The WTO and the Asia-Pacific Region Will Help Russia to No Longer Depend on Oil

In a short-term perspective, declining proceeds from hydrocarbon exports may cause a budget deficit - a problem that can be solved either by tapping government reserves or by increasing government debt.
In a short-term perspective, declining proceeds from hydrocarbon exports may cause a budget deficit - a problem that can be solved either by tapping government reserves or by increasing government debt.

If international oil and gas prices are going to stay for some time at their current, sufficiently high, levels (which is very probable, and today's price (as of 12 September) of $ 116 per barrel is quite acceptable), the issue of budget deficit will by no means become acute, and so no urgent stimuli for modernization should be expected to arise in the near future.

There exist two possible scenarios for the attempts to get rid of the ‘oil addiction', when oil and gas will no longer play a decisive role in generating state budget revenue. The first one will happen if the price of oil should decline to a level that will make it impossible to fulfill current government obligations for a rather lengthy period - until the government funds and the potential for borrowing are exhausted. The other scenario will involve growth of government obligations at a higher rate than could be affordable for a system based on moderate economic growth. Or both these scenarios will occur simultaneously.


It should be borne in mind that, sooner or later, this will certainly happen - if simply because the price of oil cannot increase indefinitely, while the physical volumes of its extraction, in fact, have not been increasing since 2004 - the year after Mikhail Khodorkovsky's arrest and the RF government's seizure of Yukos. Thus, while in 1999-2004 the rate of growth of oil production was on the average 9-10% per annum (from 305 million tons in 1999 to 459 million tons in 2004 - an increase by more than 1.5 times), in the period from 2004 through 2011 it grew from 459 to 511 million tons - that is, at an annual rate of 1.6%. The core of the problem is that the longer it lasts the higher will be the cost for the Russian economy of that ‘awareness of the necessity' to urgently introduce a number of major changes that cannot be introduced ‘urgently', at a moment's notice.


The Russian economy's dependence on oil prices has by no means weakened over recent years, because a significant part of this country's budget is generated by oil and gas revenues alone. The share of oil and gas exports in GDP, while having somewhat shrunk since its peak achieved in 2008, when the prices of these resources were highest (then their share was 18%), in 2011 amounted to 14.5%, which roughly corresponds to the level 15-16% typical of the noughties.


The necessity to get rid of the ‘oil and gas addiction' and invest in modernization is well understood not only by the government of Russia, but also by the governments of all the countries with resource-dependent economies without exception - including those whose share of oil in total exports amounts to more than 90% (Saudi Arabia, Algeria, Kuwait). However, it appears that only Norway has actually managed to create a mechanism that makes it possible, instead of simply spending oil and gas revenues, to create incentives for the development of processing industries. In Norwegian legislation it is stipulated that current expenditures may only be covered by revenues generated by invested proceeds from oil exports - i.e., those revenues that are not influenced by fluctuations of global oil prices.


Any investments in infrastructure made in the framework of preparations for summit meetings or Olympic Games can hardly be regarded as a positive development. It has already been noted by many observers that the costs of such events in this country exceed by several orders of magnitude the size of similar costs in other countries. The long-term effect of such investments is doubtful, while their source is generated by the situation-dependent revenues from sale of fuel and energy resources at prices that are still sufficiently high - but some of these projects are still far from being completed (for example, the 2014 Olympic Games and the 2018 FIFA World Cup). Judging by past experiences, the final size of such expenditures is unpredictable, while it is hardly reasonable to hope that oil prices will constantly be on the rise.


Among the proper steps towards genuine modernization we can probably point to Russia's integration in international economic cooperation organizations (accession to the WTO and the proactive agenda for participating in the Asia-Pacific Economic Cooperation (APEC)), because this may help in the transplantation of some of the institutions needed for stable economic development (so far as any appropriate domestic institutions are lacking).


A. Yu. Knobel - Candidate of Economic Sciences, Head of the International Trade Department