On Overcoming Russia’s Challenges

Abstract

The article considers the issues of overcoming the emerging challenges that may cause problems for Russia’s development in the long term (forecast for the period up to 2040–2045): a) reduction of oil extraction and revenues from oil exports; b) entanglement in a new round of the arms race; c) increase in serious competition with Chinese producers in the domestic and foreign markets. Measures of avoiding falling into the oil trap are considered. The necessity of preventing a new round of the arms race is substantiated with evidence that getting entangled in it could weaken the economy to the point of zero and negative GDP growth rates, which in unfavorable scenarios may threaten the integrity of the state. The article considers the problems of adapting the economy to the upcoming reduction of oil extraction, the options of compensating for the declining revenues from oil exports with other goods and services, the prospects for diversification of defense spending, and the issue of normalizing the growing competition with Chinese producers. The objective of raising economic growth rates above the current zero level requires an institutional reform of small and medium-sized businesses, a diversification of economic sectors, especially defense, and, in the longer term, implementing national projects aimed at accumulating potential human capital that can eventually be realized.