R&D is most important element of EAEU countries integration and  "entrance ticket" to competitive world - Russian economist

ArmInfo. The world economy began to experience serious problems in the further implementation of the model of a post-industrial society, when the largest countries of the world are no longer able to move production beyond their borders and are forced to support the development of the real sector.

This opinion was expressed by famous Russian economist, specialist in the field of  analysis and forecasting and cross-sectoral macroeconomic research,  Professor Alexander Shirov, asking the question of how the EAEU  countries should build their economic policy in the context of  integration processes.

According to the economist, maintaining the real sector by the  world's largest economies, and primarily the United States, is  intended to provide them with the necessary level of economic and  military security, which is necessary in the conditions of global  regionalization and fragmentation. In this context, countries are  faced with labor shortages, which require reforms in taxation and  secondary redistribution of income, with a decrease in the efficiency  of R&D expenditures (research-and-development activity, ed. note).   Statistics from developed countries show that despite the high  spending on R&D, which are growing exponentially, their returns are  constantly decreasing. Moreover, after the 2008 financial crisis, the  share of exports in the world GDP structure is decreasing. The  conclusion of all this implies that the economic model that has  existed over the past 30 years and has given large countries the  opportunity to increase income levels has begun to falter.

Mr. Shirov believes that, in contrast to developed countries, the  role of large developing countries has increased dramatically over  the last 15-20 years. The complexity of their economies has increased  and their ambitions to participate in global decision-making have  increased accordingly. According to the expert's forecast, these  fundamental changes will lead to the fact that only the United States  will remain in the top five largest world economies, and the rest  will be replaced by China, India, Indonesia and, possibly, Russia,  which will lead to an increase in conflicts in global economic  relations.

Therefore, speaking about the role and weight of the EAEU, the  specialist considers the participation of the Union's member  countries in this game obligatory. "This means that we must have our  own technologies, which will be the "entrance ticket" to the new  world," Mr. Shirov noted. However, in conditions of fragmentation,  super-economic integration associations will play a crucial role.  These are those associations whose population is about 300 million  people, whose GDP is at least $5 trillion, total R&D expenditures are  at least $200 billion, and defense spending is at least $200 billion.  "Unfortunately, the EAEU has not yet reached the status of a  super-economic association, but, nevertheless, we can participate in  this new process of forming new economic dynamics. And here it is  necessary to correctly build an economic policy and benefit  integration processes in line with the development of industrial  cooperation. This is where you can earn additional income," says the  economist. According to Mr. Shirov, the EAEU's impact on member  countries' economies has been very significant since 2015. "You can  see the accumulated GDP growth in the EAEU countries; it exceeded 50%  in Armenia. And these are not just numbers. In terms of per capita  GDP, Armenia has come significantly closer to the leaders in the  post-Soviet space. However, these high growth rates were mainly  associated with trade and financial relations within the EAEU, and in  order to maintain such growth rates in the future, decisions of the  next echelon are required - the development and restoration of the  country's industrial potential, its reindustrialization," he  emphasized.

At the same time, according to Mr. Shirov, one must understand that  the EAEU countries have enormous potential for development, and above  all, the potential of markets in terms of consumer demand. "In this  matter, unfortunately, we have a rather conservative consumption  structure. Only 30% of the richest families in Armenia have access to  a complete basket of consumer food, which conditions a person's  quality food and comfortable life. In Russia, for example, it is  available to a little less than half of the population. That is,  there is room to grow and develop. In fact, the capacity of the EAEU  market allows us to develop both production focused on consumer  demand and production focused on investment demand," he believes.

According to the economist, if you look at what is happening in the  EAEU with demography, then a lot will depend on the development of  the real sector in this matter as well. 

"It seems that the burden of non-working people to working citizens  is increasing in all countries, but even with a 1% increase in labor  productivity in 2050, the same burden will be maintained in EAEU  countries. This suggests that even a small increase in production  efficiency allows us to solve all these problems," he says. According  to Mr. Shirov, the development of R&D should become the most  important element of EAEU integration. 

"Unfortunately, we do not yet have sufficiently acceptable volumes of  exchange of results in the field of research and development, but  access to global results is only possible if you have an "entry  ticket", when you have your own technologies, be it in the IT sector,  in the biotechnology sector and others like that sectors. This is  where cooperation will allow us to both solve problems of industrial  development and solve problems of increasing production efficiency,"  the specialist believes.

As the economist noted, now even considering the imported research  and development costs, neither Russia, nor Belarus, nor Armenia, nor  other EAEU countries can afford such a level that is comparable to  world leaders. In general, EAEU shares 3% of the world's total R&D  costs, of which 1% are domestic costs and another 2% are imported  costs. For example, Germany has a 3% share, and these are direct own  costs. It is clear that without a serious increase in these costs,  and primarily on by the business, including through cooperation,  solving the problem of increasing production efficiency is  impossible.

For now, the level of cooperation in the production sector in the  EAEU countries is quite low.  For example, intermediate products from  Armenia to Russia is $220 million alone, which is very little. Things  are somewhat better in industrial cooperation between Russia, Belarus  and Kazakhstan. Therefore, if this cooperation is created and  production chains begin to form, there is a serious source of income  growth.

According to the expert, already today, the growth potential of the  Armenian economy by inertia is about 4% per year, without connecting  other factors to the existing model. If we add technological and  integration changes that increase efficiency, then the average y-o-y  economic growth rate will reach 6% by 2035. In Russia, this figure  may be 3.5%. Half of the growth will be related to production  efficiency and will provide countries with a satisfactory level of  global competition.

Therefore, according to Mr. Shirov, the implementation of the  "technology - cooperation - efficiency - growth" chain  within the  EAEU  is more than relevant and vital as of today.