Report - UNDP Russia

exported, increased. However, this positive trendhas been partly offset by decline in depth ofprocessing: 75% of the increase in export of oilproducts in 2006–2008 was represented by fueloil. There have been efforts to raise the yield oflight products, but diesel fuel export has grownmuch more slowly than export of fuel oil, andexports of automobile-grade gasoline evendecreased in 2008.The fuel & energy sector became a steadysource of rent for Russia in the 2000s thanks tonatural limitations on global supply of energyresources in the medium term. Theoretically, thisrent could have emerged in another sector, mostobviously metallurgy, but developments onworld markets were such that the fuel & energysector became the cornerstone of Russia’smedium-term macroeconomic stability.The role of Russia’s fuel & energysegment could have negative impact on both thespeed and the quality of economic growth in thelong run. Two phenomena, which havecharacterized Russia’s economy in recent years,are specifically at issue: structural disproportionsand natural resource rent.These two phenomena have been usedby economists to develop theories of what isoften called the ‘resource curse’: deceleration ofeconomic growth in countries, which are rich inmineral resources. These theories have existed forover 20 years. They are not fully accepted inacademic circles and have been opposed by anumber of researchers. Nevertheless, they areoften used for comprehensive analysis of theexperience and economic outlook in variouscountries, including Russia.Most studies related to the ‘resourcecurse’ deal with countries that export fuel &energy resources. Brief historic examination ofGDP and inflation leads to the conclusion thatthese national economies are generallycharacterized by lower growth and highermacroeconomic instability (Figure 1.5).Such a generalized approach is less thanadequate on a number of grounds. Nevertheless,the experience of several countries, which failedto achieve high levels of development despiteFigure 1.4Quality indicators for Russian liquid hydrocarbonexportsM.t.300250200150100500401998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Depth of processing of exported oil products (right scale)Crude oil exportExport of oil productsSource: The Federal State Statistics Service (Central Statistics Database)Figure 1.5GDP of Russia and IMF countrygroups (1991-2010)%121086420-2-4-6-819911992199319941995199619971998199920002001200220032004200520062007200820092010Developing fuel exportersDeveloped economiesSource: IMF (World Economic Outlook Database)Other developing economiesRussiahaving extensive fuel & energy resources thathad been in production for some time, suggestthat natural resource wealth can place additionallimitations on economic development.The best-known phenomenon of this kindis ‘Dutch disease’, which combines deleteriouseffects from use of revenues and reallocation ofresources. The mechanism associated with revenueuse is as follows: inflow of foreign currency(‘petrodollars’) from export of natural resourcesbecomes excessive when international prices forthe resources are high, causing a significant surpluson the balance of payments. It the local currency isfloating against other currencies, its nominal andreal exchange rate will tend to appreciate,undermining competitiveness of the country’sother industrial sectors and agriculture on bothdomestic and international markets (Figure 1.6).6560555045%19