Russia lost edge during Putin era: World Bank

The bank also backed the "innovation" policies pushed by Putin's Kremlin successor Dmitry Medvedev as he sets himself up for a presidential race next year in which both men could feasibly run.

The World Bank's latest survey was unusual for its criticism of the policies pursued during a 2000-2008 span in which ex-KGB man Putin helped the state take over huge parts of various industries.

It said the period's ballooning dependence on basic exports -- mainly oil and gas -- was partly explained by an unproductive labour force that worked in an uncompetitive market, producing little of interest to ship to nations with more advanced economies.

The World Bank identified a "decomposition of export growth over 2000-08 period" that showed "no contribution of the increase of exports of new products to either new or old geographic markets to ... overall export performance."

The timeframe specifically covers the Putin era when other BRICS countries such as Brazil and India -- along with export-driven China and the group's latest addition South Africa -- made huge strides on the global stage.

Putin has conducted a recent wave of meetings with potential voters and admitted to one youth group on Monday that "we have basically not been investing anything in non-military production -- or investing very little."

The World Bank agreed by noting that oil and natural gas comprised less than half of Russia's exports before Putin first came to power.

But that figure more recently soared to two-thirds and together with other natural resources such as metals and timber made up about 80 per cent of all exports from Russia. The bank said most of the rest were military sales.

"In Russia, the decline of services exports (from 11.4 per cent of gross domestic product in 1999 to 7.6 per cent of GDP in 2008) is unique among the BRIC countries," the World Bank said.

The World Bank concluded that the "competition and innovation" policies that are now being pushed by Medvedev can contribute to long-term growth when combined with a focus on productivity.

"Results show that productivity is key to exports and that lack of competition and entrepreneurial innovation are relevant obstacles to the emergence of new, potentially exportable products," the report said.

"Enhanced competition and innovation policies could contribute to export diversification," it added.

Medvedev has made innovation -- a mantra of his presidency that critics say has rarely been transformed into action -- a key policy plank and the rallying call of his supporters.

The bank said Russia's failure to innovate in the past was responsible for its lack of competitive advantages and inability to diversify its economy and range of exports.

It said a part of the problem was that bureaucracy and inefficiency were stripping away the extra funds that could go into research and innovation.

It thus applauded Medvedev's attempts to create a Russian version of California's Silicon Valley on the outskirts of Moscow.

"Those initiatives should be strengthened by measures to raise the efficiency of Russia?s research system," the bank advised.

"Competition and innovation are sources of economic renewal, which, in turn, are at the core of the long-term development process.