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World Economic Forum in Russia

Russian economic diversification: "slow but sure" ― "The diversification of Russia's economy is here already," said German Gref, Russia's Minister of Economic Development and Trade, at the closing session of the World Economic Forum in Russia meeting. It followed a vote by business leaders on key issues defined by the World Economic Forum’s Russia Scenarios project.

Minister Gref said that “the Russian government is committed to reform and will do everything to make Russia’s economy as transparent as possible and one of the most liberal in the world”.

He said the “pace of transformation and the time pressure are very big and we have started to do several things simultaneously. We don’t always manage to gauge things properly” and sometimes have to step back, which is perceived as a lack of efficiency and consistency by others. He stressed that the most important thing was not the speed of movement but the country’s stability.

Press release I Session Summary



Room to grow between Russia and the United States ― Russia's relations with Europe are closer and the "fabric more dense" than its relationship with the US, said Konstantin Kosachev, Chairman of the International Affairs Committee of Russia's State Duma. Nevertheless, Washington is looking to foster closer ties given the common ground that exists between the two countries, said the US ambassador to Russia, William Burns.

"With the US we don't have such intensive economic interest" as with Europe, explained Kosachev. Events in third countries "dominate" the Russia-EU relationship and this is a "big drawback", he said. However, he cautioned, ties with Europe are "not that sunny". Contrary to the European Union's perspective, Moscow does not look to EU membership as the way to the future.

US Ambassador to Russia William Burns said that it was obvious that "Russia matters a great deal". The country is the only nuclear power comparable to the US, it is the world's leading producer of hydrocarbons and it has a permanent seat on the UN Security Council. Differences between Russia and the US are "inevitable" but there is a "great deal of common ground that is overlooked" and "there is room for more intensive engagements". He said that Condoleezza Rice's recent trip to Central Asia underlines the "determination of the administration at the highest level to engage in honest dialogue".

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Diversification begins with banking ― Reform of Russia's banking sector is a key step towards the successful diversification of the country’s economy away from oil and natural gas. This was the consensus of Russian politicians as well as domestic and international business leaders at the World Economic Forum in Russia meeting.

The amount of FDI coming in to Russia is "far from being enough," said Jean Lemierre of the EBRD who stressed that the top priority for change is the banking sector as it serves as a "channel to finance the economy in a broad way".

It must also be clear, he added, that Russian investment in Russia is good and competition between foreign and Russian investors is good. The rules, tax administration and banking supervision should be the same for foreign and Russian investors alike, remarked Lemierre, and this needs to be done in order to have a strong market economy.

"I am ready to put my signature under each word of Mr Lemierre's speech," said Sergei Shatalov, Russia's First Deputy Minister of Finance.

Other participants also criticized the lack of competition between banks, but said that there is room for everyone, even although the state is dominant. One participant complained that 60 percent of banks are not competitive and do not meet international accounting standards and should therefore lose their licenses.

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The challenges of a revenue windfall in Russia ― Liquidity from high oil prices is pouring into Russia like a "hurricane", according to Shigeo Katsu, Vice-President, Europe and Central Asia, World Bank, which poses "enormous policy challenges" on what to do with the money.

The country's per capita income of US$ 3,500-4000 per head "has tremendous catch up needs" and there will be political pressure from the bottom to share the revenues equitably. Mr Katsu echoed Deputy Prime Minister Alexander Zhukov's previous statement that more money can spur inflation and added that this level of understanding in the government was not the case a year ago. Katsu said that the funds should be used to address the needs of the country, namely infrastructure, social infrastructure (utilities, health and education) and regional disparities.

Both Clifford Kupchan of Eurasia Group and Roger Munnings of KMPG observed that the state's clarity about its desire to control the energy sector gives more confidence to investors. It also meets the aspirations of the Russian population's demand for a "correction in the energy sector" and that the people "may see it as a restoration of Russia's true place in the world."

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17 October

Government reforms will "reduce pressure" on business, says Zhukov ― The Russian government will make an effort to reduce Kremlin pressure on business through tax and corruption reform, pledged Russian Deputy Prime Minister Alexander Zhukov. He told participants in the World Economic Forum in Russia meeting that this was "one of the key things to improve the transparency and the openness of Russia's economy."

In addition, efforts to develop small businesses could release a competitive advantage not currently exploited in Russia. Small businesses hold significant potential to increase the pace of economic growth, he commented.

Zhukov said the government would do its "utmost" to see half of the promised reforms completed within a year.

"Liquidity is not forever," warned Jean Lemierre, President of the EBRD who wants to see Russia achieve similar successes as Norway and the UK in managing revenues from natural resources. He also said that the bank - the largest financial investor in Russia - had seen "a lot of effort" from the government in addressing the issues that the EBRD had raised.

A Russian revolution is unfolding...in retail ― Russia is not a country in decline and its future is looking bright, agreed top international and Russian business leaders in the opening session of the World Economic Forum in Russia. Presented with three possible scenarios, the consensus was that a doomsday scenario of the 'oil state curse' was unlikely to come to pass.

Dimitri Trenin, Deputy Director, Carnegie Moscow Center emphasized that Russia is "a country being reformatted by Russians themselves". He said that "democracy is not the issue" but rather the fact that Russia is undergoing a "retail revolution" and is "decisively going private". He said that the Ikea index - the growing number of Ikea stores opening in Russia's regions - gives an "indication of the real growth of Russia's middle class", and that "citizens have not yet arrived in Russia but consumers have".

Alexei Pushkov of Center TV in Russia commented that "the dramatic scenarios have exhausted themselves". He added that a paternalistic government is natural for Russia but that stability depends on the social dimension. Some of the oil revenue has to be reinvested in society, "otherwise the people will not understand what the market economy is all about," he said.

Press release I Session summary

Power and money, money and power ― "You cannot ask business to combat corruption," said Grigory Yavlinsky of the Russian Democratic Yabloko Party at the World Economic Forum in Russia meeting. "As soon as business tries to explain something to the authorities, you see the results [Yukos affair]", he said. This has a negative impact on business in Russia as "people are afraid to start their own businesses".

The "seemingly seamless fusion of power and money" sets Russian corruption apart from corruption in India or China, said Bernard Sucher, Chairman, Alfa Capital, Russia. People are reluctant to tackle the issue as "they see fighting corruption as risking taking on the state," said Sucher.

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Perspectives on Russia

"Russia is in the midst of a long term revolution towards a more open and democratic society."William Burns, US Ambassador to the Russian Federation




"Women bring their values - and society suffers when decisions are made without the participation of women."Augusto Lopez-Claros, Chief Economist and Director, Global Competitiveness Programme, World Economic Forum




"The strategy of Russia is not to boost salaries of government officials but to improve living standards with oil and gas revenues."Andrey Likhachev, General Director, TGC-1, Russia