Experts fear a tendency toward state intervention and growing corruption may hamper Russia's boom, writes Conor Sweeneyin Moscow
The booming Russian economy could be badly hit by growing state intervention and widespread corruption, warns the Organisation for Economic Co-operation and Development in a major new survey released yesterday.
While the average 6.7 per cent growth rate in the Russian economy since 1999 has been impressive, there are significant threats on the horizon, concludes the Paris-based OECD.
Russia's economy must become "more flexible and dynamic", explained William Tompson, the chief economist at the OECD's Russia desk yesterday.
"The rapid expansion of state ownership, the increasingly heavy-handed direct intervention in major markets and what we see coming from this . . . is less efficiency, slower growth . . . we see this as a very negative trend," he said.
Transitory factors, such as high gas and oil prices, rather than fundamental changes in the economy, have driven Russia's economic growth.
"The overriding challenge is to make the recent strong growth something that can be sustained over the very long term and allow Russia to converge at a rapid rate with western Europe and other OECD countries," Mr Tompson added.
The state-controlled gas giant Gazprom was singled out for criticism as an example of the return to a strong state role in the former communist country.
"Of particular concern is the state-owned gas monopolist Gazprom's seemingly insatiable appetite for asset acquisitions, often at the expense of a focus on its core business."
Corruption and poor public administration also need to be tackled, warns the OECD.
Last week, a top Russian prosecutor said he estimated corruption cost the country €200 billion per year - about a quarter of its official GDP.
"The inefficiency and corruption of the state administration impose a heavy burden on business and limit the government's ability to implement any policies that make significant demands on the state's administrative or regulatory capacities," the prosecutor said.
The OECD report is not completely negative, however, and welcomes the renewed emphasis on both healthcare and education.
Superficially, Russia's growth appears better than almost any other large country in Europe. Apart from the strong growth, unemployment continues to drop while the annual budget surplus now stands at over 7.7 per cent of GDP.
With inflation currently running at just under 10 per cent, the government has avoided pumping money into the economy and is instead placing the earnings from energy exports in a special reserve, which by the end of last year held more than €150 billion.
However, the OECD warns that a demographic time bomb could start to cause problems as early as next year as Russia runs short of skilled workers.
With the population falling by about 700,000 people a year - it is now down to 142 million people - almost eight million fewer then the level at the collapse of the Soviet Union in 1991.
Chris Weafer, the chief strategist with AlfaBank in Moscow, said, however, that the government was now responding to the high levels of corruption.
"In relation to corruption at least, the government has now become more proactive, especially in tackling corruption in bureaucracy," Mr Weafer said. "We saw this about six months ago and it now seems to be accelerating."
