Russia Moscow Forecasts
Multi-Sector Growth

It is an exciting time to be involved in Russian business. The ruble has become increasingly more valuable and stable, and the government has emphasised new legislation designed to promote business growth. Russia has projected growth in almost every sector: oil and gas production, telecommunications, IT infrastructure, and business and software outsourcing just to name a few. Because of these factors, multi-national corporations have increased their commitment to gain market share in Russia, the largest country in the world.
Moscow, the headquarters for most international businesses operating in Russia, has experienced a spike in competition for economic resources, including competition for the best and brightest of Russia's talent. This can be contributed to a number of factors. First, the number of businesses that have entered the market have opened so many positions, it is difficult to fill them all. Second, Russia has a shrinking population and the culture and educational systems are still transitioning to prepare students for the new business roles they will fill. Therefore, there is a shortage of talented employees in comparison to the market demand, making the field of Human Resource (HR) management a particularly interesting one in the Russian market.
In the current Russian labor market, skilled employees have many choices between a wide range of well-known multinational firms. This contributes to a high rate of employee turnover as employees look to maximize their compensation and grow in their professions. This is a significant problem considering the time and money that are spent on recruiting and developing talented employees. Consequently, corporations are working hard to brand themselves as the "employer of choice," and are placing more emphasis on long term incentives in an attempt to retain valuable employees.
GDP rising on competitive hope
The Russian government has approved an optimistic socio-economic development forecast for 2008-2010. According to its predictions, the Russian economy (GDP) will grow by at least 5.2 percent annually despite possible changes in energy prices and sluggish demand for Russian goods.
The influence of oil quotations on the Russian economy has diminished, and growth is unlikely to be driven by energy exports. Instead, according to the government, the Russian economy should seek to increase domestic demand.
Nevertheless, oil prices are the key parameter of the development program for the next three years. According to the Ministry of Economic Development and Trade, Urals crude will cost $53 per barrel in 2008, $52 in 2009, and $50 in 2010.
The government is shifting its focus from the oil and gas sector to the manufacturing industry, the consumer sector and a general growth in consumption. The food sector should increase sales by 27 percent in 2010 compared with 2006, the textiles industry should grow by 43.1 percent, and mechanical engineering by 20-30 percent. Demand on the domestic market will determine the pace of economic growth.
Under a moderately optimistic scenario, GDP will grow by 6.1 percent in 2008, 6 percent in 2009, and 6.2 percent in 2010. If we assume that the demand for Russian-made goods will not grow dramatically in the next few years, the federal budget, prospective financial plans and the inflation outlook should be based on the "inertial scenario." According to this, GDP growth will slow down from 6.5 percent in 2007 to 5.7percent in 2008, 5.3percent in 2009, and 5.2 percent in 2010. The figure for 2006 was 6.7 percent.
The ministry has forecast a growth in average monthly wages by 90percent in nominal terms by 2010 compared with 2006, and a rise in real incomes by up to 27 percent. Wages in Russia are growing faster than labour productivity as it is, which is accelerating inflation and distorting the employment market because of a shortage of skilled labor.
The government intends to keep up a high rate of economic growth even in the most unfavorable scenario, for even the 5.2 percent growth in GDP forecast under the inertial scenario is impossibly high for many industrialised countries.
Apart from energy prices, the government will continue to monitor inflation as "a major trend characterizing the macroeconomic situation in the country."
Unfortunately, Russia is lagging far behind industrialised countries in this sphere, as consumer prices are expected to grow by at least 5-8 percent a year until 2010. The reasons are the overpowering influence of monopolies and a considerable inflow of revenues from energy exports. The money is coming in faster than the government can sterilise it.
A high rate of inflation is not the only obstacle to the government's plans. Other very serious problems are the lack of a modern transport infrastructure, the over strained energy system, excessive energy consumption per item manufactured, and high dependence on the commodities sector.
Most importantly, Russia is lagging behind industrialised countries and fast-developing emerging economies in terms of technological standards. Economic Development and Trade Minister German Gref informs that the Russian model of economic development should be overhauled, because Russian business is largely uncompetitive compared with its foreign rivals.
The government must find a way to convince Russians to buy Russian. High-quality economic growth cannot be ensured through an increase in production in basic sectors without investing in up-to-date technologies and innovation. Even the promised wage rise will not convince Russians to buy Russian-made goods, for when their incomes grow to a certain level, they start buying high-quality foreign goods.
Russian leaders keep saying that the national economy should be diversified and realigned toward knowledge-based development supported by favorable investment opportunities and effective market mechanisms. These ideas have been incorporated in the government's outlook for 2008-2010. It looks good on paper, but the Russian economy will not become competitive until these ideas become reality.