Energy superpower or high-tech hub? Russia puts diversification on back burner

Russia has come a long way since its 1998 default on $40 billion US of Soviet-era debt, burying its image of a handout-hungry giant and positioning itself as one of the world’s energy superpowers.

But with oil revenues gushing in and its state-controlled oil and natural-gas companies in the ascendancy, the Kremlin’s oft-stated goal of diversifying the economy away from its reliance on hydrocarbons and turning Russia into a high-tech hub seems far in the future.

That’s hardly surprising – the oil sector’s numbers are spectacular enough to distract almost anyone – but economists say it could be problematic for the country’s economy down the road.
…Meanwhile, graft and opaque regulations hold back foreign direct investments – as well as what Westin calls the crucial “spillover” of technologies and knowhow that come with them. Russia’s total net foreign direct investments at the end of 2004 came to $89 per capita, compared with $5,000 for the Czech Republic and $4,000 for Hungary, Westin said.

“That’s the primary inhibitor for even more investment and the growth of small and medium-sized business – the administrative burden and the corruption that goes with it,” said Andrew Somers, president of the US-Russia Chamber of Commerce.

Nowhere is the knowhow that foreign direct investment can bring needed more urgently than the oil and gas sector. With global energy consumption set to soar, all eyes are on Russia to push on with developing new and promising fields that are locked in its more hostile territories. Changes to the tax laws that would make such investments viable are still in the works as are long awaited regulations that would clarify the limits on investments in certain sites in the energy sector.

CBC