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Wednesday, May 10, 2006

There is more to Russian economy than oil and gas

May 2006 - RIA Novosti - Moscow by Alexander Yurov –  The basis of the Russian economy is oil and gas: energy brings in about half of budget revenues and the bulk of foreign trade proceeds. Russia's dependence on the energy sector is especially strong now, when global prices are soaring. This has led many economists to believe that Russia's natural wealth causes more harm than good. They say that the country's economy is addicted to petrodollars and has shifted to the raw materials sector, while other sectors are unable to develop. Recent research, however, proves them wrong. In the first months of 2006, oil exports from Russia amounted to 39.1 million tons, up 4% from the same period last year, according to the Federal State Statistics Service. At the same time, oil accounted for only 35% of Russian exports. This clearly shows that Russia does have other sources of income. For example, Russian metal producers last year exported almost 50 million tons of ferrous metals products, an increase of over 6% against the previous year. The industry's foreign currency revenues have grown by 5.3% to $17.78 billion. Although modest in comparison with the oil sector, it made a significant contribution to Russia's exports. Metal producers will soon be able to boost their share in exports. In 2007 Russia and the EU are expected to review their trade agreement, and Russia's quotas on metal supplies to Europe may change. The chemical industry is not lagging behind either. Traditionally, exports to a large extent determine the efficiency of many chemical and petrochemical companies. The Industry and Energy Ministry has recently published a report, according to which chemical exports have been steadily growing in the last three years. Experts estimate that last year exports earned the industry $10.5-11 billion, up 11% against 2004. The timber industry also has a great growth potential. Russia's forest reserves can be matched, perhaps, only by Brazil, which is the leading timber supplier on international markets. The vast expanses of the Russian taiga are a potential source of revenues for the government. If forests are used correctly, they can yield earnings equal to oil and gas exports. At present Russia earns only $10 billion from its timber, while experts estimate the sector's potential at $120 billion annually. To reach this level, Russia has to change the export structure: to shift the focus from lumber to processed timber products. At present the situation is absurd: Russia controls 25% of the world's forest resources, but last year it imported about $3 billion worth of timber products, mainly from neighboring countries, which, except for Finland, are not rich in forests. To change that, the Russian authorities intend to raise export duties on lumber and lower duties on processed timber exports and on timber-processing equipment imports. In addition, the new Forest Code, which is to come into force soon, will further facilitate the development of timber processing in Russia.

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