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July 13, 2015

Pavel Teplukhin, Chief Country Officer of Deutsche Bank Group in Russia, gave interview to Delovoy Peterburg newspaper at SPIEF-2015

How Russia can overcome the recession in 2 or 3 years

The main hope associated with Russia’s overcoming the crisis is the growth of investment. To achieve this, steps should be taken to curb inflation, but the result will be seen after 2 or 3 years only.  The crucial thing is not to follow the Soviet pattern, viz. resolve issues by non-market methods, for example expedite import substitution, Pavel Teplukhin, Chief Country Officer of Deutsche Bank Group in Russia, believes.

The major internal problem of the Russian economy is its relatively insufficient diversification, for it is primarily oriented towards raw material exports. For over 20 years it has been constantly said that Russia should buy technologies and produce high value-added goods and services. Until recently low level of diversification had not been a big problem, for the external environment was favorable in terms of high prices for Russia’s main export commodities. But now that oil prices went down by almost two times and metal prices by 30–50% compared with their peak numbers, this imbalance greatly affects the Russian economy now.

In my view, the main hope associated with Russia’s overcoming the crisis at present is an investment growth. To achieve this, steps should be taken to curb inflation. The task is complicated, but feasible. Even so, the effect will become visible in 2 or 3 years only, when investments begin to transform into results. There is a risk of yielding to the influence of lobbying groups or following the traditional Soviet pattern, viz. resolve issues through non-market methods, for example expedite import substitution. This may produce a short-term positive effect, but later will bring about negative consequences, i.e. high costs.  

Any crisis is a time for major and serious reforms, a time for hard and unpopular decisions. Infrastructureshould be made cheaper and more cost-effective.  It is time to go over to management through setting managerial tasks instead of issuing directives. If a governor or a director of some large enterprise or a state bank is given a task with a deadline indicated, and if, in addressing this task, he is given carte blanche to act, then his performance will be more effective. Business units need to have more latitude and, at the same time, more responsibilities.  

A good example in this respect is set by the Russian Direct Investment Fund. Its economic activities are wisely constructed so that the government gives a ruble, expecting this amount to be matched by private investors for another one, or two rubles, or as many as possible. Thus the investment decisions are verified; otherwise these decisions would have been made by functionaries not responsible for the results. I believe this is a sound economic structure and more such structures should be in place. 

For over 20 years already there have been a lot of talking about protecting the interests of minority shareholders. It is high time to take some steps in this regard. Everyone seems to understand this. There is a problem: in most Russian companies dominant shareholders are sometimes not very friendly, putting it mildly, towards minority shareholders. Free cash flow is pumped out from companies through interested-parties transactions. One would think that all this is left behind in roaring1990s, when the appropriate laws were not in place yet. There are laws now, but, in my view, they do not always work. Occasionally grievances of minority shareholders find their way to courts. That’s why the reforms of the Russian judicial system are needed so much, this issue having been also discussed a lot over the last 20 years.   

Published in “Delovoy Peterburg” 


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