Russia faces years of struggle and stagnation as legislators strive to boost productivity, fix crumbling infrastructure, and wean the economy off its addiction to oil-based earnings, experts have warned.
The economy contracted 3.7% in 2015 and is set to disappoint again this year, with economists tipping GDP to shrink in 2016 by up to 3%. The consensus outlook on the world’s 10th-largest economy is that of gloom and doom, drift and decay.
“I see 10 years of stagnation ahead — no investment, money flowing out, and no money flowing back in,” said Anastasia Nesvetailova, director of City University’s Political Economy Research Centre in London.
“The era of super-sized oil revenues is over and the paradise of the mid-2000s isn’t going to return. Russia’s problems are all structural — a lack of investment in infrastructure, a high dependence on imports.
“None of these have been resolved, so the country is looking at a continued and protracted decay, lack of investment in infra, and high dependence on imports, these haven’t been resolved, so the country faces a long and protracted period of recession.”
The causes of Russia’s economic malaise run deep. Many fear they are incurable, at least by the country’s current, bellicose leadership. Western sanctions, imposed after the annexation of Crimea and a Russia-financed invasion of eastern Ukraine, continue to weigh on the country.
Charles Robertson, global chief economist at Moscow-based emerging markets investment bank Renaissance Capital, said Moscow’s decision last month to shelve plans to issue Eurobonds this year, following Western pressure on lenders not to participate in the sale, further constrained Russia’s ability to bounce back from recession.
“It’s hard to see, on a two to three-year view, where the growth is going to come from. Negative demographic factors will remain at work for years to come, and it won’t be easy to diversify the economy.”
OIL DEPENDENCE
However, some analysts have been heartened by the recent uptick in oil prices and the price of onshore securities. Jan Dehn, head of research at Ashmore Investment Management, told Emerging Markets that he was inclined to “like Russia quite a lot on the fixed income side”.
President Vladimir Putin has made much of his desire to profit from a long-overlooked agricultural sector, but the truth is that revenues from oil and gas will remain the primary source of income for years if not decades to come.
The Russian government has set its sights on generating fresh capital from a recently unveiled privatisation plan and a push to boost inward foreign investment. But experts warn the former is too uninspiring and the latter, given the struggles many investors face when setting up shop in the country, unlikely to succeed. “Why would foreigners want to invest in Russia?” wondered Timothy Ash, head of CEEMEA desk strategy at Nomura. “There’s no rule of law, no protection of property rights, and the Putin regime is widely viewed as being unstable,” he said. “No foreigner is going to invest in the country. The risks are just too high.”