Our objective today is to shed light on some key hindrances to Russian economic

development as well as contemplate on the future of Russian economy based on its current
performance. We are going to develop 2 main points and you can see the following plan on the
screen. I know we are pressed for time, so we intend to be brief. If any questions shall arise,
please feel free to answer them at the end of my speech. I hope our presentation will prove to be
enlightening for you.
Lets start with some basic statistics. Russia is the world's largest country in terms of
territory, with a consumer market of over 140 million people and vast natural resources.

2014 marked a vital milestone for our economy, as we managed to gain record 11 points in
the GCI, the biggest leap in our history. Russia is currently ranked 53rd in the Global
Competitiveness Index, and leading economists maintain that Russia with its economy working
at full capacity could become the 20th country by the end of this decade. However, there seem to
be some inborn obstacles as well as recent political uprisings, which may further stunt Russian
economic development. In order to get a concise picture of economic circumstances
foreordaining Russian performance, we have consulted the GCI 2015 Report and further
investigated following dimensions:

1) Institutions 3.5
Perhaps one of the most critical congential malfunctions in the course of Russian
development is its bureaucracy. Rooting its grip firmly since the Soviet times, bureaucracy
in Russia still entails strict government control and growth of public sector under the
disguise of democracy. It is true that some progress is being made in the sphere. For

instance, consider the following data extracted from the Doing Business report of 2014: due
to the gradual improvement of property rights enforcement, Russia is bound to experience
augmented investment inflow. On the screen you can see the statistics which corroborate that
Russia is becoming more attractive in terms of starting a business and running it.

This fact as well as the growing government spending should imply that Russian institutional
structure is on the road of recovery. However, larger government expenses on apparatus
have failed to improve the delivery of public services in sectors ranging from health to
infrastructure. In part because of this, popular discontent has been on the rise regardless of
the increasing material comfort enjoyed by the countrys growing middle class.

On top of all that, It is no secret that Russian government is highly corrupted and day-to-day
transactions involve red tape and abuse of power of enormous scale. Russia is ranked 78th most
corrupted country and 30% of enterprises are state-owned, which greatly discourages foreign
investment.

Russias weak and inefficient institutional framework (97th) remains its Achilles heel and
will require a major overhaul in order to eradicate corruption and favoritism (92nd) and reestablish trust in the independence of the judiciary (109th).

2) Infrastructure 4,8
Russian infrastructure is largely underdeveloped, especially in provinces, which mainly
explains low levels of foreign investments into local enterprises. Due to lack of ready
infrastructure and complicated customs regime potential investors have to go to great lengths to
sustain their businesses: they need to pay for the connection of facilities (while in most countries
such utilities are financed by the state) as well as personally ensure that all clearance papers are
fine.

3) Human capital development 5,0

Cultivating Human Capital should become the first and foremost concern of the Russian
government, as it is one of the most important factors of rapid economic growth. Unfortunately,
Russia is having problems in this sphere: quality of high education and academic research
actually seems to have been sliding over the last 15 years (e.g., number of doctoral theses and
international scientific awards of Russian origin has plunged by 40% since 1996). Furthermore, I
am sure you have all heard of the tremendous scale of Russian brain drain, when leading
master-spirits leave Russia for the promise of high wages and career opportunities in other states.
4) Innovation and technology development 3,3
1.13 1.09 1.12
Russian Federation
Expenditures for research and development are current and capital expenditures on creative
work undertaken systematically to increase knowledge. In other words, extent of R&D
displays the level of business sophistication, production efficiency and, thus, auspicious
investment climate. As you can witness on the following graph, Russian spending on R&D
appears to be rather stagnant: it has not significantly changed over the past 4 years, at the
same time staying lower than in most other developed nations. Once again, this trend
contributes to Russian problems with the attraction of foreign capital, as it shows
inflexibility of domestic markets.

5) Macroeconomic environment
Moving on to the last but not least indicator, macroeconomic environment, we cannot but
mention recent political uprisings in Ukraine. Needless to say, the reverberations of the Ukraine
conflict such as sanctions and potential disruptions to the gas tradecould affect the countrys
competitiveness. These implications could be especially serious given
the reliance of the education and innovation sectors on public funding, which will become more
scarce than it has been in previous years and for accessing technology developed abroad.
The peace has still not settled, and leading economists still argue about the possbile aftermath
for the global economic arena, so we, third-year students, would not want to dwell on the subject
and speculate as to the cause and consequences of the crisis. Instead, we would like to put the
emphasis on the ramifications of tightening international relations: worsening prerequisites for
global trade and gradual rouble devalvation.
It is a universally acknowledged truth that Russia is a resource-oriented country. Our vast
territory is abundant in natural resources and we seem to exploit this opportunity to the fullest
extent possible. However, the problem is that instead of deploying these resources to production
and exporting finished goods at a higher cost Russia mainly exports them as raw materials and
imports finished commodities. Basically, Russian economy is under the commodity curse:
states driven by resources are extremely volatile both in political and economic terms. For
instance, during 2008 crisis Russian output has decreased by nearly 9% - a plunge that mature
economies simply do not experience. However, current situation heads all the records. Due to
upcoming economic crisis, prices on oil are gradually dropping, stripping Russian economy of its
major export item and the lions share of its national income.

On top of that, Russian ruble has reached its minimum value compared to dollar and euro,
marking a striking devaluation of Russian currency.

According to economic theory, devaluation is associated with a high demand for foreign
assets (capital outflow), so for its termination demand for imported goods should slump.
However, here again we fall into a vicious circle: as I have mentioned before, Russia tends to
import most of its finished goods. Therefore, it depends on foreign trade and is thus interested in
cementing relations with its partners, which is difficult at the time given the circumstances and

sanctions.

As if that is not enough, Russian inflation is currently surging, but our country is
nevertheless running a budget deficit.

So, lets recap what has been said so far. On the screen you can see a typical representation
of an economy provided by the Global Competitiveness report broken by 5 dimensions, which
we have just discussed. In general, Russia is currently going through a tough phase of transition
in terms of impetuous political and economic turbulence. The Russian economy continues to
face many deeply rooted challenges that will have to be addressed for the country to strengthen
its competitiveness. In order for Russian economy to begin a modest recovery, Russias leaders
ought to put renewed emphasis on promoting innovation as key to economic modernization and
attraction of foreign capital. Needless to say, economy of our vast country isn't stable yet, so its
vague future prospects still remain to be seen.