Finansnyheder

Russians sceptical of Putin’s grand projects as economy founders

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You can learn a lot about Russia’s struggling economy, and the Kremlin’s much-trumpeted Rbs 25.7tn ($390bn) spending plans to kick-start it, from a wander around Moscow’s Kazansky railway station.

Under ornate chandeliers and grand Soviet murals depicting the triumph of labour, the small electronic departures board tells a story of under-investment, outdated infrastructure and years of unfulfilled promises. 

No more than eight trains run from the capital to regional city Kazan each day, taking roughly 12 hours to trundle along the 750km route. To fix that, president Vladimir Putin has promised to build a Rbs 1.7tn ($25bn) high-speed line reducing the journey to three and a half hours. It is a prominent initiative in the Russian leader’s grand scheme of “National Projects” that the Kremlin says will reinvigorate the country’s moribund economy.

But those clutching suitcases on the platform have heard it all before: Mr Putin first made such a promise six years ago, and weary travellers are still waiting for work to start.

Many fear that a similar tale of ambitious but unfulfilled pledges will undermine the Kremlin’s promised five-year investment bonanza, which has been billed as the cure to Russia’s economic ills: from tepid growth and low productivity, to falling real incomes and a heavy reliance on exports of oil, gas and other natural resources.

But projects tackling everything from demography and infrastructure to clean water and providing musical instruments to schools are bogged down, people involved in their implementation told the FT, in tussles over financing and confusion over how private companies should contribute.

Ministers managing the schemes “are totally naive about [them], and view the whole thing with such simplicity,” said one person involved in funding discussions. “They have no real clue about the numbers involved and what they expect to achieve from it. They are like children: asking [each other] ‘OK, so there is all this money. How can we spend it?’”

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Mr Putin has formally put prime minister Dmitry Medvedev in charge of implementing his vision. Earlier this month, Mr Medvedev admitted “delays at the federal level” and chided regions “where the pace of work is lagging behind”.

The stakes are high. Since 2014, when international sanctions were first imposed on Moscow following the annexation of Crimea, Russia’s economy has grown by just 2 per cent. Russian workers have seen their disposable incomes fall for five of the past six years, while being told to work five years more to get their pensions and stomach a rise in VAT.

That gloom has seen trust in Mr Putin fall to historic lows, and helped fuel a summer of protests in Moscow.

Mr Putin has billed the projects as a “decisive breakthrough” for the economy, and officials have also held them up as the solution to Russia’s falling labour productivity, foreign investment inflows and quality of life indicators.

“Those national projects by the government of Russia that can strengthen human capital and increase productivity would increase growth,” Apurva Sanghi, lead economist for Russia at the World Bank, told the FT. “But their success boils down to three things: first, how well they are implemented, particularly on the regional level; second, how ‘additional’ they are — will they merely be old wine in new bottles? Finally, can they leverage private money?”

The scope is extraordinarily broad. The projects are spread over a dozen general areas comprising various objectives ranging from specific targets, such as almost doubling non-energy and non-resource exports to $240bn by the end of 2024, to much vaguer goals such as “the preservation of forests”.

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Cash is available. Years of hawkish budgets and a decision to balance state spending means Russia’s reserves have risen by 45 per cent since 2015 to $518bn midway through this year.

But implementation is already lagging behind schedule. In the first half of this year, only 32 per cent of the promised funds for National Projects initiatives was spent, according to Russia’s Accounts Chamber, a government spending watchdog.

Just 12 per cent of the money allocated for spending on a project to build safer roads was used in the first half of the year, it said, while only 24 per cent of the cash promised for modernising and expanding core infrastructure was deployed.

“They kick-started this far too early before anything was properly prepared,” one top executive working on one of the projects told the FT.

Complicating the process, roughly 30 per cent of spending on the six-year plan is envisaged to come from private companies, but executives told the FT that there was little communication or co-ordination between ministries and boardrooms.

A demand for corporates to chip in was first mooted last August in the form of a new tax on natural resource companies, which Mr Putin’s economic adviser said had reaped “excess income” from high commodity prices. That idea was abandoned after a backlash from executives, who then agreed to contribute to the National Projects as a compromise.

Analysts have also warned that even if the projects bring the effects promised by the Kremlin, they will not be enough to drive sustained long-term growth without further reforms to reduce the role of the state in business and attract investment.

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Christopher Granville, managing director at TS Lombard, said the initiative “will still be only a necessary rather than a sufficient condition for higher sustainable growth potential”.

Via Financial Times

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