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Davos: turning point for the Russian economy?

“When you come out of the storm, you won’t be the same

person who walked in. That’s what this storm’s all about.”

 Haruki Murakami in Kafka on the Shore 

 

The atmosphere at this year’s World Economic Forum, held in the Swiss resort of Davos earlier this year, was unusually gloomy with the focus on the economic slowdown in China, negative developments in the Middle East and the economic situation in Russia.

Russia has been far from alone in beginning 2016 on an economically sour note, with financial markets across the world falling severely in the first few weeks of the year. For example, China’s Shanghai Composite index officially entered bear market territory with a 20% drop from December, while the London’s FTSE took a 3% fall in January. As such, attendees at the Forum were focused on what changes were necessary to survive. This need for change should be harnessed by Russia to implement various ‘changes’ to improve Russia’s economic prospects for 2016.

As I noted in a recent op-ed in New Europe, the East – and specifically China – should not be seen as a solution for all Russia’s problems and certainly cannot ‘replace’ Europe. Therefore it was interesting to note the continuing interest in reorienting some of its economic focus eastwards. I still believe that it is important for the country to diversify the geographical range of its investors, as well as the types of investment. It was therefore good to see Vesti’s report that at the end of Davos a USD 2 billion contract was signed with Dubai World for investments in Russian port facilities.

Yury Trutnev, Vice-PM and head of the Russian delegation at Davos, announced that a number of new investors had expressed intentions to launch new projects there, especially in the Russian Far East. Meetings with ABB yielded positive results, with Finanz.ru noting that the Swiss firm was likely to embark on energy production and supply ventures. Trutnev also conducted meetings with the Indian steel firm TATA. Off the back of Russia’s Far Eastern Development Strategy updated late last year (reported by TASS), these are promising moves.

Despite the upbeat talk, however, there was of course plenty of frank and realistic conversation about the position of the Russian economy with the consensus emerging that it will be several months at least before anything starts to show meaningfully improvement. Opinions differed on the severity of the situation, but a common denominator was that the government needs to do more to incentivise investment.  This sentiment was strongly echoed by former Finance Minister Alexey Kudrin who, as reported by the Telegraph, stated that he believed the government needs to act now to spur investment and safeguard business. Vice-PM Trutnev also agreed, noting that movement was already being made in that direction, which had helped Russia rise over forty places up the World Bank’s ‘Ease of doing business’ rankings in 2015 (IB Times).

Here’s hoping that Russia, and the wider world, can see the current crisis as an opportunity to make the necessary changes. As Murakami says in the quotation above, emerge from the ‘storm’ in a reformed state.

 

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