Monday, March 4, 2013

Window on Eurasia: Russia’s Fate May Depend on Its Regions Rather than the Other Way Around, Moscow Commentator Says

Paul Goble

            Staunton, March 4 – It is a commonplace to assume that the fate of Russia’s regions depends on what Moscow does, a dependency for which there is much historical evidence, but according to a Rosbalt commentator, the Russian Federation may be entering into a new period, one in which the country will depend on its regions rather than on what Moscow does alone.

            In a short article on’s business page, Maria Kovatsenko makes what is certain to appear to most people as a counter-intuitive and fundamentally incorrect view. But even if she is wrong, her argument deserves attention for what it says about expert opinion in Moscow and about the nature of Russian politics in the future (

            She begins by suggesting that it is normally thought that “the subjects of the Russian Federation in which there is no oil and gas are incapable of existing without the support of the federal center” and that in the event of an economic crisis, “half the country would collapse like a house of cards,” and she concedes that there is some truth in this observation.

            But Kovatsenko points out that “economists are certain that some of the regions would be able not only to successfully survive such a shock but even become locomotives of economic growth for the entire country.”  If they are right, this could change the politics of the relationship of the center and the periphery.

            She notes that the World Bank recently lowered its forecast of Russian economic growth in 2013 from 3.6 percent to 3.3 percent and suggested that Russian cannot count on a rise in oil prices, will continue to face relatively high inflation, and will see a further decline in economic activity within the country.

            If oil prices do not rise, that means that Russia will have difficulties in maintaining a higher level of growth especially in the World Bank’s words when “unemployment is at a record low level, the workforce is contracting with the aging of the population, and the amount of oil pumped is declining because of the lack of major investment and the closing of new fields.”

            Experts, the Rosbalt commentator continues, have already noted that Russia is “close to a phase of economic stagnation and will, as Oleg Tsyvinsky of the Russian Economic School points out, “will have to carry out administrative reforms” in order to reduce still further the need for new workers.

            Tsyvinsky adds that in that event there is new room for development in the regions since some of them can be quite attractive for investment and with investment, “they are completely capable to work as locomotives of reforms by showing the entire country how to escape fromm ineffective administration.”

            Given Moscow’s enormous spending on the regions, “it is difficult to imagine that the subjects of the Russian Federation can get along without such aid,” Kovatsenko observes, but “certain subjects … are already learning to survive on their own,” including Kaluga and Leningrad oblasts and the Republic of Tatarstan.

            Smaller regions obviously cannot be motors for development, but large ones may be able to do so.  Aleksandr Naumov of the High Test Invest-Prospect Group argues that the St. Petersburg area is one that can develop as a logistics center and a cluster of industrial development.

            And he suggests that Krasnodar Kray has a similar potential given its agriculture base, investments in support of the Sochi Olympiad in 2014, tourism and logistics.  Other regions likely to move forward even if Moscow can’t are the Middle Volga, some subjects in Siberia and others in the center and northwest of the Russian Federation.

            Such breakthroughs, of course, will happen, Kovatsenko observes, only if Moscow forces these regions to “work more effectively” by rewarding those who do rather than supporting those who don’t. That push could come in the form of federal co-financing of regional infrastructure projects, according to Natalya Volchkova of the Russian Economic School.

            In such an environment, “each subject of the Russian Federation will be forced to search for its own path of development. For some, these will be mega-projects of all-Russian size … for others, it will involve exploitation of natural resources. But the main intrigue,” Kovatsenko concludes, will involve those regions which do not have significant raw material resources or major investments.”

            Increasingly, they will have to live by their wits, by improving the effectiveness of their administration of the economy.  And how well they do in that regard will profoundly affect how well the Russian Federation does and what the relations between the center and the periphery of the country will be.

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