Russian Minister Alexey Ulyukaev: “Italian companies are welcome in Russia: let’s reopen a dialogue”


“Boris Nemtsov was really a brave man, the new Russian European type you know, a bridge between Russia and Europe. This is a personal tragedy.” Alexey Ulyukaev is Russia’s minister for the Economic Development: last Monday he came to Milan, where he gave a lecture on the perspectives of global growth at Bocconi University: but his words fly back to Moscow, where a man he had known for 20 years has been killed right in front of the Cremlin: “This means that something unusual is going on - he explains -, the level of vicious aggression in the society is too high, it is a challenge for all of us. We must somehow resist this kind of nonsense, and support a peaceful cooperation”. This is the only approach which, he thinks, can help find a way out of the war in Ukraine, and at the same time solve the economic crisis which is so tightly woven to that. “This is our mutual problem - Ulyukaev says -, the situation is difficult and gets worse every day. And when you lose trust and confidence, it is very difficult to start again, to sit around a table and seek a solution. This is why it is so important for Europeans and Russians to be closer and understand each other again”.

SCOTT: This crisis, together with the sanctions, weighs on the European economies as well, not just on Russia. Maybe the world of business could help find a way out?

ULYUKAEV: Of course business ties are strong and important. And the business society must raise the voice in favor of a solution. I think business people are more oriented on that, more pragmatic. Each of us has to take some obligations, because people are dying every day.

SCOTT: Looking at the impact of this crisis on the Russian economy, which is the aspect that worries you most: the idea that such a crisis could last a long time, draining resources from the State; the social impact of inflation and unemployment; the impact of oil prices, or the indebtedness of Russian companies…Which aspect could have the heaviest consequences?

ULYUKAEV: You see, each coin has two sides. Now we have some new possibilities. The crisis is not only bad times for households and companies, it’s a challenge. Now we have new possibilities because the production of companies is reduced by devaluation. And these two things - devaluation influencing inflation, inflation becoming higher - mean that real incomes are reduced every day, so as a driver for economic growth consumer demand is going down. But on the other hand, as production costs of companies are going down, so their profits, the financial results are becoming bigger, and they can be sources for investment. For that to happen this year we have to increase net exports, through import substitution first of all. The key is to increase investment demand, somehow, to introduce new possibilities of investments, to use the resources, to use the government demand. And of course the key are the interest rates. They are essential.

SCOTT. Do you see them being kept at such a high level (15%) for a long time?

ULYUKAEV: It depends on devaluation and inflation expectations. Right now the devaluation situation is quite positive, the ruble is going up and there is still room for more appreciation. But inflation is going up, right now it is 16%, the highest point is expected in April. After that it will go down because of the influence of devaluation. In that situation the Central Bank will have the possibility to reduce the key rate. But how fast, it is very difficult to say.

SCOTT: Many Italian companies are clearly against sanctions. Many contracts have been cancelled or frozen. Do you think European companies could again find a new role in Russian projects?

ULYUKAEV: As regards trade, of course the best solution would be somehow to move from this very artificial negative situation to a positive one, so that both sides can make positive steps. With European countries, independently of sanctions, we have to make steps to facilitate trade, it can be done. And for that reason it is very important that ministers discuss the possibilities. We have tools, we have inter-government commissions and working groups. Unfortunately they have been kept in a stand-by position last year. It’s time to reactivate those tools. We would like to accelerate both consumer and investment demand. And for investments to grow, we need a far better investment climate. I mean the protection of property, law enforcement, the reduction of transaction costs, of natural monopolies. With our Italian colleagues here we discussed how to make the environment more comfortable for investments.

SCOTT: Which could be the most promising opportunities?

ULYUKAEV: I think the most promising sector is the infrastructure, that is where our own investments are focused, both private and public investments. So we invite Italian companies to participate in big projects, say in automobile roads construction for instance, railroads and ports. The South Stream story is over, but we still have some other possibilities, like the Turkish Stream, and we have discussed with Hungary and Serbia in terms of supplies. The Italian companies could participate. So welcome!

SCOTT: Many analysts think a main worry for the future – and maybe the reason behind the recent downgrades of the Russian economy by Moody’s and Standard and Poor’s – is the sustainability of Russian finances. Of course Russia has solid financial bases, but the fear is that they could not last, if this crisis will go on for a long time. I remember Mr Nemtsov telling me in 2009 that the moment the financial resources of the State will end, that will be the end for Mr Putin, who will no longer be able to guarantee the wellbeing of Russians. Do you share this worry?

ULJUKAJEV: You see, there is a mathematical answer to this question. That is a comparison between a current account and capital account. Generally, we have a very positive trade balance, nearly $60 billion surplus this year. If in the future these bad conditions will continue, the devaluation will go up. And that means the positive balance of payment will be quite high all the time. From a mathematical point of view that’s enough. You have enough resources to survive for a long period of time with the floating exchange rate. That is from the mathematical point of view. From the fiscal side: we have to balance the budget, reducing our revenues. Last year we had an average oil price of $98 per barrel, let’s say we have $60 this year and $60 next year. Average of that would be E70, and we are sure to balance the budget with that figure in terms of our revenues and expenses. But then you have a little psychology: people have to change their habits, balance their consumptions and savings. It’s very difficult to foresee their behavior in that case. Will we save more or not? And so it’s a very fragile situation.

SCOTT: Which are your updated forecasts in terms of GDP growth and inflation?

ULJUKAJEV: In our forecast we have -3% in GDP terms. It means that we have a high investment decline: -13%. About inflation: in December it ended at 12%, but the average for the year is more than 15%, because it was very high in the second half of the year.

SCOTT: Where do you see Russia in, say, five years from now?

ULYUKAEV: Look, I feel that the natural rate of growth for Russia is about 3%. Close to the global growth. It means without really deep reforms, just by adaptation to new conditions, just by some normalization of monetary policy, of monetary supply, by some more trust in investments, my feeling is that beginning in 2016 we will come back to a positive performance, it will be something like 2/ 2,5%. I think that even in 2015 somewhere in the fourth quarter of the year we will start growing, but statistically this year we will finish with a negative. But if we really are going to get a better performance than the global economy, in that case we need deeper reforms.

SCOTT: You have worked as deputy minister of Mr Aleksej Kudrin, from 2000 to 2004. Do you think it could be possible for him to come back to the active politics?

ULYUKAEV: I wish so!