Russia’s economic bandwagon rolls on despite major problems

MOSCOW. (Ian Pryde for RIA Novosti) – Several events this week cast interesting light on Russia’s economy, and the different perceptions of the country here and abroad.

After Heiligendamm and the St. Petersburg International Economic Forum, Renaissance Capital, one of Russia’s leading investment banks, held its 11th Annual Investor Conference in Moscow, this year on the theme “Russia: Investing in Prosperity.”

As Renaissance Capital CEO Stephen Jennings said, “this conference is coming at a time when Russia is experiencing a great deal of prosperity, as well as economic and political prominence around the world. Renaissance Capital is extremely bullish on Russia. Despite the market’s less than stellar performance this year, we are confident Russia will continue to be one of the most dynamic, exciting and rewarding economies for investors for many years to come.”

Former U.S. Secretary of State Colin Powell gave a keynote speech to over 1,000 investors, corporate executives and senior government officials at the conference, including Deputy Prime Minister Sergei Naryshkin, Minister of Finance Alexei Kudrin, Minister of IT and Telecommunications Leonid Reiman, Minister of Industry and Energy Viktor Khristenko and director of the Federal Financial Markets Service Vladimir Milovidov.

Also this week, the American Chamber of Commerce held two of its regular breakfasts for members, with guest speakers Robert Kimmitt, Deputy Secretary at the U.S. Treasury Department, who spoke on the importance of open investment in the United States and Russia, and Bill Bradley, former U.S. Senator and presidential candidate. AmCham President Andrew Somers also briefed members on the Chamber’s efforts to persuade Congress to repeal the Jackson-Vanik amendment and grant Permanent Normal Trade Relations (PNTR) status to Russia.

The Russian Cabinet, on the other hand, was more concerned this week about tax, which remains problematic despite the higher tax take following reform during Putin’s first administration.

The Cabinet discussed ways of improving the efficiency of the Federal Taxation Service and increasing motivation among tax inspectors.

Prime Minister Mikhail Fradkov argued that the Taxation Service must be seen not as an enemy of business and out to destroy it, but as an agency willing to help companies pay what is due.

Both Russian and international television have shown raids on Russian companies for tax and other infringements carried out by men carrying machine guns – a heavy-handed approach hardly conducive to building trust and good relations with business.

In addition, companies spend much more time on tax administration than their western counterparts.

Minister of Economic Development and Trade German Gref was also correct when he said that everyone knows the Taxation Service is corrupt.

However, Mikhail Mokretsov, head of the Federal Taxation Service, later told journalists that nearly $1 billion had been set aside in 2007 to pay staff, which would give individual tax inspectors between 30,000 and 40,000 rubles per month, rather less than $2,000.

Given the huge sums transferred by corporate taxpayers, however, it has to be wondered whether this salary, high compared to the Russian monthly average of around $500, represents more than a start and will really stop bribery.

On a brighter note, the government hopes that by 2013, around 65% of Russians will have access to their financial data online, a huge increase on the current figure of just 5%.

This figure is of course far below western levels and reflects the much wider problem that Russia’s infrastructure remains woefully inadequate and is a severe constraint on the country’s further economic development.

During Cabinet discussions last week on how to improve Russia’s appalling transport system, in particular its poor, potholed roads, Prime Minister Mikhail Fradkov interrupted Transport Minister Igor Levitin when he began telling the Cabinet that his Ministry had “developed a concept….”

“This is all nonsense,” might be a very rough translation of Fradkov’s interjection.

Fradkov when on to threaten to kick the minister soon, rightly pointing out that the Cabinet spends a lot of time developing plans, but is very short on real action to solve problems.

There is then a paradoxical situation in Russia. Businessmen within the country, especially outside the energy sector, are extremely bullish on Russia’s future and have been investing increasing amounts in recent years, while many outside observers focus on Kremlin politics and oil to the exclusion of virtually everything else.

The Kremlin and the government are also very upbeat on the country’s future and proclaim this to Russians and the rest of the world, and yet they are also very alive to the country’s problems.

The big problem is that the authorities are still finding it very difficult to implement solutions that really work.

Ian Pryde is CEO of Eurasia Strategy & Communications, Moscow.

The opinions expressed in this article are the author’s and do not necessarily represent those of RIA Novosti.

Originally written for Ian Pryde’s weekly column for the Opinion & Analysis section of RIA-Novosti’s English-language website.

Now available at, the site of the Sputnik news agency, the successor to Russian state-owned RIA Novosti’s international branch, which became defunct in 2013.

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