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Column by Alexey Moiseev, Head of Macroeconomy Analysis at VTB Capital, for The Daily Telegraph # Russia Now supplement

29 May 2012
Investors pin hopes on Putin’s reform agenda


Alexey Moiseev, Special to the Daily Telegraph # Russia Now supplement

As Vladimir Putin settles into his new office as President of Russia, foreign investors will be wondering what the future holds for them.  
These high levels of capital flight indicate that local investors are unconvinced about the prospects for serious structural and economic reform under President Putin, which is widely viewed as an absolute necessity if Russia is to maintain its current rates of economic growth.
Local investors’ scepticism is not without foundation. The Russian authorities’ reform track record has been chequered, with periods of very positive movement (notably 1992 to 1995 and 2000 to 2003) being the exception rather than the norm.
This time, though, things are very different.  A whole new range of external factors have cropped up over the last few years that will galvanise the Kremlin into real and transformative action. Not least of these is the fact that Russia will unlikely be able to rely forever on high oil and natural gas prices, which to some extent have underpinned Russia’s economic performance over the last decade. 
Already, there is a great deal of evidence that Mr Putin is this time taking personal responsibility for the reform agenda, which may indicate that things are going to change for the better.  President Putin was inaugurated at around noon on May 7. According to the Kremlin’s official website, at 10 past three on that day – probably straight out of the inauguration banquet – he signed a decree “on the long-term economic policy”.
This decree contains around 30 major reform measures including improving and simplifying business regulation and tax reporting requirements, selling all state stakes in non-resource companies by 2016, allowing foreign companies to participate in bids for road infrastructure projects and removing the threat of criminal sanction from economic legal disputes.
 By strengthening the rule of law and reducing the costs and risks of doing business, these kinds of reforms will go a long way to making Russia a more attractive place for investors.
These institutional reforms come on the back of other recent developments that suggest Mr Putin is taking the reform agenda very seriously. This is quite a symbolic development for Russia, given how central its energy exporting sector is to its overall economy. 
Furthermore, recent announcements by the like of foreign auto manufacturers such as Renault-Nissan that they are investing in car manufacturing in Russia also demonstrates that the government’s attempts to diversify the economy away from natural resources might finally be starting to pay off. 
On foreign policy, the government has recently announced a new focus on facilitating visa-free travel between Russia and Europe, which would help reduce the costs and bureaucracy of doing business in Russia.
Investors cannot be certain that these many initiatives will be followed through and implemented, and given the government’s past track record, there are reasons to be cautious. But this time, Mr Putin is under real external and internal pressure to secure his legacy as the president who finally delivered a modern economy for Russia. The stakes are high, not just for him but for the millions of Russians who are looking for a secure economic future.

Alexey Moiseev is head of macroeconomic analysis at VTB Capital

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