ECONOMIC GROWTH IN RUSSIA PROVOKES GROWTH IN NEIGHBORING COUNTRIES

Source: Biznes, November 15, 2006
Agency WPS
The Russian Business Monitor (Russia)
November 20, 2006 Monday

The CIS became a world’s leader according to the speed of GDP growth
among the economic alliances. According to the EBRD, in 2006, GDP
growth of the CIS countries will amount to 6.9% and will remain on
such level in the next few years. The main locomotives of the CIS
are Russia, Kazakhstan and Azerbaijan whose growth is based on raw
materials export, consumption and growing investments. In its report
the EBRD remarks that growth in such countries as Armenia, Georgia and
Ukraine is provided by "strong money transfer flows." Experts are not
surprised by such conclusions and say that economic growth in Russia
inevitable provokes growth in neighboring countries through capital
of private individuals who earn money in Russia but spend it in the
CIS countries.

In its report the EBRD says that economic growth of the countries
located between Central Europe and Central Asia is getting increasingly
provided by growing domestic demand. In general, economic growth in
this region in full year 2006, will amount to 6.2%. Along with this,
according to the EBRD, the CIS became the international regional
organization with the highest speed of economic developing approaching
7% closely. For example, growth of economies of the Southeastern
Europe is forecasted at a level of 5.9%, for Eastern Europe and
Baltic republics the growth is forecasted at 5.3. According to the
speed of growth the CIS outran also NAFTA countries (US, Canada and
Mexico). Eric Berglof, senior analyst of the EBRD, remarks, "We have
not expected such rapid growth of economies of the CIS countries."

The EBRD expects that in 2006, Russia’s economy will grow 6.5%. All
records are broken by Azerbaijan. Its GDP growth is estimated at 26%.

Analyst Olga Belenkaya of investment company Finam comments, "Such
growth happens primarily on account of the low base effect." Agvan
Mikaelyan, Deputy General Director of FinExpertiza, remarks, "The
higher the GDP the smaller the influence of the change. For example,
construction of even one plant in an industrially undeveloped country
can lead to a noticeable growth of its economic parameters."

Peter Westin, senior economist of MDM-bank, adds, "East European
countries already demonstrated economic growth at the beginning of the
1990s. They were also going to become members of the European Union
and NATO from the very start." Westin added that at the beginning
of reforms the CIS countries were in much worse position and the
initial economic decline was more dramatic than decline in the East
and Central European countries. He also says, "This partially explains
rapid growth of the CIS countries now."

According to experts, it would be more correct qualitative parameters
like GDP per capita. Westin explains, "In the East and Central European
countries it amounts to $10,000, whereas for CIS countries it amounts
to $1,684."

In its report the EBRD remarks that growth of Russia’s economy
is conditioned by consumer boom, as well as by growing foreign
investments. The EBRD insists that the nearest task of Russia is
diversification of economy enabling the country to reduce dependence
on raw material export. As to the other CIS countries not rich with
energy resources (Armenia, Georgia, Ukraine), the EBRD sees sources
of their current economic growth in growth of private consumption and
in cash transfer flows. Mikaelyan comments, "Almost all able-bodied
population of these countries works in Russia. These are not only
workers but also businessmen. Russian growth automatically turns
into money that those who have earned it transfer to their countries
and spend it there." He continues that, for example, Georgia consumes
$2-4 billion brought from Russia, Moldova consumes $1.-1.5 billion and
Armenia and Ukraine consumer $1-2 billion each. The expert concludes,
"Hence there is growth of consumption in these countries.

Our economies are integrated through workers and economic growth of
a number of the CIS countries is provided by growth of the Russian
economy."