The possession of rich resources has caused problems for a number of countries around the world. In sub-Saharan Africa, oil and diamonds have led to high levels of corruption or even civil war and have done little to improve the living conditions of the inhabitants of such countries. This is not to say that long-term sustainable growth is impossible in resource rich countries - Canada, Australia and Norway all show that this is in principle feasible.
Russia suffers from a number of problems associated with resource-rich economies. Thus, the weak governing structures have resulted in high levels of rent-seeking. This occurs when the cost of "manipulating" legislation to increase profits is cheaper than making "real" improvements through greater productivity and efficiency.
The Russian economy is also exposed to economic shocks, as its main exports depend on international energy prices. But perhaps the most important danger for Russia's economy is the so-called Dutch disease. The exploitation of natural resources leads to an increase in the exchange rate making non-resource export-oriented economic sectors less competitive. Moreover, the oil and gas revenues push up average wages, which reduces competitiveness even more. While the overall economic growth rate may be high, there is little to suggest that in the long-term Russia can achieve stable growth and development.
This paper offers a wealth of recommendations: creating a transparent tax system, an enterprise friendly environment, and better investment conditions, improving ownership rights, reducing the interdependency between oil and gas companies and the state, and perhaps most importantly, bringing the currency down to a lower exchange rate. The study points out that if such steps are not taken, the Russian economy could enter a vicious circle of increasing de-industrialisation and increasing dependency on the oil and gas sector.
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