Transcript Speed of Reform, Initial Conditions, Political Orientation, or

Possible Russian Development Paths
An Analysis of Recent Trends in Policy and
Performance and Some Back-of-the-Envelope
Musings about the Future
Christian Gianella & William Tompson
Economics Department
Organisation for Economic Cooperation & Development
Global convergence scenarios: structural and policy issues
OECD, Paris, 16 January 2006
Salle des Nations, Tour Europe, La Defense
16 January 2006
OECD Economics Department
1 1
The usual disclaimer…
The views expressed in this presentation are
those of the authors and do not necessarily
reflect the position of the OECD or its
member states.
16 January 2006
OECD Economics Department
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Contributions to GDP growth
(not adjusted for capacity utilisation rates)
12%
TFP
Capital
Labour
GDP
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
1995
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1996
1997
1998
1999
2000
2001
OECD Economics Department
2002
2003
3 3
Natural resource sectors (mainly oil) have been
driving the growth of output….
Contributions of resource related sectors to industrial production growth
Per cent
Oil industry
Non ferrous
90
Gas industry
Other mineral sectors
B. Adjusted weights
80
70
60
50
40
30
20
10
0
1999
2000
2001
2002
2003
2004
Source: Russian Federal Service for State Statistics, World Bank and OECD calculations.
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OECD Economics Department
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Non fuel TB and exchange rate
Q1 1994 Q1 1995 Q1 1996 Q1 1997 Q1 1998 Q1 1999 Q1 2000 Q1 2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005
4,000
70
80
Balance of Goods and Services excluding oil (Mln $)
2,000
90
0
100
110
-2,000
120
-4,000
130
140
-6,000
150
-8,000
160
-10,000
170
Balance G&S excluding fuel (Left)
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REER (inverted scale, Right)
OECD Economics Department
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Cumulative variation of the trade
balance and factors’ contributions
80
60
trade balance (in bln US $)
40
20
0
-20
-40
-60
1997
ΔXoil
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1998
Initial position
1999
2000
Term of trade
2001
2002
Competitiveness
OECD Economics Department
2003
Other
2004
TB(t)-TB(96)
6 6
Russia’s population is expected to
continue shrinking rapidly to 2050…
Projected Population (mln.)
3 scenarios
150
130
110
90
70
2000
2005
2010
2015
2020
High
2025
2030
Medium
2035
2040
2045
2050
Low
Source: Centre for Demography and Human Ecology of the Russian Academy of Sciences (2002)
Note: 'working age' is defined as 15-60 for men and 15-55 for women
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OECD Economics Department
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…as the overall population grows older.
Ratio of Population in the Pension and Working Age (3 scenarios)
100%
80%
60%
40%
20%
2000
2005
2010
2015
High
2020
2025
2030
Medium
2035
2040
2045
2050
Average
Source: Centre for Demography and Human Ecology of the Russian Academy of Sciences (2002)
Note: 'working age' is defined as 15-60 for men and 15-55 for women
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OECD Economics Department
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The labour force is therefore set to shrink
markedly.
Projected working-age population within various confidence intervals, 2002-50
Source: Centre for Demography and Human Ecology of the Russian Academy of Sciences (2002)
Note: 'working age' is defined as 15-60 for men and 15-55 for women
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OECD Economics Department
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Investment still contributes too little to growth.
Contributions to GDP growth, expenditure side view
As a percentage of GDP in previous period
12
Final domestic demand
Private consumption
Government consumption
Gross fixed capital formation
Final domestic demand
8
4
0
-4
-8
1996
1997
1998
1999
2000
2001
2002
2003
2004
H1 2005
Source : Russian Federal Service for State Statistics.
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Saving -investment balance (in % GDP)
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OECD Economics Department
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A longer-term shift in economic policy may
be unfolding.


The authorities are well aware that investment levels are too low.
The question is: how to boost them?
A two-track strategy is possible:
The elements of policy towards a two-sector economy
Diversification (policies towards the nonresource sectors)
Policy towards the natural resource sectors
Liberal
Interventionist
Private-sector/market-driven
Consistent
liberalism
Industrial policy for
oligarchs
State-directed
A NEP for the 21st
century
Back to the future?

Of course, it would be foolish to bank on consistency. . .
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OECD Economics Department
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POTENTIAL ENGINES OF DEVELOPMENT
Russia 2005OF DEVELOPMENT
Natural
Natural
POTENTIAL ENGINES
(Consensus
View)*
Russia 2005
(Consensus
S↔
View)
Quality of macroeconomic management
SM
↔↔
Human
capital
/ education levels
Quality
of macroeconomic
management
State
capacity
taxation and
redistribution
Human
capitalfor
/ education
levels
Contracting environment (ability to conclude &
enforce
private contracts)
State capacity
for taxation and redistribution
Contracting
environment
(ability
to conclude
&
Protection
of property
rights
– security
from private
enforce private contracts)
predation
Protection of property rights - security from private
predation
Business
climate for large enterprises
W↔
Business climate for SME’s
Protection
property
rights – security from state
Business of
climate
for SME's
predation
Protection of property rights - security from state
Physical infrastructure
Civil society
Civil society
State bureaucracy – probity (non-corruptness)
State bureaucracy - probity (non-corruptness)
State bureaucracy – administrative capacity
State bureaucracy - administrative capacity
Protection of intellectual property rights
Protection of intellectual property rights
MM
↔↓
W↔
Levels of investment
predation
MM↔↔
M↓
FDI levels
Physical infrastructure
MM↑↔
MM↓ ↓
Business
climate for large enterprises
Levels
of investment
FDI levels
MM
↔↑
W ↔↑
W ↔↑
W↓
W↓
W↔
W↔
W↓
W↓
W ↔↓
W ↔↓
W↔
W↔
W↔
W↔
resource –
state directed
Natural
resource S
state directed
Resource –
market driven
Natural
Resource S
market driven
‘Stateassisted’
Diversification
‘Stateassisted’
MS
Diversification
‘Statedirected’
diversification
‘Statedirected’
MS
diversification
S M
S M
MS MS
MS
MS
MW
M S
MS M
MS
M
WW
S M
M
S
M
S
WW
M WM
S
S
S
S
WW
WMWM
S
S
S
M
W S
WM S
S
S
M
S
S
S
S
S
S
S
W
W
S
W
W
M
M
S
WM
WM
W
S
S
M
M
M
M
MS
MS
M
M
MS
MS
M
M
M
M
M
S
WM
W
M
M
S
WM
W
MS
S
M
M
M
W
MS
S
M
W
M
S
S
S
W
S
M
M
M
W
W
S
S
M
M
M
*The ‘consensus view’ is based on an informal survey of around 35 Russian and western experts, including officials, academics and private-sector analysts.
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HOW FAR TO GO?
The darker the box, the greater the gap between Russia’s current score and the requirements of the strategy. (White
indicates that Russia already meets or exceeds a strategy’s estimated requirement for a given variable.)
Natural
resource - state
directed
Natural
Resource market driven
State-Assisted
Diversification
State-directed
diversification
Quality of macroeconomic management
S↔
S↔
S↔
S↔
Human capital / education levels
M↔
M↔
M↔
M↔
State capacity for taxation and redistribution
Contracting environment (ability to conclude & enforce private
contracts)
M↑
M↑
M↑
M↑
M↔
M↔
M↔
M↔
Protection of property rights - security from private predation
M↔
M↔
M↔
M↔
Business climate for large enterprises
M↓
M↓
M↓
M↓
Levels of investment
M↓
M↓
M↓
M↓
FDI levels
W↔
W↔
W↔
W↔
Business climate for SME's
W ↔↑
W ↔↑
W ↔↑
W ↔↑
Protection of property rights - security from state predation
W↓
W↓
W↓
W↓
Physical infrastructure
W↔
W↔
W↔
W↔
Civil society
W↓
W↓
W↓
W↓
State bureaucracy - probity (non-corruptness)
W ↔↓
W ↔↓
W ↔↓
W ↔↓
State bureaucracy - administrative capacity
W↔
W↔
W↔
W↔
Protection of intellectual property rights
W↔
W↔
W↔
W↔
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OECD Economics Department
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A few observations on Russia’s
choices




Institutionally, Russia is not very well equipped for
any of the more demanding options.
The survey results are worrying, not least because
they suggest deterioration in some of the areas in
which Russia most needs to make progress.
Many areas will require substantial improvement
regardless of the strategic direction Russia takes.
This implies that a very large part of the structural
reform agenda should be relatively noncontroversial. So why have we seen so little
progress since 2003?
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OECD Economics Department
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