Posted on January 18, 2013 - by Venik

Russia may be an economic powerhouse, but it’s no China | Andrew Ryvkin

PwC says Russia will be Europe’s biggest economy by 2030 – I say it is hampered by its politics and uncompetitiveness

Russia is to become Europe’s leading economy by 2030, surpassing Germany, and pushing the UK out of the top 10 by 2050, according to a new report titled Brics and Beyond released by PricewaterhouseCoopers. But should we believe them?

It’s not to say that Russia isn’t able to become a leader. The largest oil producer in the world, and with its 2011 GDP (PPP) ranking just below Germany, Russia does seem like a candidate to become Europe’s leading economy by 2030 and stay that way well into 2050. But that’s only if you make a prognosis based on the utopia that strict economic policies, not politics, rule these wintery lands.

To understand what Europe would look like with Russia at its economic helm, one must take a closer look at the way Russia deals with money. One should also have sedatives close to hand while reviewing the figures. Russia has become one of the most corrupt countries in the world, and is barely making an effort to hide it. For instance, one of the Sochi 2014 Olympic projects – a 50 km road – costs nearly $8bn. A theatre (Bolshoi, to be precise) is being renovated for $750m. The list goes on.

If Europe’s current economic leader, Germany, is currently associated with its policy of austerity, Russia is known for precisely the opposite. And here you’re inevitably faced with a question: how would the Russian government act if it became a leading European economy and faced a crisis like the one in we have now in the eurozone, considering that this government has allowed the construction of a $160m/km road? Of course, big building projects are a universal means of corruption (although not to this extent), but it’s just one of the factors that prevents Russia from becoming a leader by 2030.

Putin’s key argument with Russian people boils down to “you became wealthier with me at the helm”, a trick where the steady rise of oil revenues (in reality due to increased consumption in China and an unstable Middle East) is attributed to Putin’s successful policies. The reality is that this country would have raised its GDP even with a 10-year-old as president (as long as he was smart enough not to stop the flow of oil and gas).

It’s interesting how two of the projected 2050 leaders – world leader China and European leader Russia – are way behind on democracy. But if China’s experience in restricting internet access and curbing political freedom, all while assembling millions of iPhones and being a key player on the global market, seems to contradict the principle that democracy brings economic prosperity, Russia’s interior policy is almost designed to keep its economy back.

The main difference between these two members of Brics is that Chinese politics caters to its economy, with the communist model being modified to accommodate a localised version of capitalism, while in Russia, the economy caters to politics. Putin’s politics.

Here’s a question: who would want a Russian-made car, when even Russians don’t want them? Another one: who wants to fly Russian aeroplanes, when even in Russia people choose to fly on a Boeing or Airbus? But these huge industries still exist, resembling Frankenstein’s monsters of Soviet industrial might, brought to life by heavy injections of oil money and created by businesses that ultimately cannot produce a competitive product.

It goes against almost every aspect of economic, market-oriented logic, but it has nothing to do with the economy, because it aims to keep the workforce loyal to the government and project an image of a neo-Soviet industrial power. So is securing votes at the cost of your country’s economic development today a strategy worthy of someone who is going to lead the European economy in seventeen years? Is the strategy even smart?

Sheer market analysis and formula-based approach works with the more predictable countries – those who try to adhere to a specific model of development, and are successful at it. Russia, although a candidate to become Europe’s leading economy judging by the growth of its PPP, is still a country that can take an unpredictable turn and is likely to never find a path to European economic leadership, regardless of its proven oil and gas reserves, strategic location or any other benefits it might have. If Russia is going to become a leading European economy by 2030, it certainly needs to fix its own economy – something this country’s current leadership is unlikely to attain.