by Xinhua writers Yu Maofeng, Zhao Jialin
MOSCOW, Dec. 15 (Xinhua) -- Russia, hit harder by the global financial and economic crises than it previously thought, looks almost certain to need more time to recover despite all the avowals from Russian leaders that the worst has now passed.
The real damage, heavy reliance on overall outside recovery and lack of investment for modernization combine to slow, if not bog down, the Russian economic recovery.
REAL DAMAGE
Russian President Dmitry Medvedev admitted that his government had been surprised at how severely the country had been hit by the crises and how serious the decline had been in the country.
"The real damage to our economy was far greater than anything predicted by ourselves, the World Bank and other expert organizations," said the president in October.
This is because the Russian economy, driven mainly by exports of oil and natural gas, relies heavily on prices on the international markets which saw commodity prices collapse late last year and early this year.
The president predicted that Russian economy would contract by 7.5 percent year-around while his predecessor and now his Prime Minister Vladimir Putin forecast this month a more pessimistic annual shrinkage of between 8.5 percent and 8.7 percent.
In the first eight months of this year, Russia's GDP declined 10.2 percent compared with the same period in 2008, though the entire third quarter ended with a slight expansion of 0.6 percent against the previous quarter.
Russia managed to see a GDP growth of 6 percent in 2008, following 10 consecutive years of expansions averaging 7 percent annually since the financial crisis back in 1998.
So the contractions projected by either the president or by the prime minister, could be the real damage to the country's economy.
HEAVY RELIANCE
Russia's economy is heavily dependent on oil and natural gas exports which in turn not only generate revenues but also attract foreign direct investment (FDI).
The energy export accounts for some 60 percent of the country's export revenues or contributes to one fifth of the country's total GDP, while the energy sector absorbs up to 30 percent of the country's total FDI.
Though the country set up a stabilization fund in 2004 so as to manage windfall oil and natural gas receipts, the commodity prices collapse on international markets was just too big for the country to cope with it well.
Unemployment is predicted to climb to 9 percent soon and real household incomes, already having dropped by 5.5 percent in the third quarter, are expected to dip further.
Russia will have to divert its efforts at recovering economy to other sectors than the energy export sector which has to wait for importing countries to improve their respective economies before commodity prices can rise on the markets.
The declined economy is also accompanied by a contraction of domestic fixed capital investment which dropped by 17.9 percent year-on-year in October after having tumbled 5 percent in September alone.
Overseas investment in Russia is being deterred by the perception that state-run firms drive foreign companies into handing over controls of their investments.
Domestic demand is sluggish as a poll of managers from 600 large Russian enterprises has forecast a further deterioration of major economic indicators.
Local critics and economists have therefore predicted a second dip into the crises caused by the country's underdeveloped banking system and even a third dip triggered by the high unemployment rate.
MODERNIZATION IMPERATIVE
The Russian government has been criticized for not doing enough to resolve the problems inherited from the past, which include off-balance economic structure, lop-sided reliance on resources and discrepancies between supply and demand.
The authorities did not use the available resources to modernize the economy, especially prior to the onset of the global financial crisis, according to Alexander Nekipelov, vice president of the Russian Academy of Sciences.
"It's much harder to take similar actions amidst the ongoing economic downturn," added the scholar referring to improvement of both hard and soft wares.
The Russian government has invested over 200 billion U.S. dollars in its efforts to stabilize the value of ruble alone.
"We managed to stabilize the securities market, but failed to steer the economy toward a modernized development road," said Nekipelov who predicted that Russia would not emerge from the crisis in the near future because the country already lagged behind the United States, European and Southeast Asian countries in tiding over the crisis.
Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs, said the Russian economy boasted no "competitiveness, innovation or efficiency."
He cited as example Russia's average labor productivity being equal to 30 percent of the U.S. level.
UNCERTAIN OUTLOOK
The ongoing economic crises, though having exposed the deficiencies in Russia's economy, have at the same time provided an opportunity for the country to restructure its development mode.
In May, the country's president established a commission on economic modernization and technological development, with the aim of helping the commodity-driven economy evolve into an innovative one.
President Medvedev listed as priority fields for Russia to develop its innovative economy: energy efficiency technology, nuclear technology, information technology, space industry and medicine.
The president claimed that Russia would create a smart economy generating unique knowledge and technologies instead of one that is based on only raw materials.
Though the president's plan for modernization sound right, local analysts argue that they currently fall short of both executable details and implementation mechanisms.
Nekipelov, for one, said he believed that his country would have to go through a long and painful process to overcome the aftermath of the crises unless Russia put into practice the promised plans for modernization.
Some are already feeling optimistic about the post-recovery development, as Deputy Economic Development Minister Andrei Klepach said that the country's GDP expansion in the last quarter of this year would be 2 percent thanks to price rises of crude oil and metals on the international markets.
The same official even predicted that Russia's foreign exchange reserves would increase by over 65 billion dollars annually if oil and natural gas prices remain at current levels.
With 448 billion dollars in hands, Russia is now behind China, Japan and the Euro zone on the list of world's largest foreign reserves countries and regions.
To double up the good news for Christmas and New Year, first deputy central banker Alexei Ulyukayev said that Russia's current account surplus was estimated to stand at 38 billion dollars in 2009 and to rise to around 100 billion dollars in 2010.
Russia's crude oil exports increase 1.8% in 2009: deputy PM
MOSCOW, Dec. 14 (Xinhua) -- Russia's crude oil exports in 2009 rose 1.8 percent year on year, but gas exports tumbled 10 percent, Russian news agencies quoted Deputy Prime Minister Igor Sechin as saying Monday.
Russia's oil output increased 1.0 percent to 493 million tons this year, with oil exports at 247.4 million tons, up 1.8 percent from the 2008 level, Sechin said at a meeting with President Dmitry Medvedev. Full story
Special Report: Global Financial Crisis
