New Russian Government: Where to Go and What to Do?
Leonid Grigoriev President, Institute for Energy and Finance, www.fief.ru
1 OBJECTIVES OF TRANSITION and REALTY
From Middle developed Socialist country to Well developed Democratic country Actually 3 transitions happened: ¾ From Socialism to “Early” Democracy ¾ From State Ownership to Private and Commercial Interests ¾ From the USSR to Russia state Recovery of a Great country may be an inconvenience to anybody?
2 GDP, suicide and homicide rates, 1989-2007 42 120
37 100
80 32
60 27 1989 = 100 1989 = per 100 000
40 22
20 17
0 12 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
GDP level (left scale) suicide rate, (right scale) homicide rate, (right scale)
Source: Federal State Statistics Service Russia by 2008 came from the Terrible crisis
Minus 43% of GDP by 1999 and two crises GDP of 2007 is equal to 1989 Two decades of underinvestment Concentration of Wealth Huge regional and social disparity Ineffective bureaucracy Weak Civil Society Emigration of middle class Despair and Privatization on the top Revival goes against common sense and odds
4 Russia’s long term development, 1989-2011
140
120
100
80
1989 = 100 1989 = 60
40
20
0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2009f 2010f 2011f 2008e
GDP Industrial production Gross Fixed Capital Formation
Source: Federal State Statistics Service, Ministry for Economic Development (forecast) Electricity: Net Increase in generating capacity
10
8 An example of underinvestment problem: 6 almost no serious extra electricity generation capacity created in last 17 years
4 GWt
2
0 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 -2
ТЭС ГЭС АЭС
6 Source: Rosstat, Minpromenergo Inequality: income distribution by 20% groups
Russia USA Germany Poland Brazil
GDP per capita. 12,1 43,4 31,1 14,9 9,1 (PPP) First (min 5,5 5,4 8,5 7,5 2,6 income) Second 10,2 10,7 11,4 13,7 11,9 Fifth(мах income) 46,4 45,8 36,9 42,2 62,1 Gini 0,405 0,408 0,283 0,345 0,58
7 Immediate issues
Russia needs Modernization Strategy for Decades Complex mix of private corporate and state and state corporate investments Domestic Savings – over 30%, Investments – 21% To utilize National Savings to 25-27% of GDP Domestic Financial system is lagging Regional policy is still not clear: growth or equality More vertical mobility for active young people Danger of Inflation is overshadowing More Optimism – Football may also be of help
8 Capital formation % V % GDP growth (avg. 1999-2006)
16
14
12
10
8
6
4
2
0 GermanyГермания USAСША BrazilБразилия PolandПольша ChinaКитай RussiaРоссияChina
9 Source: IMF, National Statistics Committees, IEF estimates Savings V Capital formation
10 Source: Rosstat, IEF calculations Investment boom, 2000-2008
25 100
There are signs of Investment boom 20 Capital formation grew 20% y-o-y in 2007 90
15 80
As capacity limits are % 10 almost reached 70 % change (y/y) % change
5 60
0 50 2000 2001 2002 2003 2004 2005 2006 2007 2008f
Capacity utilization (right scale) Industrial productiion (left scale) Gross Fixed Capital Formation (left scale)
11 Source: Rosstat, IEF estimates Share of public investments, % GDP
4,5
4,0
3,5
3,0
2,5 ВВП
% 2,0
1,5
1,0
0,5
0,0
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12 Source: Eurostat, IEF estimates Gross savings*, 2002-2005
120
100
80
60 %
40
20
0 2002 2003 2004 2005
General government Households Corporations
Source: Federal State Statistics Service * - excluding non-commercial organizations serving households and financial intermediation indirectly measured Capital outflow, US$ bln, 2001-2007
70
50
30
10 Bln. $ Bln.
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I -10 2001 2002 2003 2004 2005 2006 2007 2008
-30
-50
Net capital export (-) / import (+) Foreign assets Foreign liabilities
14 Source: Bank of Russia Stabilization Fund and its transformation
Welfare Fund
Reserve Stabilization Fund Fund
15 Source: Ministry of Finance CPI components change, 2006-2008
23.0
21.0
19.0 Food 17.0
15.0
13.0 Services % rolling 12 months 12 % rolling 11.0
9.0
7.0 Non-Food
5.0 1234567891011121234567891011121234 2006 2007 2008
Core CPI Food Goods Non-Food Goods Paid services for the population
16 Source: Rosstat Net export of oil and gas, 1985-2007 ($ bln)
250
200
150 US$ bln
100
50
0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Oil and oil products Gas
Source: Federal State Statistics Service, BP, IEF estimates Capital investments by large&mid size enterprises, bln $
2005 2006 2007e Total 95.0 129,9 189,0 Agriculture 2.6 4.7 8.4 Oil and gas 14.6 23.8 33.5 Metallurgy 5,6. 7.4 9.1 Foodstuffs 2.5 3.4 5.0 Engineering industry 2.7 3.3 5.2 Power industry 4.4 5.5 10.0 Construction 5.7 8.8 15.5 Wholesale trade 1.8 2.0 2.9 Retail trade 1.3 2.1 3.7 Transportation 12.8 16.1 17.9 Communications 6.3 7.0 8.3 Other sectors 34.7 45.7 69.6
Source: Rosstat, IEF estimates Global DDP Growth, %, 1990-2013
8
7
6
5
% 4
3
2
1
0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2009f 2010f 2011f 2012f 2013f 2008e
World Advanced economies Emerging and developing economies
19 Source: IMF World, USA, Germany, China – average growth rates(%)
World USA Germany China
1986- 2003- 1986- 2003- 1986- 2003- 1986- 2003- 2002 2006 2002 2006 2002 2006 2002 2006
1) GDP 3,4 4,9 3,0 3,2 2,3 1,2 9,5 10,3
2) Primary energy 1,6 3,3 1,6 0,4 -0,5 -0,4 4,0 11,4 consumption
3) Oil consumption 1,4 1,9 1,1 1,0 -0,3 -0,4 6,1 8,8 4) GDP energy intensity -1,8 -1,6 -1,4 -2,8 -2,8 -1,6 -5,5 1,1 (2)-(1) 5) GDP oil intensity (3)- -2,0 -3,0 -1,9 -2,2 -2,6 -1,6 -3,4 -1,5 (1)
Export of goods 6,3 8,2 7,1 7,0 5,6 6,9 12,2 25,6 in real terms
Average oil prices 26,4 50,4 ($ 2005 / barrel)
Source:20 IMF, IEA, UNSD, OECD, IEF Energy = where to go
Domestic Energy Consumption goes with Savings Energy Strategy to be formatted anew in 2008 Russia is producing 10.3% of Global Primary Energy - more than a half of it exporting Investments in Energy are growing Domestic tariffs growth V inflation More Exploration is urgently needed Russia is not a switching power Secure transit – de politization is welcome Stable export prices incomes are preferable To avoid the Third Energy Shock
21 Oil & Gas Majors stocks prices, %, 2006-2008
800
700
600
500 %
400
300
200
100 11.01.2005 11.03.2005 11.05.2005 11.07.2005 11.09.2005 11.11.2005 11.01.2006 11.03.2006 11.05.2006 11.07.2006 11.09.2006 11.11.2006 11.01.2007 11.03.2007 11.05.2007 11.07.2007 11.09.2007 11.11.2007 11.01.2008 11.03.2008 11.05.2008
BP Exxon Mobil Gazprom Petrobras
22 Source: RBC S&P 500 vs. RTS
2500 1600
2300 1550
2100 1500
1900 1450
1700 1400
1500 1350 RTS S&P 500 1300 1300
1100 1250
900 1200
700 1150
500 1100 11.01.2005 11.03.2005 11.05.2005 11.07.2005 11.09.2005 11.11.2005 11.01.2006 11.03.2006 11.05.2006 11.07.2006 11.09.2006 11.11.2006 11.01.2007 11.03.2007 11.05.2007 11.07.2007 11.09.2007 11.11.2007 11.01.2008 11.03.2008 11.05.2008
RTS S&P 500
23 Source: RTS, RBC Russian government structure: May 2008
Prime Minister Vladimir Putin Presidential responsibilities
Deputy Deputy Deputy Prime Deputy Prime Prime First Deputy First Deputy Deputy Prime Prime Minister Defense Minister Minister Minister Prime Minister Prime Minister Minister Igor Minister Аlexander Sergei Serdyukov Sergei Sobyanin Аlexei Viktor Zubkov Igor Shuvalov Sechin Sergei Zhukov Kudrin Ivanov
Economic Agriculture Regional Heath and Social Industry and Trade Internal Affairs Developme Legislative Minister Development Development Minister Defence Minister nt Minster Activities Alexei Minister Minister Viktor industry Rashid Elvira Gordeyev Dmitry Kozak Tatiana Golikova Khristenko Nurgaliyev Nabiullina
Finance Education and Foreign Affairs Delineation of Minister Federal Tariff Energy Minister Fisheries Science Minister Minister Sergei Powers (regions) Alexei Service Sergei Shmatko Andrei Fursenko Lavrov Kudrin
Culture Minister Justice Minister National projects Small Transport Minister Alexander Alexander (Agriculture) enterprises Igor Levitin Avdeyev Konovalov
Civil Defense, Sport, Tourism and Communications Emergencies and Youth Policy and Mass Media WTO talks Natural Disasters Minister Minister Igor Minister Vitaly Mutko Shchegolev Sergei Shoigu
Natural Resources National projects and Ecology (excluding Minister Agriculture) Yury Trutnev
Member of the Presidium