Syndicate content

Russian Federation

The Decline in Oil Prices: An Opportunity

Ivailo Izvorski's picture

A decade of elevated oil prices brought prosperity to many developing countries. Incomes rose, poverty shrank, macroeconomic buffers were rebuilt. The fiscal space for investing more in education and infrastructure increased, resulting in better sharing of prosperity. At the same time, higher commodity prices and surging global demand resulted in much more concentrated exports in all developing oil-rich countries. "Diversifying exports" became a priority for policy makers and development economists around the world. Historical experience and evidence to the contrary from successful resource rich countries notwithstanding, many widely believe that a more diversified export structure should be an important national goal and may well be a synonym for development, a goal that government can target and achieve.  And a more diversified export structure typically meant a smaller share of commodity exports in total shipments abroad or a reduced concentration – as measured by the Herfindahl-Hirschmann index – of exports.

How Well did We Forecast 2014?

Shanta Devarajan's picture

A year ago, we polled Future Development bloggers for predictions on the coming year (2014).  Looking back, we find that many unforeseen (and possibly unforeseeable) events had major economic impact. 

We missed the developments in Ukraine and Russia, the spread of the Islamic State in Iraq, the outbreak of Ebola in West Africa, the collapse in oil prices and their attendant effects on economic growth.  At the same time, we picked the winner of the soccer World Cup, and got many of the technology trends right. Perhaps economists are better at predicting non-economic events.

Here’s the scorecard on the seven predictions made:
 

The Impact of Falling Oil Prices

Birgit Hansl's picture

 Notes from Russia and Kazakhstan

Petrol tanker driving along the rural road in Russia Oil prices tumbled dramatically since July when they reached US$115 per barrel to below US$65 per barrel in recent days. Despite the sharp price decline, OPEC signaled no intention to cut production.  The oil market remains well-supplied and there is demand-driven pressure on oil prices, following weak economic data from the Euro zone and a number of emerging economies, including Turkey, Brazil, Russia, and China which means that the oil price could fall even further and remain low for longer.

The economic prospects of many resource abundant economies are tied to oil prices. Russia and Kazakhstan are two extreme cases. Such dependency translates into volatility of export receipts and government revenues and, depending on the exchange regime, to a decline in the national currency. For Russia, oil and gas provide about 70 percent of its exports and 50 percent of its federal budget. In Kazakhstan, oil revenues constitute about half of government’s total revenues and 45 percent of foreign exchange earnings.

Why Should we Worry about Russia’s Low Growth?

Birgit Hansl's picture

Facade of a housing estate For 2014, we project that Russia’s economy will grow at an estimated 0.3-0.5 percent. This is the lowest growth rate since the global financial crisis but higher than the high-risk case scenario which was expected since the geopolitical tension started and the sanctions of the EU and the US took hold. This means that Russia’s expected economic performance in 2014 will be similar to that of the Euro-zone, even though Russia is much more dependent on the European market than the EU is on Russia.

Let’s Talk Convergence

Homi Kharas's picture

The city of Tianjin In a recent article called “Economic Convergence: The Headwinds Return”, The Economist magazine called the rapid convergence of income levels between developing countries and the United States an aberration. It presented data showing that the difference between income per capita growth in developing countries and in developed countries had peaked around 2008 and had since become steadily smaller. When China is excluded from the calculations, the difference becomes smaller still.

So should we dismiss convergence as a trend whose time is past? I would argue that this would be premature, and that convergence is still a feature of our time. The different conclusion is not because of different data--both of us use the IMF’s World Economic Outlook series for GDP per capita at purchasing power parity terms, and its forecasts until 2019—but a different approach to convergence.

Austerity vs. Fiscal Stimulus: A False Dilemma?

Augusto Lopez-Claros's picture

The 2008-2009 global financial crisis led to a number of large–scale government interventions across the world. These included massive provisions of liquidity, the takeover of weak financial institutions, the extension of deposit insurance schemes, purchases by the government of troubled assets, bank recapitalization and, of course, packages of fiscal stimulus, sometimes of a scale not seen since World War II. Even the IMF, the world’s traditional guardian of sound public finance, came out strongly in favor of fiscal loosening, arguing through its managing director that “if there has ever been a time in modern economic history when fiscal policy and a fiscal stimulus should be used, it's now” and that it should take place “everywhere where it's possible. Everywhere where you have some room concerning debt sustainability. Everywhere where inflation is low enough not to risk having some kind of return of inflation, this effort has to be made".

Africa's McTipping Point?

Borko Handjiski's picture

Three quarters of a century since the opening of the first McDonald’s, the fast food chain operates around 34,000 outfits in around 120 countries and territories across all continents. In Sub-Saharan Africa (SSA), however, – a region of 48 countries and almost a billion people - only South Africa and Mauritius have been able to attract this global food chain.
 
This peculiarity cannot be explained only by the fact that the region is poor. The company has found a market in about 30 countries with GDP per capita of less than US$ 3,000 (in constant 2005 US$) at the time of their first McDonald’s opening. Hamburgers, Cheeseburgers, and Big Macs are also on offer in a dozen of low-income countries as well. When the first McDonald’s opened in Shenzhen in 1990, China’s GDP per capita was less than US$ 500 per person. Of course, Shenzhen’s per capita income was several times higher, but the company has also found a market in Moldova since 1998 when the GDP per capita of the 3 million person country was less than US$ 600 per capita. There are many cities in SSA today that have higher income, population concentration, and tourists than what Chisinau had in 1998; yet they do not have a McDonald’s. As a matter of fact, 22 SSA countries today have higher income per capita than what Moldova or Pakistan had when the first McDonald’s opened there, and 15 of them have higher income per capita even than what Indonesia or Egypt had at their McDonald’s openings (see chart).

Africa’s Fish Belong to Africans – Stop Stealing Them

Caroline Kende-Robb's picture


Twenty-five years ago, I lived in a fishing village, Tanji, on the coast of The Gambia. The village came alive before sunrise: if you got up early, you could see the brightly colored "pirogues" pushing out to sea, with six or seven brave young men sailing their precarious wooden dugout canoes. This was no mean feat. The Atlantic was unforgiving and sometimes treacherous.

I worked with the fishermen as part of a European Union fisheries project and, with time, we became friends. We spoke Mandinka, drank atyre, and shared our struggles and hopes. They told me how over the years catches had declined dramatically, forcing them to sail farther and farther out; how the trawlers were creeping closer to the shore, often mangling their fragile nets.

What are the Sources of Corruption?

Augusto Lopez-Claros's picture
Also available in: Français | Español

In a previous blog we discussed the factors that have pushed issues of corruption to the centre of policy debates about sound economic management. A related question deals with the sources of corruption: where does it come from, what are the factors that have nourished it and turned it into such a powerful impediment to sustainable economic development? Economists seem to agree that an important source of corruption stems from the distributional attributes of the state. For better or for worse, the role of the state in the economy has expanded in a major way over the past century. In 1913 the 13 largest economies in the world, accounting for the bulk of global economic output, had an average expenditure ratio in relation to GDP of around 12%. This ratio had risen to 43% by 1990, with many countries’ ratios well in excess of 50%.  This rise was associated with the proliferation of benefits under state control and also in the various ways in which the state imposes costs on society. While a larger state need not necessarily be associated with higher levels of corruption—the Nordic countries illustrate this—it is the case that the larger the number of interactions between officials and private citizens, the larger the number of opportunities in which the latter may wish to illegally pay for benefits to which they are not entitled, or avoid responsibilities or costs for which they bear an obligation.

The Need for “Staying Power”: Russian Firms in Times of Economic Volatility

Alvaro Gonzalez's picture

In a recent blog, our colleague Birgit Hansl adds her voice to the chorus of economists warning us of Russia’s coming deceleration.  If she is right, this is especially bad news for Russia. If the recent past is an indicator of what may happen; this looming slump will have dramatic effects on the structure of the economy. 

A slowdown in Russia means a wiping out of gains made during booms.  Russia’s economy has experienced several booms and busts in the recent past.  We found that  young firms, even if they are efficient, were more likely to die off during a slump.  Not so for incumbents.  They had staying power independent of their relative efficiency.  So much for the new blood that the economy needs to diversify!

Russia's economy is concentrated and dependent on the extraction of natural resources. Recent trends are not promising. Growth in Russia has been limited to a few sectors and to a few firms. Russia is much less diversified today than it was during the Soviet Era, both within and across sectors. The bottom quartile of the manufacturing sector, ranked by operating revenue, contributes 0.6 percent of total manufacturing output while the top quartile contributes 80 percent. In addition, the average share of output for the bottom quartile of firms (in terms of operating revenue) in a manufacturing sector is 0.06 percent while the share of the top quartile is 94.7 percent.

Pages