Prospects for the development of Russian economy in general and the North Caucasus in particular

 

By Vestnik Kavkaza

 

Rosstat reports that the growth of the Russian economy in the first half of the year slowed down to 1.4% from 4.5% in January-June 2012. But the ministry expects to offset the risk of recession and to reverse the negative situation in the second half of the year.

 

Alexander Shirov, deputy director of the Institute of Economic Forecasting, believes that “this year Russia's economy will grow by about 2%, perhaps a little less. And it's certainly not a very good result, I must say, because this is the minimum rate at which we are able to balance the main economic indicators”.

 

Speaking about prospects for economic development of the North Caucasus, he said that “when it comes to regional economic dynamics, the North Caucasus region, in view of the fact that it has a pretty low initial base, has the greatest potential for growth. In fact, it seems to me that even in the current stagnation of the economic dynamics, indicators for individual regions and the Northern Caucasus and Southern Russia, generally seem to show an adequate and good momentum compared to the national average and those of other regions.

It is clear that this region is quite specific. Secondly, to ensure that money is being invested, we need the projects themselves. The question of choosing a project and its feasibility study is a question which, I think, must still be fully worked out in the North Caucasus region. There are plans, for example, for sports or tourist clusters, but these are still not projects which could really attract large-scale investment to the region. Here, I think the problem is that the regional authorities and regional business must search for large strategic projects”.

 

Meanwhile, Mikhail Hazin, president of the expert advice company "Neocon", believes that “in the North Caucasus the main problem is not with economic policy. The main problem is that Russia does not fulfil its main function there – the role of internal arbiter. The problem of the North Caucasus is a problem of constant conflict, let's call it delicately, between republics, clans and nations. These problems will be solved either by war, explicit or implicit, either with or without the participation of an arbitrator. Today there is no such referee. Russia keeps aloof from the functions that it should perform. And if we talk about the economy, the main problem is that there is a surplus of population there that must be applied somewhere, but it is not very clear whether it is possible in the absence of arbitration to develop the economy and make investments there, because it will all be burned in these internecine wars”.

 

Speaking about the Russian economy in general, Hazin said that “an investor does not care about what is called the "investment climate". He is concerned about only one thing: a return on his money. For example, in the city of Detroit there is very good investment climate, because it is a city in the U.S. But the city is a bankrupt, and no investors go there for some reason, even though the climate there is quite fine. It's not the climate. That's all nonsense. It's such a thing which was invented somehow, and it is clear why, but it makes no meaningful sense. An investor is interested in only one thing: he should get a return on the money invested. If a country has a hard dictator, and no investment climate in general is present, then an investor is very happy, because it is clearly understood with whom he should negotiate, how to negotiate, and, accordingly, there is no problem. Making sure that the dictator will not deceive him is a separate issue. So the problem is that today Russia is a country where you are not able to profit from an investment. As for areas where it can be done, we can see that BP is boldly entering a strategic alliance with "Rosneft", although this is a public company, and it is clear why: because it is clear how BP will get the money back. But in all other places you cannot make a profit”.

 

According to Hazin, “the biggest shock to our country in terms of capital flight is, of course, the entry into the WTO. If we talk in general about the currency situation, you need to understand that currency rates in our country are established by the Central Bank in the way it wants to. 15 years ago the default occurred exactly because the Central Bank very much overestimated the rate of the ruble, and then made a trading band that allowed speculators to pump public money into profits from the market of state treasury bills and withdraw money abroad. We know what the result was. As for the current situation, we must understand that the devaluation of the ruble, which has been going on for two months, is the result of some cognitive dissonance in a liberal group that manages the Central Bank and the government. In this situation, they decided that we should try to repeat the trick of 1998 and 2008, in part - a devaluation to stimulate the domestic economy. The problem is that in 1998 we had industries which could be loaded so that economic growth began, and today we have no such industries. For this reason, even after devaluation, economic growth cannot automatically happen. We need new capacities; this requires investment, and no one will invest in Russia, because it is easier to import products here. Of course, a liberal government will not care about any import substitution. For this reason, I am inclined to believe that the ruble will still be devalued - I think to a level of about 36-37 rubles per dollar”.