Long-term forecast of economic development of the Eurasian Economic Union to 2030

_ Eurasian Economic Commission. Executive Summary. Long-term forecast of economic development of the Eurasian Economic Union to 2030. Moscow, 2015.

Тhe progress on integration in frames of the Customs Union and the Single Economic Space led to the foundation for the Eurasian Economic Union, which was established in 2015 (hereinafter “the Union”, “the EAEU”). The Member States of the Union in collaboration with Eurasian Economic Commission, supranational executive body of the Union (hereinafter “the Commission”, “the EEC”), set the broad agenda for regional integration. This agenda includes such policies as: implementation of coordinated, agreed or common policy in different directions of economic development; reduction of barriers to entry to domestic markets; ensuring the freedom of movement of goods, services, capital and labour; establishing the single (common) market within the Union.

Integration in Eurasia has exerted a beneficial effect on mutual trade. It encouraged the foreign investments and facilitated the development of particular industries. Further collaboration of the Member States creates the opportunities for industry development; improvements in infrastructure, transportation, and logistics in frame of the Union. It also facilitates the cooperation ties and, finally, raises the living standards.

EAEU Long-Term Economic Forecast till 2030 (hereinafter “the Forecast”) is developed for evaluation of the potential and opportunities to boost an economic growth in theMember States on long-term basis. It designed with regard to mutual economic influence, effectiveness of policy in integration, and priorities of national strategic policy of the Member States according to approved strategic papers or draft papers. The Forecast illustrates an economic potential of integration in the EAEU, determinesthe beneficial directions and sectors for cooperation.

The Forecast was developed before the Republic of Armenia and the Kyrgyz Republic joined the Union. By that reason the Forecast is based on calculations of integration effects only for the three initial Member States, including the Republic of Belarus, the Republic of Kazakhstan, and the Russian Federation.

The potential of economic integration between the Member States is determined in the Forecast by the following factors.

Firstly, the potential growth of mutual trade will be ensured by gradual elimination of non-tariff barriers, exemptions.

Secondly, the development of manufacturing variety, new value added chains, as well as infrastructural, industrial, innovative, and other integration projects will promote an export growth and import substitution from the third countries.

Thirdly, the integration will lead to the “economies of scale” effect.

Fourthly, integration will attract extra foreign direct investments (FDI) both mutual and from the third countries. Profitability of the FDI will be achieved mostly due to the large single market and the Member States’ competitive advantages.

Finally, the realization of integration potential will facilitate the multiplication effects in the certain sectors of economy such as transport, electric power, financial markets, but also in the sectors of economy, which benefit from the size of the market. Moreover, additional impulse for growth of the new spheres will be based on intensification of mutual cooperation instead of competition on the common markets.

The Forecast includes an assessment of the integration effects in accordance with the following scenarios: “Prolonged Status Quo”, “Transit Raw Bridge” and “Own center of economic power”.

Within the “Prolonged Status Quo” scenario, the national economies operate more independently under the influence of internal and external factors. In such conditions the economic development of the Member States relies on its “conventional” sources of economic growth, which provide low balanced rates of the economic development while the infrastructure restrictions remain. The “Prolonged Status Quo” scenario is considered as the “basic” scenario in the Forecast.

The “Transit-raw bridge” scenario is based on benefits from geographical location of the Union and the existing resource availability (renewable and non-renewable resources) of the Member States. The collaboration between the European and Asian-Pacific regions will promote the deepened cooperation between the Member-States under this scenario. In that case the Eurasian Economic Union gains benefits from the transit of commodities, raw and industrial goods through the major logistic hubs and transportation routes.

Boost of regionalization in the global economy creates favorable conditions for consistent formation of, so called, center of economic power on the territory of the Union (“Own center of economic power”). The Center is able to accumulate innovations, investments, skilled workforce, and production of competitive goods and services.

In general, “Own center of economic power” scenario could be characterized in such terms as the knowledge-based economy, cooperation in nonresource spheres, technology intensive industries, human development, scale effect, technological effect, synergy effect. It based on searching of new opportunities for economic growth and creation of new competitive advantages.

The extra growth of the EAEU GDP as a result of integration measures is estimated near 2.9% by 2030 or USD 140 bn in 2012 PPP. Member Statesresults of integration depend on the scale of economies: for the Republic of Belarus it will be the most significant +13.1 % of GDP, for the Republic of Kazakhstan +10.4% of GDP, and for the Russian Federation + 1.4% of GDP.

The forecast for the mutual trade in goods is quite positive:

  • reciprocal openness: + 2.9 pp;
  • share of intra-EAEU trade: + 2.8 pp.

Moreover, the mutual trade in intermediate goods by the end of the forecasted period will rise more than 80.0%. It is achievable due to the completion of forming single market for goods in the EAEU without exemptions and restrictions. The upturn dynamics of this indicator in every Member State (e.g. Belarus: + 65.8%, Kazakhstan: + 94.8%, Russia: + 85.0%) demonstrates both the creation of new and development of existing cooperation ties between the countries.

The Union could attract USD 86.4 bn extra FDI inflows from the third countries by 2030, including USD 9.6 bn — for the Republic of Belarus, USD 39.8 bn — for the Republic of Kazakhstan, and USD 37.0 bn — for the Russian Federation. The general tendency among the Member States is gradual growth in the share of mutual FDI divided by GDP along with the declining in the share of the third countries’ FDI.

By 2030, the extra growth of the non-oil export in the Union is estimated more than 11.0% or USD 70.0 bn. Among the Member States it differs: the Republic of Belarus: + 33.3%, the Republic of Kazakhstan: + 23.0%, the Russian Federation: + 6.8%. The sustainable economic growth of the Union will accelerate the domestic demand for hydrocarbons. However, despite the expected growth in production, total export to the third countries will decrease.

Based on the results of forecasting, the industrial cooperation priorities in the Union by 2030 were determined. The economic spheres with the highest growth potential due the integration measures are below:

  • for the goods — manufacturing of pharmaceutical products; manufacturing of chemical products,
  • for the services — travel; transport services.

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