World Bank slams Russia`s dependence on oil

Investment in Russia remains low relative to GDP, and plays only a “marginal role” in manufacturing and service sectors. That’s the gloomy conclusion of the World Bank, which lends money to developing nations, in a report published on Monday.

The head of the World Bank in Russia, Klaus Rohland has revealed why the government will damage its own economy by putting up barriers to foreign direct investment in its uncompetitive service industries.

He says the risks are springing from moving towards a protectionist economy.

“The key temptation behind that raise would be for the government to raise protective barriers, and to shield companies from competition. Yet we believe that would be short-sided, because we know from worldwide expertise and experience that you only get competitive industries through competition,” Rohland said.

The Chief Economist at Deutsche Bank Russia, Yaroslav Lassavolik revealed just how dependent the country was on its reserves of energy.

“More than 2/3 of Foreign Direct Investment coming into Russia in the course of this year is going into the fuel sector which obviously a constraint from the point of view of quickly diversifying the economy. It’s no wonder that economic diversification given this polarisation especially centred around the fuel sector. This is the reason why economic diversification is such a priority,” Lassavolik said.

Before his arrest, Deputy Finance Minister Sergey Storchak announced Russia would pay off 80% of its estimated $US 4 billion debt to the World Bank.

Although experts call this as a prudent move, it also reveals a conservative fiscal policy which may not be prepared to liberalise its markets as foreign companies demand.