Russia's lack of infrastructure

Tuesday's Vedomosti has a very interesting article on the impediments to modernization in the Russian economy. The author, Vladislav Inozemtsev, Director of the Center for Post-Industrial Research, points out the woeful lack of infrastructure within the country: communications, transportation, and power supply, all of which are necessary to develop a competitive modern economy. There has been little expansion in paved roads and railway lines in the last 15 years, and maritime and air travel levels have actually fallen since 1989. He compares this to China and Brazil, which have both experienced massive expansions in infrastructure. The reason for the divergence? Excessive costs faced in Russia, which Inozemtsev relates to corruption and lack of a competitive bidding process. For example, to build a kilometer of highway, it costs on average $2.9 million in China, $3.6 million in Brazil, and $12.9 million in Russia. The figure rises to as much as $134 million for highway between Moscow and St.Petersburg and a shocking $400 million for parts of the ring road around Moscow. Warehouse construction costs more in Russia than in Germany and France.

A recent study by McKinsey also highlighted the widening labor productivity gap between Russia and China, which it also attributed to administrative barriers. Such a productivity gap helps explain the comparatively high costs. If Russia is going to develop any kind of competitive industry, there needs to be some drastic changes in the government's infrastructure development policy, as the country is being ill served by the current status quo.

UPDATE: The LA Times has an interesting article that puts the infrastructure problem in perspective by interviewing people who know the roads better than anyone: truck drivers.