hall (Bolshaya Tatarskaya 42, Moscow, Russia)
List of speakers

On December 6, the Valdai Discussion Club hosted an expert discussion, devoted to a new World Bank report, titled “How Wealthy is Russia?” Experts discussed the indicators for 2019, proposed forecasts for the future, and characterized the state of the Russian economy, which turned out to be better than expected from the reports of “crises” and alarmism from the news and everyday conversations. The moderator of the discussion was Yaroslav Lissovolik, Programme Director of the Valdai Club.

Apurva Sanghi, the World Bank’s Lead Economist for the Russian Federation, began his presentation with a remark that it is impossible to evaluate the economy of one country in isolation from the state of the economy throughout the world. According to him, today we are seeing a slowdown in growth in the sphere of goods and services; some volatility is observed and crude oil prices are falling. However, against this not-too-optimistic background, the Russian economy does not appear to be so bad: in the first half of 2019, the main indicators were low, but then they began to grow. “We revised the indicators for 2019: earlier it was 1%, now 1.2%. In the next five years, we expect growth between 1.6 and 1.8%,” Sanghi said.

Among the positive factors of the Russian economy, the expert mentioned that the trade balance, low unemployment, and small public debt were all good indicators. Structural problems include insufficient competition and strong state influence on the economy. If we talk about foreign investment, the following dynamics can be traced: investments from Europe, the USA and Africa have significantly decreased, but investments from Asia have quadrupled, which confirms Russia’s turn to the East. Sanghi said that 10 of the country’s 85 regions received 70% of its foreign investment volume, where less than 20% of the country’s total population lives, and this uneven distribution is also a problem that needs to be considered separately.

Discussing the World Bank report on Russia’s wealth, the expert emphasised that it is necessary to distinguish between income and wealth, that is, the volume of assets and wealth, which may not even exist at high incomes. In the report on Russia, the first of its kind, experts identified four building blocks of Russia’s wealth portfolio: produced capital, natural capital, human capital, and net foreign assets. Guided by such a methodology, Sanghi presented three findings of the researchers: first, compared with the year 2000, the average Russian citizen is now 1.8 times richer. Second, about half of the country’s wealth is due to human capital, that is, people’s skills, knowledge and experience, rather than natural capital. Third, Russia’s natural capital still accounts for 20% and needs to be better converted into other types of capital. 

Anton Struchenevsky, Senior Economist at Sberbank CIB, agreed with Sanghi in assessing the growth of the Russian economy and noted that stagnation was observed in the first half of the year, but in the third quarter the growth was 1.7%. “The fourth quarter seems quite promising,” he said, “and we expect growth acceleration, the main driver of which is budgetary policy and the implementation of national projects. In the first half of next year everything should go very well – we take a low start, but we can expect at least 1.6% growth or even closer to 2%. ”

Struchenevsky identified four “lessons” that can be learned by carefully analysing the development of the Russian economy. The first of them is connected with the importance of national projects. The second – with the improvement of exports, which are diversifying and affect not only oil and gas. The third lesson is related to the budget rule: it protects Russia from the volatility of oil prices, only if the price is at least $50 per barrel. If the price is lower, vulnerability may increase. Finally, the fourth lesson is also very important – this is dependence on China, the largest Russian partner among individual countries. The Chinese export is the fastest growing, its growth is 15% annually. If something happens to China, it will be a blow to Russia. A recent example: in August 2019, due to the trade war between China and the United States, the renminbi depreciated, and the Russian ruble also weakened. This is a new risk that also needs to be taken into account, the speaker emphasized.

In conclusion, Apurva Sanghi proposed several practical ideas that can be drawn from the report. According to him, Russia needs to focus on the development of human capital and learn how to better manage its natural resources. As the world today is moving away from hydrocarbons, a good decision could also be to focus on metals instead of oil and gas.

Anton Struchenevsky, in turn, noted that if you compare Russia with other oil exporters (such as Saudi Arabia and the UAE), you can see that its wealth is better diversified. “Therefore, I am more optimistic and my outlook is positive,” he said. “I think the glass is half full rather than half empty.”

Photo Gallery: How Wealthy Is Russia? An Expert Discussion
On December 6, 2019, the Valdai Discussion Club hosted an expert discussion, devoted to the publication the new World Bank report, titled “How wealthy is Russia?”