problem with russia Essays - Construction, Infrastructure

Russia's most obvious problem is that its Soviet-era infrastructure is crumbling and won't be serviceable for much longer. A massive amount of investment is needed into pretty much everything. The hot spots are power and transport. Before the crisis knocked the economy onto its back, the demand for electricity matched the country's ability to generate it. Any further economic growth was going to result in blackouts, which in turn would become a major drag on growth. The crisis has brought the Kremlin some time, but the problem will resurface in the next few years as the economy recovers. Happily, the Kremlin is well aware of this problem and has already done much of the groundwork. The sector monopolist United Energy Systems has been broken up and the sector was successfully privatised, bringing in far more money than the Kremlin had dared hope for. The next stage of building new capacity has been complicated by the crisis, as no one has any money. But as soon as the economic recovery puts the pressure back on power supplies, the same economic growth will make it easier to borrow. A similar big push to fix the transport system is also well in hand. The rail ministry (once run by Trotsky - they still have his picture on the wall of the headquarters) has been converted into a joint stock company and the state invested a massive RUB800bn ($27bn) into the sector in 2009 alone. Similar fixes are planned for ports and airports, as the state says it will turn all its holdings into joint stock companies and either invest in them itself or raise private money through public-private partnerships. The big omission here on the Kremlin's part is that while they are spending on power and trains, they have ignored badly needed investment into social infrastructure. The president's modernisation programme is doomed to fail unless the state spends equally heavily on education. Likewise, the World Health Organisation released a study a few years ago that concluded the very best returns on investment for the economy were investments into the health system: not only does a healthy population work harder for longer and retire later, but the savings made from not having to care for sick pensioners for decades is incalculable. And the Kremlin's botched pension reform must be fixed. The Kremlin has just hiked pensiosn by 50%. However, there is a hole in the pension fund that already accounts for a quarter of this year's deficit. As the demographic window closes, caused by the aging population, the pension system must be made to pay for itself or this problem will only get worse.