March 5th, 2012
12:14 PM GMT
Abu Dhabi (CNN) – He was president for two terms, prime minister for one and is now in place for another stint in the top job. The question investors are asking of Vladimir Putin as he moves back to into the presidency is: What will be different the second time around?
Russian oligarchs and top policy makers within the country refer to this era as “Putin 2.0,” which has taken on a new sense of urgency since the protests from a young middle class after the parliamentary vote in December.
Viktor Vekselberg is president of Renova, a major shareholder in the TNK-BP joint venture, and a driving force in the country’s “Skolkovo” innovation project outside Moscow. In a recent interview with CNN, he said: “We don’t have time, three, five or 10 years for a slow restructuring.”
He describes what we are seeing in Russia as the building of “real middle class power,” due in part to the growth Putin sparked during the first decade of this century. However, that the middle class does not want to work in a “raw material economy.”
During his first stint as Russian president, Putin oversaw average growth of 7%. But when the global economy went into a tailspin in 2008, so did Russia due to its heavy dependence on oil, gas, coal and metals. Oil and gas, according to Renaissance Capital, still make up nearly half of the country’s total gross domestic product.
As a result of oil prices sitting comfortably above the century mark, the country has opened its taps. It hit a record 10.3 million barrels a day of production in October, according to the Paris-based International Energy Agency.
The problem, say energy strategists, is that Russia will see production go into decline if fresh bounties are not found in Eastern Siberian fields and offshore in the Arctic north.
At 77 billion barrels of proven reserves, it holds 5.6% of world market share - about a third of Saudi Arabia’s reserves. It trails countries such as the United Arab Emirates or Kuwait in terms of reserves, but produces three times more than either one on a daily basis.
In sum, Putin has leaned heavily on oil and gas to pump up growth instead of preserving supplies for the future.
So, expectations from the newly educated middle class - who now have a taste for wealth - are high. To Putin’s credit, per capita income, according to the World Bank, has increased three-fold since he first came to power in 2000. It was more than $19,000 last year, from $6,600 - and Putin is promising to deliver more.
Putin said his target is to have Russia grow 6-7% a year, by pushing through major infrastructure projects. For the past two years, 4% or slightly above has been the norm, and the same is expected this year.
Two big, global events are forcing some focus: The 2014 Sochi Winter Games, and the 2018 Football World Cup. Road and rail networks are under construction, as well a modernization plan for power networks and telecommunications.
Further, Russia has finally joined the World Trade Organization after 18 years of negotiations. This will force an opening of the service sectors and lower barriers to entry for foreign investors who poured in a respectable $41 billion dollars during 2011. There is also a recent regional trade deal with Kazakhstan and Belarus which has created a trade block of 170 million consumers, most of them in Russia.
These are all net positives and some contend the right time for investors to get into this BRIC nation. But analysts, policy makers and businessmen say everything depends on making “Putin 2.0” happen for real. They will also be watching how he utilises more than half a trillion dollars of cash reserves.
The OECD report from December - when the protests were taking hold - said Russia continued to suffer from a “poor business environment and energy inefficiency. It consumes about a third of what it produces.” The think tank for the industrialized world said Russia needs a “stricter framework for budget expenditures.”
While campaigning for re-election Putin also opened the coffers from the oil and gas revenues to fuel public spending. Budget discipline, a wider distribution of wealth and sector diversification, say strategists, need to be the hallmarks of "Putin 2.0."
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