The European Bank for Reconstruction and Development on Tuesday warned that over-reliance on natural resources was leaving the Russian economy underdeveloped and outdated and that the government should not try to centralize the country's modernization.
"You should be cautious with the centralized approach, telling regional authorities to do this or that — it just won't work," he said. "It is important to encourage people in the regions to think of their strengths and weaknesses and try to determine what the industries of the future will be."
The comments came as a federal commission was announcing its plans for modernizing Russia's ailing auto industry and two days before President Dmitry Medvedev's second state-of-the-nation address, which is widely expected to focus on economic and political modernization.
The crisis revealed a number of "weaknesses and vulnerabilities" that should be properly addressed, EBRD president Thomas Mirow said, stressing several priorities of Medvedev and his government.
"The economic downturn and fall in global commodity prices have emphasized the importance of diversification of output and exports for sustainable long-term economic development," he said. "Furthermore, the crisis has underlined the need to bolster the competitiveness of the Russian industry through market-based restructuring and improved production efficiency, in particular energy efficiency."
The EBRD, founded in 1991 to support the former communist countries develop market economies, plans to invest a total of $4 billion in the Russian economy this year.
"Yesterday, I signed an important loan to TGK-8, a subsidiary of LUKoil, which lifted our investments in Russia to more than $3 billion this year," he said during a briefing organized by the Association of European Businesses. "The $300 million loan will be used to refurbish the Krasnodar central heating plant with state-of-the-art equipment, which … will dramatically improve the environmental and operational efficiency of the plant."
Among other investments, he noted a $500 million loan in July to Russian Railways to modernize transport infrastructure, a $180 million loan to technology conglomerate Sistema, also in July, and a $75 million to Bank St. Petersburg in June.
Russia was hit hard this year by the "steepest recession since the early years of transition," but the bank has a more optimistic pullout forecast for Russia than the government, he said.
"This year our economists forecast a fall in output by 8.5 percent," he said. "What we are seeing at the moment is the bottoming out of the crisis, and for the next year our economists predict a return to growth in Russia with an expansion of the economy by up to 3 percent."
The Economic Development Ministry forecast in September that the economy would grow 1.6 percent next year, after a fall of 8.5 percent in 2009.
Later, responding to questions, Mirow said investing in nanotechnologies was a good option for Russia. State corporation Rusnano is set to receive 318 billion rubles ($11 billion) in state funding through 2015 to invest in nanotechnology ventures.
"We are currently in talks with Rusnano on whether we could take joint efforts and find appropriate mechanisms to attract midsize investors from Germany to this sector," he said. "It's still early to talk on specifics, but it looks quite serious."
Building strong cooperation between scientists and entrepreneurs is a key to boosting high-tech production and modernizing the economy, he said.
"One key element is creating a culture of links between academics and investors, and currently the United States is leading in this effort," he said. "This basically starts with state-funded research … so that small and midsize companies could break even in five to eight years."
Rusnano was not immediately available for comment.