Putin’s Agency Seeks Steps to Halt Degradation of Russia Exports

Prime Minister Vladimir Putin must take active steps to reverse the “degradation” of Russia’s exports, which are heavily skewed toward commodities, according to an advisory body set up by the president-elect.

The world’s biggest energy producer should give aid to help domestic companies regain market share and compete by providing export insurance and state subsidies, assisting them in hedging risks and lifting visa regimes with other countries, a working group of the Agency for Strategic Initiatives, established by Putin in the run-up to the March 4 presidential vote, said in an e-mailed report yesterday.

Putin will next month discuss the recommendations made by the group, which is led by Pyotr Fradkov, head of Russia’s Export Insurance Agency. It’s one of four initiatives crafting proposals for improving the investment climate in the country.

Russia, which Putin says must grow at least 6 percent annually to become one of the world’s five largest economies in terms of purchasing power, has an “export diversification coefficient” comparable with Zambia, Bahrain and Nigeria, according to the report. Oil, refined products and natural gas accounted for 67 percent of all exports last year, from 49 percent in 2000, when Putin won his first presidential term.

Rising prices and output during the past decade meant oil and gas were contributing 4 percentage points to the average 7 percent growth, Deputy Economy Minister Andrei Klepach said earlier this month. Given forecasts of stagnant oil production and “modest” increases in gas output and exports, the industry can now only provide 1.5 to 2 percentage points of growth, the ministry estimates.

‘New Industrialization’

Putin, who will return to the Kremlin next month for a six- year stint, has called for a “new industrialization” to wean Russia off its reliance on commodities. Russia depends on energy exports for half of budget revenues. The economy, the world’s ninth largest, expanded 4.3 percent last year, the same pace as in 2010. The government predicts growth will slow to 3.4 percent this year.

Russia’s high-technology exports make up 3 percent of the total, consisting almost entirely of weapons and equipment for nuclear power plants, the working group said. Only one of 200 companies registered in the country ships goods abroad. Government outlays for guarantees and risk insurance for exporters in 2009 and 2010 amounted to 0.5 percent of the state support extended by China and about 1 percent in Germany, according to the report.

Doubling Exports, Exporters

The Russian government should implement steps to more than double non-energy exports and almost double the number of exporters by 2020, the group said. Its proposals range from procedural “liberalization” for refunding value-added tax payments to the provision of new financial products for exporters. The authorities need to eliminate a visa regime with at least two countries annually, it said.

“Russia’s positions on growing world markets are very weak and have a tendency to worsen,” the group said. “The lack of effective government support, high customs, administrative and fiscal barriers for exports sharply diminish opportunities for starting export business.”

To contact the reporter on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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