Russia’s economic rebirth

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Russian economic recovery is all the more remarkable given the doom and gloom surrounding the 1990s, but this resurgence needs to be upheld by further reforms, argues Lúcio Vinhas de Souza in a CEPS paperback published in May.

This economic revival has made Russia an economic and political power and a country that can no longer be ignored, says de Souza. 

Russia’s economic performance after the implementation of structural reforms remains impressive, argues de Souza, with a functioning market economy having been established. This means the macroeconomic framework has become more robust than it was in the 1990s, he observes. Despite structural reform slowing down in certain sectors, it has not stopped altogether, the author adds. 

De Souza believes the resumption of economic growth in Russia is down to the effects of economic and structural reform, as well as recent high energy prices. For him, the changing nature of the Russian economy can mostly be seen in the way the country has withstood the financial instability which has swept global financial markets. 

De Souza is suitably impressed by Russia’s economic performance since 1999 compared with similar economies from the Commonwealth of Independent States – which gathers the former Soviet republics – both in terms of GDP and inflation. 

However, the author believes Russia needs to step up its reform in the macroeconomic area and create a better investment climate. This, he says, is indispensable in combating the “perennial Russian problem, the need to diversify the economy away from the commodities sector.” 

Reform of the Russian state institutions and policies must be twinned with what de Souza calls “external anchors for reform”. These include the G8, WTO, OECD, the future EU-Russia framework agreement, “EU-Russia deep free-trade agreement” and the EU-Russia sectoral dialogues. 

The author supports liberalisation of the energy sector, which is tightly connected to the reform of foreign direct investment legislation in Russia. De Souza admits the negative developments in this area overshadow more positive ones, such as internal and external expansion of state-owned energy companies. The uncertainty foreign companies face when investing in Russia are is also a worry, says the author. However, a beacon of hope has appeared in the form of a timetable for the liberalisation of domestic energy prices, announced in December 2006, adds de Souza. 

Liberalisation of the Russian energy sector can only be established if the EU acts in a consistent and effective manner, claims the author. 

But de Souza concludes that ultimately reforms can only be implemented by the Russians themselves, which will only occur if Russians are convinced reforms will “be beneficial for Russia and its population”. 

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