Report - UNDP Russia

countries, as seen at the start of the 1970s, whiledeveloping countries face serious burdens ontheir balance of payments, driving up levels ofnational debt. The theory of market economicsportrays this as natural utilization of comparativeadvantages, which is neither threatening norunjust. But it adds to systemic risk in the worldeconomy, for example by threatening energyimbalance if supplier countries do not obtainsufficient investments to support required levelsof energy production. Because it has afundamental (not occasional) nature, thisphenomenon can lead not only to temporarydrops in world GDP, but to long-term negativeconsequences for human development in thesocial and environmental spheres.These are the main problems, which areusually highlighted when considering thepresent state of the world energy sector from theviewpoint of human development. They arerelevant to Russia too, but with specificqualifications.1.2. Russia’s energy industryin conditions of global economicgrowth and crisisThe Russian economy had not begunbroad modernization before onset of the globalrecession in the middle of 2008. Recovery of GDPto 1989 levels by 2007 was largely based on oil rent,so it is unsurprising that the crisis pulled Russia’sGDP down by 8% in 2009. In the years of economicgrowth (1999–2008) dependence on export ofhydrocarbons increased, and this was particularlytrue of the country’s budget. The dependencereflected depth of the transition crisis, whichbrought 43% decline of the country’s old-fashioned(Soviet-vintage) GDP, and a large measure ofdeindustrialization. Energy and semi-products (witha large part of energy in their value) became crucialfor the country’s industry and exports.The role of Russia’s energy industry(designed for the needs of the old Soviet bloc) inthe world economy today tends to beunderestimated. Russia produces about 11.5% ofthe world’s primary energy, which is five timesmore than its share of world population or GDP.So the country should spend five times more ofits GDP than other countries on maintenance anddevelopment of its fuel & energy industry. In fact,the overall investment ratio in Russian economyin 1999–2006 was about 17% of GDP, which ismuch lower than the world average (20-24%),and even in 2007–2008 the ratio only reached21% of GDP with investments in the fuel andenergy sector representing 4.5 percentage pointsout of the total. The country invested much lessthan its neighbors and rivals in worldcompetition in human capital, the processingindustries, and rehabilitation of infrastructurecreated in the 1960s–1980s.Rapid growth of the world economy inthe 2000s caused demand for power toskyrocket. Developing countries, whoseeconomies are relatively energy inefficient, madea particularly large contribution to growth(Figure 1.1). Half of the world’s increase inconsumption of primary energy and about 40%of increase in oil consumption in 2001–2008 weredue to China’s fast-growing economy, which ismore energy intensive than economies ofdeveloped countries. Measured by purchasingpower parity (PPP), US GDP outran that of Chinaby two times in 2008 (20.6% vs. 11.4% of worldGDP), while the difference in energyconsumption was only 15%.Growing demand for energy and theresulting energy price boom significantlyincreased income of countries specializing inenergy exports, enhancing their economic andpolitical status. This was particularly true forRussia, which accounted for nearly half of worldincrease in oil production in the first half of the2000s, becoming one of the resource mainstaysof global economic growth during the period. If,at the beginning of the decade, Russia had notbeen able to carry out rapid increase of fuelproduction (following the 1990 recession), it ispossible that world energy prices would haverisen much further by the mid–2000s. That couldhave entailed a major slowdown of worldeconomic growth (Table 1.1).14 National Human Development Report in the Russian Federation 2009