Transcript Russia, European Union and the Baltic Sea Region

Russia, European Union and
the Baltic Sea Region:
Before and After the Crisis
Gdansk, July 2nd, 2009
Denis V. Kadochnikov
Senior Research Fellow
International Centre for Social and Economic Research –
Leontief Centre (St. Petersburg, Russia)
Structure of the Presentation
 Economic dynamics in Russia during the last decade
 Russia’s trade with the World, EU and BSR
 Russia – BSR economic cooperation and integration
 Post-crisis realities for Russia and Russia’s NorthWest
 Possible scenarios of Russia’s development
Major Drivers of Economic
Growth in Russia
1998
2001
2004
2006
2008
Ruble Devaluation and Imports Substitution
High Oil and Gas Prices
Capital Inflow and Domestic Fiscal and
Monetary Expansion
Russia’s Net Capital
Outflow / Inflow
Russia’s External Debt
Russia’s Share
in the World Trade
Russia’s Exports and
Imports as % of GDP
Russia’s Exports Composition
Russia’s Imports Composition
Russia’s Exports Partners
Russia’s Imports Partners
Merchandise Exports to Russia
as % of Total Exports
Merchandise Imports from
Russia as % of Total Imports
View of Baltic Sea Region by
the North-West Businesses
(Based on a survey conducted by Leontief Centre in 2008)
 Source of Imports of equipment, machinery and raw
materials

Training ground
Not a Market for Exports other than Commodities
Exports, as there is large and underexploited Russian
market

View of the North-West of
Russia by Foreign Businesses
(Based on a survey conducted by Leontief Centre in 2008)
 Key purpose of appearance of foreign companies / foreign
investors in St. Petersburg is gaining the access to local
and Russian market.
 Exploration of external markets in the future is not
excluded however.
Russia — Baltic Sea Region
Business Interaction
Interaction of companies working in St. Petersburg with
businesses of the Baltic Sea Region is usually limited to:

Purchase of raw materials and equipment,

Transit of cargo through their territories.
Russia — Baltic Sea Region
Business Interaction
The target of exploring Baltic markets is not perceived as a
priority by Russia-based companies.
Respondents rather note interest of investors from Baltic
States to St. Petersburg and Russia.
Foreign Investments in
the North-West of Russia
Major investing countries, except Germany, are located
outside the Baltic Sea Region.
The largest sector of FDI is consumer services sector,
focused on the Russian consumer market
Russian Investments Abroad
Russian companies now operate world-wide and no
longer focus on the CIS and the former Soviet
Republics in the BSR. Russian companies, specializing
within the resource-based sector, cooperate with
relevant partners no matter where they are around the
world. They act as part of a global specialised networks
not restricted to any kind of regional imperative.
Russian Investments Abroad
Resource-based industries continue to dominate
outward investments, although financial, telecom
and retail trade companies are also venturing
abroad.
The volume of Russian FDI in Baltic Sea Region is
relatively low and concentrated in sectors such as
energy, transportation, industry and trade.
Russian Investments in the
Baltic Sea Region
Russian FDI in the BSR is very much strategically
motivated by Russian interests in obtaining access to the
EU and other international markets.
Examples:
Sea-port of Sillamae in Estonia, co-owned by a Russian company;
Oil pipeline from Russia via Belarus to the Latvian harbour of
Ventspils, also co-owned by a Russian company;
Nord Stream Pipeline project connecting Russia and Germany.
Global and Russian
Economy Prospects
Global Trade Growth (%):
Real GDP Growth (%):
World
Euro Area
Russian Federation
Central and Eastern
Europe
CIS
2007
7,5
2008
3,7
2009
-9,7
2010
3,8
2011
6,9
3,8
2,7
8,1
1,9
0,6
5,6
-2,9
-4,5
-7,5
2
0,5
2,5
3,2
1,9
3
6,7
8,6
4,6
5,6
-1,6
-6,2
0,6
2,5
3,2
3,5
World Bank report “Global Development Finance 2009: Charting a Global Recovery”
New Economic Realities for
Russia
Lower commodities prices and negative net capital flows
Deteriorated external financing conditions and higher interest
rates
Federal and subfederal budget deficits
Smaller state and CB reserves
Greater economic, social and political uncertainty
Greater state role in the economy
Greater Social and Political Pressures
New Realities for
Russia's North-West
Weaker demand for exports from the North-West
Lower transit trade
Lower tourism figures
Major Challenges to Russia-EU
Economic Cooperation
 Protectionism on both sides
 Investments restrictions and barriers
 Political and economic instability in neighboring
countries
 Problems of transit trade
Possible Development
Scenarios and Strategies
Scenarios / Strategies of Russia’s Development
formulated by SIGMA group / Institute of Modern
Development (Moscow):

Inertia

Rentier

Mobilization

Modernization
Inertia Scenario





No radical socio-economic reforms
Political stability as a priority
Problems are addressed as they appear
No strategic actions
Maintaining status quo
Obstacles: Lack of resources in the short run;
stagnation in the long run.
Rentier Scenario
 Accumulation of oil and gas revenues in the state
budget and further redistribution to finance social
programs
 Paternalism as the state policy
 State-directed investment programs
Obstacles: Falling budget revenues due to lower
profits (or losses) of oil and gas companies in the
short run; Recession and social instability in the long
run.
Mobilization Scenario
 Mobilization of state resources to support and
modernize selected priority industries
 State corporations domination in the priority
industries
 Innovations support in the priority industries
Obstacles: Inefficiency of state ownership and state
planning, growing bureaucracy, rent seeking.
Modernization Scenario
• Institutional reforms
• Improving business climate
• Focus on the efficiency of budget expenditures
Obstacles: Results will be felt in the long-run; social
and political support may be hard to secure.
Thank you!
Denis V. Kadochnikov
dkadochnikov @ yahoo.com
International Centre for Social and Economic
Research – Leontief Centre (St. Petersburg)
www.leontief.net