Russia: Energy-Based Economy Tries To Diversify

Russia’s economy, the cliche goes, rests on two pillars: oil and gas. Now President Vladimir Putin says it’s time for that to change.

Putin, meeting with the country’s top business leaders on February 6, said Russia needs a more diversified economy with a stronger manufacturing sector.

But making Russia’s market more flexible and dynamic means the Kremlin will need to give up something it has always craved — control. Is Putin prepared to loosen the reins?
Today, opportunities have been created for taking coordinated action in order to use the country’s natural resources more efficiently and to reorient the economy toward an innovative way of development,” Putin said following the meeting. “Frankly speaking, we need to take qualitative steps to move from the simple extraction of natural resources to their complete processing.”

But analysts say turning Russia’s energy economy into a manufacturing power will be a gargantuan task.

“This has never been a strong suit for the Russian economy or the Soviet economy, said Marshall Goldman, professor emeritus in Russian economics at Wellesley College in the U.S. state of Massachusetts. “So [Putin] keeps talking about doing this, but it is really pushing the stone up the hill. The reason for that is that Russia was never strong as a manufacturer, and it lacks the sense of working with the market.”

Economists point out that Russia’s current manufacturing sector — building pipelines, for example — is highly dependent on the energy industry and would suffer if energy prices fell.

Putin meeting with business leaders in the Kremlin on February 6 (TASS)
“But the problem of making Russia’s economy more flexible is even deeper and more fundamental.

Radio Free Europe