Russia should close gap between high consumption, low production efficiency – minister

File Photo of Cash, Coins, Line Graph

(Interfax – MOSCOW, May 15, 2013) Consumption in Russia is higher than production efficiency, and this could weaken the ruble and drive up inflation in the medium-term if labor productivity does not significantly improve, Economic Development Minister Andrei Belousov said while presenting at a Wednesday conference entitled ‘The National System of Competences and Qualifications,’ organized by the newspaper Vedomosti and the Agency for Strategic Initiatives in Moscow.

According to an order issued by President Vladimir Putin, 25 million new high-performance jobs need to be created in Russia by 2020.

“More is simply not possible. The economy couldn’t withstand it,” Belousov said, noting that it costs a substantial amount of money to create a single high-performance job.

Addressing the roadmap to create a national system of competences and qualifications, Belousov pointed out two problems.

The first, he said, is macroeconomic and connected with the fact that consumption in the country is higher than production efficiency allows. GDP per capita calculated in purchasing power parity is currently $21,000-$22,000 a year in Russia, which is roughly two-thirds of what it is in developed countries, where GDP per capita ranges between $30,000 and $35,000.

“But labor productivity in Russia is between a third and a half of what it is in developed countries, depending on the calculation method and the country with which we’re comparing. This gap means that we aren’t living in efficiency or labor productivity,” Belousov said.

“Right now we are consuming more than efficiency allows, if you take the average level in the OECD as a frame of reference,” the Economic Development Minister said. The difference between consumption and production efficiency is primarily covered by hydrocarbon sales at high oil prices, he said.

“That means that if the inflow (of this oil money) falls sharply, the threat will come not from the budget, but from the balance of payments. We’ll have a collapse in the level of consumption and efficiency. It will turn out that imports, which cover high consumption, will drop, the ruble will fall, prices will grow, and consumption will drop,” Belousov said, referring to what would happen if oil prices were to decline.

“So we’re strategically at a crossroads: we either significantly increase labor productivity in the next five to seven years, or we’ll be forced to cut consumption sooner or later through a coercive mechanism like ruble devaluation or an inflationary hike,” Belousov said.

The second problem, he said, is that there are currently 20 million people living in Russia who are unaccounted for in terms of where they work. Of the roughly 67 million economically active people in Russia, 31 million are employed at large or medium enterprises, including 14 million in the public sector, about 15 million in small enterprises and as individual entrepreneurs, and more than 4 million unemployed.

“That leaves approximately 20 million people, and who they are, where they work, what they do, what their competences and qualifications are, we just don’t know,” Belousov said. “That’s an enormous resource for economic growth, and we have to engage this sector,” he said.