Russia's Comprehensive Wealth: A Comparative Analysis from 2000 to 2017

Russia, the world's largest transcontinental country, is renowned for its vast natural resources, which include timber, energy, oil, and gas. This rich endowment plays a crucial role in global energy and resource markets, positioning it as a significant player in international trade.

Measuring Russia's Wealth

While Russia holds the world's largest natural gas reserves, the second largest coal reserves, and the eighth largest oil reserves, its per capita wealth is still less than a quarter of that of OECD countries. From 2000 to 2017, the average Russian citizen became 1.8 times wealthier, but this growth has been much faster than in high-income countries, starting from a much lower base. However, the growth has slowed, particularly in recent years, due to stagnant human capital growth and the decline in oil and gas wealth.

Return on Wealth

Russia's wealth is measured through its GDP and wealth. On average, the return on wealth during the 2000-2017 period was around 7 percent, similar to upper-middle-income and high-income countries. However, it is significantly lower than the 8-10 percent return on wealth in Eastern European countries such as Bulgaria, Hungary, and Poland.

Economic Performance and Shared Prosperity

Despite significant growth, the shared prosperity of the Russian population has been shrinking. The income growth of the bottom 40 percent of the population and the growth in median income have seen substantial increases during boom years but are now shrinking. This trend underscores the importance of equitable wealth distribution.

Human Capital in Russia

Human capital comprises 46 percent of Russia's wealth, compared to 70 percent in OECD countries. Russia's human capital wealth per capita grew rapidly from 2000 to 2017 but has slowed in the last decade. If Russia continues to grow its human capital at its average rate of 3.5 percent, it will take about 50 years to catch up with OECD standards.

Policy Directions for Wealth Diversification and Equitable Distribution

Diversifying the Wealth Portfolio

To diversify its wealth portfolio, Russia needs to move beyond its dependence on fossil fuels and into other productive forms of capital, particularly human capital. Policies should include maintaining the fiscal rule and refraining from investing the National Welfare Fund in domestic assets to mitigate the risks of stranded assets.

Sustaining Focus on Human Capital

Significant improvements in education, vocational training, and healthcare are needed to enhance human capital. Measures include further developing Russia's university education, improving the quality of vocational education, improving problem-solving skills, and increasing healthcare efficiency and financing.

Increasing Produced Capital

To increase produced capital, Russia needs to improve the investment climate through creating a level playing field for firms, enhancing competition, and streamlining regulatory requirements. This includes reversing the trend towards cartelization of the economy, promoting competitive neutrality among state-owned enterprises (SOEs) and the private sector, and ensuring transparent state support.

Better Managing Natural Capital

While natural capital makes up a smaller share of Russia's wealth, it can produce benefits in perpetuity if managed sustainably. Priorities include reducing forest fires, which are the main factor driving forest loss, and developing green finance to mobilize funding for sustainable growth.

Distributing Returns on Wealth More Equitably

Improving macro-economic conditions and growth in incomes of the bottom 40 percent of the population and median income is crucial for equitable wealth distribution. Policies should focus on increasing returns on Russia's wealth and making sure these returns are distributed more fairly.