Russia needs to modernise, wean itself off its dependence on commodities, not rely on consumer demand for economic growth, improve labour productivity and encourage entrepreneurs, said Vladimir Putin, president of the Russian Federation, at the Russia Calling Forum organised by VTB Capital on Wednesday.
“Living off the rent from natural resources is unsustainable and would be a burden on future generations,” he warned. Instead, the country must transform its economic development through structural adjustments, investing in education and healthcare in order to ensure Russia is strong.
The message was echoed by government officials throughout the two day conference in Moscow, where they encouraged delegates from business and finance to invest in Russia’s future. The economic landscape is not critical, but nor is it particularly encouraging.
GDP growth was only 1.5% in the first eight months of the year, industrial output growth was zero and investment capital declined 1.3%, pointed out economic development minister Alexi Ulyukayev on Tuesday.
New sources of growth are necessary for most countries as they also tackle the problem of “fiscal consolidation”, a dichotomy that seems irreconcilable, while each country must take its own path, said Putin in his opening remarks, referring to the conclusions of the G20 meeting held in St Petersburg in early September. Russia needs to promote long-term investment, improve the business climate by introducing more incentives to encourage small- and medium-sized enterprises and diversify exports, he said.
The government aims to attract foreign direct investment worth 27% of GDP (up from 25%) by 2018, upgrade the qualifications of the labour force for higher value jobs and boost non-commodity exports such as engineering manufactures which are currently just 5% of total exports.
Meanwhile it has frozen public utility tariffs to help bring the inflation rate down from 6% to 5%, and last June Putin unveiled a $13 billion plan to build new roads and railways, including upgrading the Trans-Siberian railroad in the Far East, in order to improve the country’s shaking physical infrastructure.
Russia’s Far East figures strongly in the plans of one of the investors who shared the stage with Putin. Lawrence Ho, chairman and CEO of Melco International, a leading Macau-based integrated resorts and gaming company with a $17 billion market capitalisation.
In July, Ho confirmed that Melco will build a resort casino in the Primorye territory outside Vladivostok and yesterday he said that it would have the potential to “be the next Macau”, whose tourism industry increased in value from $2 billion to $34 billion in a decade after deregulation.
Vladivostok is closer to Beijing than Macau, he noted, so should attract Chinese visitors and also has superior infrastructure. More jobs would be created beyond direct employment through a multiplier effect of three-to-four times, he said, pointing to Macau’s experience.
Meanwhile, Cristina Stenbeck, chairman of Investment AB Kinnevik, a leading Swedish telecom, media and technology family-firm, declared from the stage that “Russia is the most exciting consumer market in the world”. She said that the $10 billion company is keen to partner with Russian businesses and is focussed on regional economic development outside Moscow and St Petersburg.
Ho and Stenbeck have clearly given Putin’s Russia a monetary vote of confidence. However, questions and comments from investors in the audience indicated less fulsome approval.
Concerns were expressed about alleged shoddy treatment of minority shareholders, insecure property rights and capricious legal decisions.
Putin was keen to reassure them and also distance himself from specific complaints.
“We need to improve property protection, and ensure a stable and reliable ‘rule of law’. There must be no exceptions,” he said.
