Page 20 - bne_newspaper_July_26_2019

Opinion
July 26, 2019 www.intellinews.com I Page 20
priority changes, most notably between Alexei Kudrin’s Economic Advisory Council and Boris Titov’s Stolypin Club. One of the key outcomes of that period was the adoption of the national projects programme and other associated measures to try and both preserve stability and create conditions for steady growth over the next five years.
2019 started with a great fanfare about the $400bn five-year national projects programme, which is
to be at the core of the strategy to propel Russia into a stronger economic space and to improve people’s lives. Today there is a lot of criticism
over the poor implementation of the programme and the fact it appears not to be working. The Audit Chamber recently pointed out that only four of the 13 projects had spent in excess of 30% of their budget allocations for 2019 as of mid-year. In reality, the programme should be considered realistically closer to a six to eight year event
and not a four to five year event. In that sense, the slow start is not such a big deal and there is no basis to assume failure. The fact that there is much greater disclosure of the poor uptake and a more public debate about what can and should be done is a much more positive indicator for the future of the programme.
There will be a great deal of scrutiny about all aspects of the programme, including officially
by such agencies as the Audit Chamber, and, to some extent, this should help accelerate spending later this year and into 2020. The hope as always, is that the need to show success does not become artificial and wasteful — but then Kudrin is determined to make sure “it is different this time”.
But while placing a great deal of hope on
the national projects programme, one of the immediate negatives that the government has to deal with is the very low level of both consumer and business confidence, the result of years of low growth and crisis management. The negative consumer confidence number is not such an issue, as this indicator has only ever been positive three times since 2000, even during the boom
years. But, turning around business confidence and persuading companies to invest will be critical if the currently poor rate of investment is to pick up.
Russia also needs to attract more inward investment to support the national projects. There is a debate over exactly how much FDI Russia attracts. Essentially the differences are estimates about re-investment versus vanilla investment. That FDI has fallen and is currently far too low is not in question. This is the result of the weak economy, sanctions fears and the very poor perception of Russia on the international stage. Getting FDI to rise, and especially into non-extractive industries, will also be a key determinant of whether national projects are effective and the economy revives, or not.
The effort to attract more FDI is of course
linked to the reality and perception of sanctions. Although Russia has escaped new US sanctions this year, it is very likely that at least one new
set of sanctions will be applied before long. The momentum is too strong in the US Congress and Russia too linked with President Donald Trump for that not to happen. It really is only a case of what and when? Most likely, this will now hap- pen in the autumn as Congress is so close to the summer recess. For the economy and investors it all depends on whether the new sanctions are in the categories of “more-of-the-same” or “cosmetic”. If this is the case then businesses and investors will move on. If they are more eco- nomically damaging then the hoped for increase in FDI and other investment will surely be set back for some time.
That the current economic indicators are still “poor” should not be much of a surprise. It
has always been the view, especially that of the economy ministry, that the first half would be tough for the economy (VAT rise, weak confidence, low investment, slow start to national projects, etc.) and that the numbers should start to pick
up in the second half and coming into 2020 especially. The jury is still out. What we are seeing