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Russia Is Doomed To Oil
Written by: PaxForex analytics dept - Friday, 27 June 2014 0 comments
The Russian economy exists only due to oil and gas exports, and this situation is unlikely to change. A similar view is shared by many economists, including Russian.
The problem is compounded by the fact that every year in the country is getting smaller a number of exporters of services and technologies. Russian citizens, for the most part, do not want to be entrepreneurs and scientists no longer create technologies that could be called as breakthrough ones.
The Russian Ruble is not an attractive tool for foreign investors, including Forex market.
In the last decade, the main product sold abroad has been and remains oil and its derivatives. In 2009, it accounted for 65% of all exports from Russia. Only 10% of exports of goods were associated with the equipment, machinery, electronics and chemical products industry.
Russia practically does not produce other products that would be of interest to foreign partners. This also applies to the defense industry, which exports are chronically fixated on obsolete Soviet technologies,while, for example, the U.S. has already stepped into a new era with its breakthroughs in the field of military drones (UAVs), a robotic gear and high-tech control systems.
A detailed analysis of the dynamics of Russian exports from 2000 to 2008 showed that 88.4% of trade flows is selling of outdated products to the oldest trading partners. While the sales of new goods in the decade increased by only 19%.
Analysts agree that Russia does not sell as many goods and services as it could sell with more competent economic policy. In particular, Russia could supply more goods to countries like India, China, Italy, Germany and the USA.
Russia surpasses Europe and Asia by the number of firms but only a very small percentage of them are exporting its products abroad. In 2009, only 7% of Russian companies have supplied their products for export. In the same period, 12.5% of
the Indian producers sold the products abroad; in Brazil it was 18% and 24.5% in China. A comparison with India and Brazil is particularly appropriate, since both countries are not actively involved in international trade.
Russian exporters are facing tremendous difficulties not only when entering international markets. Attempts to "survive" on them very often lead to failure. Analysis of the success of more than 40,000 exporters from Russia for the last 10 years has shown that only 57% of companies survive during the first two years. In China, the index of survival exceeds 70%.
The lamentable state of Russian exporters also explained by the difficulties that they face at home, where they have to overcome a lot of red tape created by one of the largest officialdom armies in the world.
In Russia, more than a quarter of the time businesses spend doing many bureaucratic requirements of regulators. Even in India, which is known by their greedy and clumsy bureaucracy, these procedures takes 7% of the time.
The level of state dominance in the Russian economy is excessively high. The percentage of companies that are owned by the state is twice higher than in the countries of the European Union. This leads to the fact that the government helps in entering foreign markets only to fully loyal state-owned companies. At the same time, few private owners have to decide everything by themselves.
Another important factor of the lack of the Russian economy competitiveness is constantly declining funding for research and development. Spending on science in Russia fell from 0.88% of GDP in 2003 to 0.65% in 2008. During the same period other developing countries increased it from 1.5% to 1.63%. This trend has continued in recent years.
From all of the above can be made a disappointing conclusion – Russia can maintain the national economy only through the sale of oil and gas. There are not alternatives yet. Especially with the current political system, that is focused primarily on its own "stability" rather than on the actual development of the country.