Strategy-2030 in the grip of

26.10.2015 — Analysis

Russian risks

The government of the Sverdlovsk Region has approved the forecast for social and economic development of the region till 2030. It is an underlying document for Strategy-2030, which will soon be submitted to Governor Yevgeny Kuivashev for approval. The strategy includes 25 independent projects aimed at development of economy, territories and human capital. The draft document has recently been reviewed by famous Russian experts. One of them is Natalia Zubarevich, Director for Regional Programs of the Independent Institute of Social Policy. She shared her opinion with RusBusinessNews.

- Natalia Vasilievna, will the reindustrialization help the Sverdlovsk Region to become a competitive industrial center?

- The Sverdlovsk Region definitely needs reindustrialization, as it has a great many outdated industries. Agglomerations also need attention, though I doubt that cities and towns in the norther areas of the region are going to link up. Even the prospects of Nizhny Tagil are highly questionable. In my opinion, only the Ekaterinburg agglomeration will be growing, as it is a large dynamic center.

I see a high potential in such projects as the Ural Engineering School and the Titanium Valley. On the other hand, engineering in Russia is facing hard times; however, the Ural school used to exist, and today it is a competitive advantage of the region. The growth of titanium operations commands respect. Vladislav Tetyukhin laid a stepping stone to success by putting VSMPO into the supply chain of the Boeing Company. However, if we break up with Americans, the cooperation will not be able to survive, and we will lose the market. The political future is still unclear. 

As for the total reindustrialization, I don’t have any illusions. Inertia-based growth – willing or not – runs its course. On the other hand, reindustrialization makes no headway, encountering serious barriers. Thus, we should get into the process and make the economy perform better. No strategy can tell what areas are going to be competitive in 15 years. Yet, together with the business community, we should try to understand what types of companies have a chance. You cannot get everything right now: It is not going to work. We should analyze and discuss what can pan out and what cannot. I think, the balance between the attainable results and typical wishes and dreams is slightly distorted in Strategy-2030. It is too broad-ranging – from railcars to robots, and it causes doubts.

- Are these doubts regarding robotics, nanotechnology, machine-tool building and other high technologies being seen as priorities in the further development?

- Development of these sectors can be a strategic goal. However, it is important to understand how it can be accomplished. I am not an expert in these areas, but I think that today, when Russia has not investment and is facing shrinking contacts with the outer world, everything is not as easy. In the meantime, the strategy span is till 2030. Let’s wait and see what the future holds. It is still not clear to me how the region will be able to compete on the high technology market. 

- The question where to find working capital remains unanswered, doesn’t it?

- Do you mean investment? I am afraid that you still have Soviet perception about development of economy. Investment does not have to come from the working capital of a company. There are also bank loans and other options of co-investment.

- I think that the industry today does not have any other sources of investment. Bank loans have turned into memories with today’s financial policy…

- I believe that all businesses grow by using loans when institutions operate properly. If you think that the institutional environment we have now will remain unchanged till 2030, you’d better forget about any growth in the sectors you have just mentioned. All advanced technologies develop in a normal institutional environment. There is another option – dodgy enterprises. The Soviet Union had such experience. Working capital was not even discussed: Everything was taken from the state funds.

- So, we shall start with institutional reforms?

- There is no doubt about it. The Russian ash-grey soils have not demonstrated high fertility so far. The country has very inefficient institutions, in other words, rules and regulations governing our life. The Sverdlovsk Region, as part of the country, incurs all expenses resulting from the unfavorable investment climate and poorly-functioning institutions. My doubts regarding the implementation of the plans have very little to do with the region; I was talking about the possibility of the country to revise and correct the existing rules and regulations.

- Does this mean that the implementation of the strategy depends to a large extent on the policy of the federal center?

- No, it depends on country risks associated with the bad investment climate, isolationist policy and so on. The Sverdlovsk Region is not a state within a state, and, consequently, it is exposed to all these risks.

- Nevertheless, the strategy points out that the Sverdlovsk Region should create an effective system of regional management. What will the system be based on?

- An individual effective system of regional management cannot be created in the conditions that exist in the country. Strategy-2030 assumes by default that the institutions, the institutional climate and everything that is directly related to management will improve. Relying on that, the region promises to implement the suggested economic plans and projects. The Sverdlovsk Region cannot act for the country in forecasting its future; therefore, the subject is disregarded. Everything is clear: If we keep on living the way we do now, most of the ideas proposed in the strategy will be extremely difficult to implement.

- Are the ideas viable? What do you think about the quality of planning?

- In Russia we do not have high-quality planning, as we hardly know anything about what is going to happen on the day after tomorrow. Even our budget is made up for one year. Talking about quality when the level of uncertainty is so high makes no sense. And again, it is not the problem of the Sverdlovsk Region – it is the problem of the country. You should understand that budget, investment and other parameters are set by the federal government. The degree of freedom the region has in improvement of anything is very small.

- If the country risks are so high, would it be more sensible to build the strategy by using an inertia scenario of economic development rather than a basic (goal-based) scenario?

- We are not able to estimate the level of feasibility of any of the scenarios. The basic scenario of development, which formed the basis for the federal budget for 2014, implied indicators very different from those we eventually received. Any forecasts made in the situation of uncertainty on the global markets, in the country whose economy is highly dependent on political decisions are nothing but assumptions. It is neither good nor bad – it is the fact.

- Apparently, the authors of Strategy-2030 mean the same when they remind that the instability on the commodity markets makes it impossible to achieve the objectives set in the previous program for 2011-2015…

- The instability on the commodity markets, undoubtedly, has an impact on the economy: The Sverdlovsk Region heavily depends on prices for ferrous and non-ferrous metals. However, all commodity markets are volatile and cyclical. Their uniform and steady development is an illusion. It is impossible to forecast volatility of commodity markets. Therefore, there is no sense in planning a growth rate of half percent a year through sales of raw materials. I see it as a specific feature of our psychology of planning: It was good, so it will be even better. But it doesn’t work like that.

Therefore, strategic plans address priorities rather than growth rates. Forecasts can be ignored; the main thing is to make it clear for yourself where you should invest funds and what you should give your priority attention to. Then you should think how to achieve the set goals, taking into account all country risks and poorly operating institutions, which have a strong impact on the development. You may not achieve them, but it is always good to understand what exactly we want.

- If I understand you right, strategies are written to be rewritten later…

- No, you are wrong. Strategies should be written, but should not be seen as the plans of the party. Strategy is an exercise for the mind. Entrepreneurs and managers should have understanding of the general idea about our future. It will help to expand horizons and will prevent from management based on responding to the current problems. In the latter case, there is no growth. Strategy is also important for setting the right goals: What do we want and what can we do? What tools may we need? What barriers can we overcome and what barriers are unsurpassable? That’s it. Then, while the economy is advancing, the strategy should be used to check if everything goes the way we planned. It is neither the Koran nor the Bible.

The interview was conducted by Vladimir Terletsky