Bellerbys Economics - Mr Stephenson

Friday, February 01, 2008

Russian Oil Wealth Spilling out all Over

With Russian foreign exchange reserves climbing rapidly due to rising oil prices, the Russian government has been wondering what to do with it all - of course, it could use some of it to subsidise more Russian students at Bellerbys.......perhaps someone should mention this to them.

Meanwhile, it has decided to divide some of it into two new funds - one for investing in structural development in Russia itself (a good supply-side policy) and another $32bn fund for investments overseas. By doing this, it hopes to secure the long-term future of Russia - in the same way that the Arab nations have succeeded in doing over the last thirty years.

In addition to this, Russia's soon-to-be new president, Dmitry Medvedev has been urging Russian companies to buy overseas companies - for much the same reason and also as a way of integrating Russian businesses and the Russian business class more into the world economy prior to Russia joining the WTO in September, or thereabouts.

Gazprom is held up as a shining example of what can be achieved. In recent weeks alone, Gazprom has negotiated significant deals to create energy hubs in Bulgaria, Serbia and Kyrgyzstan, extending its energy-supply dominance (particularly in the field of natural gas) over most of southern Europe and eastwards into China.

Russia's GDP grew by 8.1% last year but with inflation running at 12% not everything is rosy - the main cause of inflation being too many oil revenues being pumped too quickly into the economy. However, foreign direct investment in Russia is increasing (Peugeot announced it would build a new factory in Russia this week) and that is a good sign for the future.


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