Russia has Few Export Goods with Comparative Advantage

One of the topics of discussion at the 9th Gaidar Forum was dedicated to a search for Russian economic growth sources in foreign trade.

At the political level, the goal was set to increase exports and promote global competitiveness of the Russian economy on the international market and enhance the foreign trade’s contribution to the Russian GDP growth rates.

The targets are set as follows: by 2025 Russia is expected to increase the value of exports to $500bn: exports of primary products up to $300bn ($225bn in 2017), while non-resource-based exports up to $200bn (about $125bn in 2017).

To increase revenues from primary product exports, it is necessary to act along the following two lines. On one side, it is important to promote Russia’s presence both on the European and Chinese natural pipe-line gas markets. On the other side, it is required to increase own production of liquefied gas: at Sakhalin-2, Baltiisky SPG and Arctic SPG in Murmansk, as well as use to the maximum the design capacity of Yamal-SPG. Without it, it is infeasible to achieve the targets set in respect of primary product exports.

As regards non-resource-based (non-oil and gas) exports, Russia should build up its presence on the European and Asian-Pacific markets. The target indicator can hardly be achieved only by means of promotion of growing demand on partner-markets. Advanced export growth is required. Russia should increase the share of its goods on its partners’ markets.

It is to be remembered that so far Russia is weakly integrated into the added-value global chains: according to formal indicators Russia is almost 1.5-2 times inferior as compared on average to OECD countries, which situation can be explained by the fact that Russia uses imports ineffectively. It does not matter whether Russia imports much or little. The problem is that imports are marginally used for production of goods which go for export, that is, technological chains break up because of domestic demand, while, on the contrary, they should go further.

Russia has few export goods with comparative advantages and that is a serious problem. It is to be noted that out of 1200 commodity items, Russia has only 160–170 goods with comparative advantages in the export basket. For example, China has over 500 goods, while the US and other developed countries, over 400. It means that the Russian export pattern is not properly diversified. To receive higher export-related revenues, Russia has to make its exports more sophisticated.

To achieve foreign trade benchmarks, it is necessary among other things to solve some administrative and political issues: simplification of customs procedures, easing and subsequent abolishment of the foreign exchange regulation regime, active participation in integration processes, as well as handling of logistic issues related to “removal of bottlenecks” in foreign trade operations.

Alexander Knobel, PhD, Economics, Head of the Foreign Trade Department, Gaidar Institute.