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Russia faces era of stagnation

Thursday, November 07, 2013 - 02:06

Nov 7 - Russia acknowledges for the first time that its economy will lag global growth in the next 20 years, setting the stage for an era of stagnation that could threaten President Vladimir Putin's grip on power. Sonia Legg reports

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It's sparing no expense when it comes to the Winter Olympics - sending a torch into space en route to Sochi. But it seems Russia's economy isn't shining as brightly as it should be. The Economy Minister has just forecast growth of around two and half percent over the next two decades instead of 4 percent That raises the prospect of an era of stagnation. Many international investors aren't surprised. Dominic Johnson is Chief Executive of Somerset Capital (SOUNDBITE) (English): DOMINIC JOHNSON, CHIEF EXECUTIVE, SOMERSET CAPITAL, SAYING "You have a highly educated population but the government structures do everything they can to try and dampen wealth creation and entrepreneurship. Because of corruption you don't have a small and medium-sized business environment like the Mittelstand in Germany or the nation of shopkeepers in Britain and that's a big problem because you have no companies that go from being small to medium to large." Russia is the world's largest oil producer. But the grim outlook suggests it still relies too heavily on high and rising oil prices. It also makes Russia a poor relation in the BRICS group of large emerging markets. Together they're expected to grow at a rate of 5.2% President Putin has often boosted his country will be a top five economy by the end of the decade - but that now looks unlikely. (SOUNDBITE) (English): DOMINIC JOHNSON, CHIEF EXECUTIVE, SOMERSET CAPITAL, SAYING "There have been some very interesting and innovative company formations in Russia but they are never allowed to flourish so from our point of view as investors in Russia - we specialise in smaller companies - it is hard for us to find opportunities. At the very big cap level I think people have started to see elements of reform in efficiencies in some of the mega caps but the rest of the economy is very hard to find opportunities and as a result they are never going to experience above trend growth." The Olympics are meant to show Russia as a modern go-ahead country. But even that has been marred by concerns about gay rights and human rights. After 14 years in power - as either President or Prime Minister - Putin could be facing his toughest task yet.

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Russia faces era of stagnation

Thursday, November 07, 2013 - 02:06