Invisible Russia’s infrastructure boom

Despite the crisis in Europe, Russia’s booming infrastructure upgrade is underway as part of the modernization of the dilapidated roads, railways, bridges and ports.


The Russian government spends 60-65 billion dollars on large projects, but they are hard to see when you come into the country. If you drive in China, the government expenditure are visible at once, and almost every regional capital svezhevystroennymi full of skyscrapers and shopping malls. In Russia, the regional centers such as gray and low and only slightly colored in bright billboards. This is because the Russian money did not go into real estate, but mainly in transport and energy systems, which are the lifeblood of this vast and largely empty country.

Investment in infrastructure in Russia in 2010 reached $ 111 billion, which is a 10-fold increase compared to the paltry seven billion in the 1999th. Moreover, after in 2008 the government launched a program to modernize the railways, it has continued every year to spend 100 billion despite the crisis.


Commentators regularly criticize the insane spending of the Kremlin. However, they are not capable of understanding that bo? Most of this money goes to infrastructure projects, rather than on supporting industries experiencing difficulties or paying civil servants. And these costs are no longer seem quite so crazy when compared with the fast-growing economy: expenditures for the past 10 years and possibly up to 10 times, but in terms of share of GDP is only doubled, from 3.5 percent of GDP in the 1999th to seven percent in the 2010th, which is less than that of China, with its 11 percent, but most of India, with its 6 percent by the year of 2010.


However, the most striking change is that it is not the federal government makes an investment, and state-owned companies. As they say in Morgan Stanley, about half of the infrastructure investment is only eight large state-owned companies, while federal expenditures account for only 1.8 per cent.

Tip of the iceberg

The real boom in infrastructure spending is only now beginning to gain full strength. At present, a lot of mega-projects that will be implemented in the next couple of years, which will raise the cost even higher.


One of the most important are: the development of the Vankor field, which is the largest discovery in Russia over the past 25 years, the development of the port of Ust-Luga on the Gulf of Finland, which will be the largest port in the warm waters in Russia, the reconstruction of the Black Sea resort of Sochi before the 2014 Winter Olympics years, and the establishment of the Eastern Siberia-Pacific coast.


According to estimates Morgan Stanley, currently being prepared or have already started infrastructure projects worth a total of $ 500 billion. "Based on our data base of large projects, we expect a stable annual investment of 60-65 billion dollars, and the development of a new generation of mega-projects, including high-speed rail line, the new federal highways, the Moscow transport hub and the further development of Yamal oil and gas" said the chief economist at Morgan Stanley and author of the report, Jacob Nell.


It is strange however that the bo? Most of these works goes almost unnoticed. One reason is that such costs are not having much effect on either growth or the total amount of investments — both are now smaller than they were before the crisis. Moreover, since the bo? Lshuyu part of spending are opaque state-owned companies, their costs are more difficult to see than federal spending or private investment.

But perhaps the biggest factor is that, in contrast to China and India — the two countries, which are largely agrarian economies, Russia inherited a lot of Soviet-era infrastructure, which is still OK, and during the Soviet boom in the 1970s, which was the a paradise for workers, what it should in theory be spending the Kremlin on infrastructure accounted for 40 percent of GDP. Only in the 90th, they were reduced to insignificant numbers when the bo? Most of the hardest work has already been completed.

"Russia has inherited the essential elements of a modern industrial infrastructure from the Soviet Union, including oil and gas, mining, railways, electricity grids, urban transport and municipal property. However, the infrastructure is often ineffective, and there exist noticeable gaps, especially in the field of telecommunications and transport, "says Nell.

Ben Aris in Moscow
November 18, 2011

Source translation for mixednews — molten

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