February 11, 2019

The World Bank already thinks it is easier to do business in Russia than France. This is what Russia needs to do to overtake French GDP….

Forecasting Eye 

 

Cebr’s latest World Economic League Table released in December had Russian GDP effectively stagnating in real dollar terms, rising only from $1,540 billion in 2018 to $1,630 in 2033. By contrast, Korea’s GDP, which starts from about the same level, is forecast to rise by 55% over this period compared with Russia’s 6%. Korea is forecast to enter the world’s economic top ten while Russia falls from 12th place to 16th.

 

In these forecasts, Russia is hampered by the predicted weakness of oil and commodity prices as the world economy goes through a phase of relatively slow growth. Not great news for an economy heavily based on both.

 

This week, we ask what would need to be done to turn the Russian economy around from virtual stagnation and enable it to fulfil its potential.

 

Given the number of brilliant Russians either investing in or working in the UK’s Flat White Economy, it should be no surprise that Russia has a wealth of human capital. Historically Russia has had high levels of scientific success, particularly in space and in various defence technologies. What may be a surprise to those in the West who may not keep up with the latest data on Russian education, is that this has turned out to be a serious success in post-Soviet Russia.

 

The World Bank report on Russian education released in 2018* suggests that Russia’s objective of becoming one of the world’s top ten education systems in the world is feasible. Russia already has one of the most equitable educational systems in the world. The report comments ‘It is by now quite well known that the Russian Federation exhibits a good and improving performance in standardized international assessments such as Programme of International Student Assessment (PISA), Trends in International Mathematics and Science Study (TIMSS) and Progress in International Reading Literacy Study (PIRLS).’ Russia also already leads the world in reading achievement at primary school level.

 

The World Bank estimates that if Russia achieves its aim of an educational system in the world’s top ten, GDP would be boosted by ‘a third over 20 years’.

 

Cebr’s estimates suggest that the boost to GDP could be as much as three times larger, but depends on the improvement in education being backed by other factors. Most critical are improving competition and governance. A hard-hitting report by the European Parliament** focusses attention on these.

 

Competition in Russia is hindered by concentration of ownership (5 out of Russia’s top 6 companies are state-owned), lack of an entrepreneurial small business culture (SMEs account for 20% of GDP and 25% of jobs in Russia compared with 58% and 67% in the EU) and by import restrictions (both formal and informal). Governance has improved – Russia has moved up from 123rd place in the World Bank’s ranking for ease of doing business in 2011 to 31st, ahead of France, in the latest report just released – though the country has not yet achieved President Putin’s objective of getting into the top twenty.

 

Western sanctions, however justified on political grounds, are making Russia’s economic transformation more difficult. Perhaps an emerging rapprochement with the West can lead to a deal that handles some of the political issues and enables the Russian economy to achieve its potential. Because of past underachievement, the scope for beneficial change is massive – a doubling of GDP in 20 years would make the Russian economy a similar size to France’s. But failure to reform would leave some highly educated and skilled people with little to do and with low living standards. The devil makes work for idle hands.

 

 

* World Bank Education Global Practice: Report P164840 Education Equity in the Russian Federation 2018

** Seven economic challenges for Russia – Breaking out of stagnation? Author: Martin Russell, European Parliament Members’ Research Service PE 625.138 – July 2018

 

Contact: Douglas McWilliams
Email: dmcwilliams@cebr.com
Phone: 07710 083652

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