Earlier this week I had read a posting by Anders Åslund over on the Economists’ Forum blog at the FT which I had meant to get around to writing about. In this interesting piece, Åslund puts forward the familiar argument that Russia is the odd one out in the BRIC group of economies – but not because of its crisis struggles or single commodity play, but rather because its market is so much more mature than those of Brazil, India, and China, featuring superior economic development.
He points out some interesting facts: Russia has the highest GDP per capita of the grouping at $12,000 – four times greater than China; two-thirds of Russians of university age are enrolled in university which matches Western levels; and Russia has 14 times more cars per capita than China and three times more computers per capita.
These comparisons were particularly striking, as we had gotten used to hearing from analysts who believed that Russia should be dropped from the BRIC acronym for other reasons entirely.
For example, Robert Manning from Atlantic Council wrote a piece last September with a harsh economic appraisal for future growth in the Russian market, pointing to the 10% contraction in growth over the first half of 2009, the $450 billion indebted banking sector, and shrinking population base. Andrew S. Weiss made a similar argument in Foreign Policy, pointing to the IMF prediction of 6.5% GDP shrinkage and more sober oil prices (Weiss also focused on the political differences among the BRIC nations, arguing that Russia is the only one seeking confrontation while all the others sought close ties with other powers and zero appetite for geopolitical grandstanding). Then of course there was that PwC report which found that 71% of companies and executives polled in Russia said they had been victims of fraud or corruption, which is more than double the rate experienced by the other BRICs.
More recently, the guys over at Business Insider have put together a 19-point slideshow about why they think “Russia is toast” as a favorite emerging market (despite what Jim O’Neill says). I am not entirely convinced that this presentation is really well thought out from a financial analysis perspective, but there are other more straightforward concerns for investors raised by mono-export dependence and how to work the commodity play, which is very different from the other countries under consideration.
In the end, it is Åslund’s general point that Russia could be doing so much better with such a well educated population and so many resources available to apply to economic development. He points to politics as the main thing that is holding Russia back and dragging their future growth into ground – such as the odd decision to spurn accession to the World Trade Organization in favor of a incomprehensible “trade bloc” entry with Belarus and others. Åslund also slags the government for “poor economic policy pouring good money after bad into vast stateconglomerates that are as inefficient as their governance is poor.” I might add here that it’s probably not the great encouragement to foreign investment when you kill Hermitage’s lawyer in prison and imprison Mikhail Khodorkovsky, but what do I know.
For the coming decade, it is possible that the BRIC acronym has run its course, especially if Russia ever manages to achieve more convergence with Europe and the G8 (some would even argue that the grouping hasn’t made any sense for several years now), and that we’ll see a new grouping come out, such as IBSA plus China. It might be a good thing for Russia to stop being compared to the relatively socially undeveloped economies of China and India, while it would be a great thing if the country’s government could start acting as mature as their market is.