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Should Russia get rid of its dependence on oil exports?

February 19, 19:20 UTC+3 Alexandrova Lyudmila
© Viktor Drachev/TASS

MOSCOW, February 19. /TASS/. To which extent will the Russian economy remain dependent on raw material exports in the future and are special efforts, if any, are needed to get rid of its dependence on crude oil? These are the questions that were debated at the Krasnoyarsk economic forum on Friday as part of discussions on the country’s long-term strategy through 2030.

In the short term, the country’s refusal from hydrocarbons would be simply madness but conditions should undoubtedly be created gradually by 2030 to cut considerably Russia’s dependence on two major export commodities, experts say.

There is no full unity among representatives of the Russian economic authorities in the assessment of this problem. Deputy CEO of Russia’s national development bank Vnesheconombank Andrei Klepach told TASS at the forum’s business breakfast he was confident that Russia could not and should not get rid of its dependence on crude oil exports amid technological advances.

"While looking at all technological innovations, we constantly underestimate the fundamental basic role of hydrocarbons in the development of our economy. We say all the time that we must get off this oil needle. I don’t know about the oil needle or even pipeline but I think that we can’t get off it," the bank’s executive said.

Meanwhile, Head of Macro-Economic Analysis at the Center for Macro-Economic Studies and Short-Term Forecasting Dmitry Belousov said that the role of hydrocarbons in the world was declining amid the active and rapid development of technologies.

Hydrocarbon raw materials can remain the nucleus of the Russian economy, Deputy Prime Minister Arkady Dvorkovich said. ‘It is silly to give up what is our natural wealth," the vice premier said.

But still, Russia should think about a greater share of its two other national wealth assets — land and people — in its economy, he added.

Getting rid of its dependence on hydrocarbon exports is a major economic problem for Russia, experts say.

"This has long been the subject of discussions and this is correct: the economy should not depend so critically on one or two basic export commodities," Professor at the Higher School of Economics Igor Nikolayev told TASS.

"This does not mean that we’re giving up this competitive advantage given by God. We’re rich in oil and gas but the economy should be based on a model, under which nothing terrible happens, when the prices of energy products fall. This means that other sectors of the economy should undoubtedly develop," he said.

The expert cited Saudi Arabia as an example. "Oil prices are falling but nothing terrible happens: last year, the Saudi economy grew by 3%. This is because there are economic sectors, even if smaller in size, which act as triggers in the period when the economy is experiencing difficulties. That is why, it is undoubtedly necessary to get rid of dependence on crude oil exports in the sense that the economy should not depend so critically on foreign market trends," he noted.

"The first thing that should be done is to develop competition," the expert said. "Apart from improving the judicial system, the economy can be diversified only through the development of competition," he added.

"First of all, it is necessary to clearly distinguish the role of hydrocarbons at the present moment and in the long-term perspective," Macro-Economics Expert, Associate Professor at the Russian Presidential Academy of the National Economy and Public Administration (RANEPA) Sergei Khestanov told TASS.

"Whether we want this or not, but hydrocarbons currently account for slightly less than a half of federal budget revenues, which is very much. So, we can talk a lot about getting off the oil needle but if this is done abruptly today, it will be a complete disaster," the expert said.

Russia needs to take advantage of the possibilities offered by the export of hydrocarbons now because they cannot be replaced quickly, he noted.

"Moreover, there is an example when a country gave up revenues from hydrocarbons for a banal reason: the deposit was depleted. This country is the Netherlands. As the Dutch experience shows, it will take from 12 to 15 years to adapt to new conditions. That is why, if we speak about the 2030 strategy, this approximately corresponds to such a period of time," the expert noted.

"The need for hydrocarbons will be decreasing gradually on the horizon of 10-15 years," Khestanov said.

"Fortunately, there are no grounds to expect that this will happen sharply and by leaps and bounds. The most correct thing now is to simply try to create conditions that would facilitate the development of non-raw material businesses," the expert said.

What’s more, it is not the business of the state to predict which non-raw material sectors should develop, the expert noted.

"It will be more appropriate to prescribe the rules of the game in the strategy: the pledge to keep the tax burden from increasing and ease regulatory requirements. Excessive control is one of the main troubles that hinder the development of non-raw material business," the expert said.

At the same time, prescribing the allocation of state funds in the strategy for the development of particular sectors is a wrong move, he noted.

"The message that the state should allocate money to develop something is wrong. It is necessary to lift the regulatory and tax burden and then Smith’s methods will be at work to fill business niches with those who want to develop this activity," the expert said.

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