The Bell, 3/10/23

Cautious optimism for Russia’s short-term economic prospects

Russia’s economic indicators are starting to improve and the budget deficit that shocked observers in January has shrunk. Both economic experts and households are increasingly showing cautious optimism. In the absence of further external shocks, such as a sharp fall in Russian energy prices or a new round of sanctions, there is every possibility that the IMF’s  prediction (0.3% GDP growth in 2023) will be achieved. The key driver of growth and optimism is internal demand, primarily fuelled by generous budget spending, according to Central Bank analysts. However, if the spending stops, so will the growth.

Government spending growth

Expenditure in January and February was 5.75 trillion rubles, up 51% on the equivalent period last year. At the same time, revenues fell by almost a quarter, to 3.16 trillion rubles. The budget deficit was 2.5 trillion rubles, almost 88% of the planned figure.

At the same time, February’s figures look a bit better than January’s. The monthly budget deficit for January was 1.8 trillion rubles but in February it fell to 0.8 trillion rubles. But an increase in spending is also slowing: throughout February expenditure was 2.63 trillion rubles, compared with 3.12 trillion in January. This is already fairly close to historical norms (in February, the government spent 8.9% of its entire planned expenditure for the year, compared with a historical norm of 7%), the Solid Figures Telegram channel noted. More detailed data on budget spending shows that, in the second half of February, there was a slowdown in expenditure. The Finance Ministry continues to explain the high level of spending at the start of the year on advance payments for government contracts. 

It’s quite possible that the Finance Ministry is correct. But there is an important side-effect to increased budget expenditure at the start of 2023 — it goes a long way to offsetting the generally unfavorable economic background.

• In the manufacturing sector, high expenditures contributed to increased production, Central Bank analysts pointed out. In January (February’s figures will not appear until late March), the biggest growth was in sectors related to the military-industrial complex: vehicle manufacture (including aviation technology and shipbuilding) was up 27.4%; computers, electronics and optical products was up 5.5%; clothing was up 5.5%; metal components (not including machinery and equipment) was up 3.6%.
• In the raw materials sector over the same period production of coal (-3.5%), oil and gas (-3.2%) and metal ores (-3.1%) all fell. However, there was growth (+14.2%) in the production of other raw materials, including stone, gravel and sand (this suggests growth in the construction industry likely fueled by the advance payments mentioned by the Finance Ministry). In early March, the government allowed companies working in public procurement to receive up to 50% of the value of their contracts in advance. Companies engaged in capital expenditures (for example, road building) in annexed Ukrainian territory can receive up to 90% in advance. Construction contracts in these areas go to firms linked with the Russian military, security forces and officials.

Consumer-driven growth

The second important factor in economic stabilization has been growing consumer optimism — and related consumer spending. Studies commissioned by the Central Bank show that consumer confidence, which collapsed following Russia’s mobilization in the fall, has almost entirely rebounded. Propaganda plays a role in this — most independent media is blocked in Russia and state media try their very best to spew out positive headlines.

Economic indicators also point to improving consumer sentiment. Spending has stabilized. This is helped by a labor shortage that is driving up incomes (companies increased salaries for employees who did not flee abroad as a result of the war and mobilization). The flipside of increased consumer confidence, of course, is greater inflation risks.

Business sentiment is also improving: in February the PMI index reached a record 53.6 points, its highest level since 2017. Business confidence is growing on the back of an increase in new orders, according to analysts from credit rating agency S&P. Although most of this comes from domestic clients — exports “are falling even further.” At the same time, the real situation in the manufacturing sector is close to stagnation, according to Vladimir Salnikov of economic think tank CMASF.

A decline in exports significantly limits the potential for business growth. Meanwhile, logistical problems make it harder to cash in on the revival of the Chinese economy following the end of Beijing’s Covid restrictions. Russia’s reduction in oil production will be a blow to manufacturing and transport that will be reflected in GDP figures for the second quarter.

The big challenges

The two major challenges facing Russia in 2023 are revenue shortfalls and inflation. Although changing oil taxation and a one-off payment from businesses can give the state’s finances a temporary boost, they cannot fundamentally change the situation.

The Finance Ministry is unlikely to remain within its declared budget deficit target of 2.9 trillion rubles or 2% of GDP. The government can, of course, still plug that deficit using the National Welfare Fund and by taking on debt. But that, in turn, forces the Central Bank to maintain a tight monetary policy for longer.

Why the world should care

The latest economic figures give Kremlin propaganda another chance to shout from the rooftops that all is well. But that’s not the whole story:

• As domestic demand is being driven by the state via the defense sector and construction, it means growth will fall when expenditure falls.
• Demand is falling in sectors not linked to state spending and the defense industry. And the government’s current approach makes inflation more likely. In addition, it’s not a long-term solution. Sooner or later state-driven will no longer be possible — it’s unlikely the defense industry will successfully switch to producing high-quality consumer goods. Even the IMF, which has an optimistic prognosis for Russia’s economy in 2023 believes that the mid-term prospects are not good.

Western sanctions split the Russian opposition

Western sanctions against billionaire Russian businessmen have not yet brought about a split among the Russian elite — but they have led to significant disputes within the Russian opposition (all of which is now based outside of the country). One of top opposition politician Alexei Navalny’s leading supporters, Leonid Volkov, was forced to leave his job as head of the Anti-Corruption Foundation (FBK) this week amid accusations he lobbied the European Commission to lift sanctions on Alfa Group shareholders Petr Aven, Mikhail Fridman, Alexei Kuzmichev and German Khan. Volkov’s letter in support of Fridman and Aven emerged at the start of March — it was initially released by the former editor in chief of Ekho Moskvy Alexei Venediktov, who FBK accuses of taking money from Moscow City Hall.

In addition to Volkov, other opposition figures also signed an appeal to lift sanctions against the owners of Alfa Group. Signatories included co-founders of Dozhd TV Natalia Sindeeva and Vera Krichevskaya, former deputy prime minister Alfred Kokh, politician Leonid Gozman, journalists Sergei Parkhomenko and Leonid Parfyonov, businessman Yevgeny Chichvarkin and economist Vladislav Inozemtsev.

The signatories claim that Alfa Group was never close to Vladimir Putin and, on the contrary, displayed a “lack of political engagement.” Fridman, the main shareholder, was described as “a friend of the late [opposition politician] Boris Nemtsov”, who “always strongly distanced himself from contact with Vladimir Putin (they never met in private).”

Detail: The Financial Times discovered Friday that Fridman and Aven are ready to divest their 45% stake in Alfa Bank, Russia’s largest private bank, in order to have sanctions against them lifted. Their long-term partner, the least prominent of Alfa Group’s founders Andrei Kosogov, is willing to buy a stake worth 178 billion rubles ($2.3 billion) held by Cyprus-based ABH Holdings. He currently holds 41% of ABH Holdings after buying out the shares of German Khan and Alexei Kuzmichev, both of whom remain under sanctions.

Since war broke out, Aven and Fridman have distanced themselves from Russia as far as possible (although Khan returned to Russia). However, it would be a big exaggeration to say they are distant from the Russian authorities. In 2019, Fridman took part in Putin’s traditional pre-New Year meeting with top businessmen. And in 2013, Alfa Group and their partners received $27.7 billion from state-owned Rosneft for a stake in a joint venture with BP. The deal went ahead with Putin’s personal approval.

At present, there is no mechanism to lift personal sanctions against individual Russians, so those affected are currently seeking legal solutions (for more about the mood among the Russian elite and their sanction-busting strategies, see here). Their lawyers often recommend collecting testimonials from Russian opposition figures respected in the West.

Why the world should care

Questions about who deserves to face sanctions are somewhat philosophical. So far, though, they have caused more splits in the opposition than among the Russian elite. Moreover, faced with a choice between the unknown prospect of escaping sanctions and the familiar demands of Putin and his security forces, most are choosing the devil they know. Reviewing personal sanctions, or creating a mechanism to remove them, would likely turn oligarchs away from Putin. In the meantime, they are fighting back: recently a European court lifted sanctions against the mother of tycoon and mercenary leader Yevgeny Pigozhin.

Figures of the week

• Inflation slowed almost twice in February, according to Rosstat: to 0.46% after 0.84% in January. Annual inflation also slowed to 11% from 11.4%. During the week of February 28 to March 6, prices stabilized around zero. The biggest contribution to the growth of prices was made by: food +9.3% m/m; services +13% m/m.
• On March 1, Russia’s National Welfare Fund (NWF) was worth 11.1 trillion rubles (up 299 billion rubles for the month, 672 billion rubles since the start of the year). Its liquid assets are worth 6.5 trillion rubles (up 112 billion for the month, 314 billion rubles since the start of the year). The NWF increased due to the redemption of Yamal-LPG bonds, an increase in Sberbank shares and the weakening ruble. In February, 7.4 billion Chinese yuan (a little more than $1 billion) and 12 tons of gold (about $700 million) were withdrawn. The Finance Ministry sold these assets to the Central Bank for 131.7 billion rubles to replace lost oil-and-gas revenues. The Central Bank mirrored these trades on the market by selling a similar amount of yuan (the Central Bank cannot sell gold).
• There was a 12-fold fall in profits in the Russian banking sector in 2022, the Central Bank reported. Almost half of the banking sector’s reserves (1.1 trillion rubles) are now connected with various frozen assets (Eurobonds, subsidiaries, loans to non-residents etc). The banks’ forex assets fell from $331 billion to $290 billion (part of which is frozen), forex liabilities fell from $353 billion to $259 billion. The yuan began to appear on banks’ balance sheets.
• Russian firms make half of their foreign trade settlements in yuan. At the end of 2022, the share of dollar and euro payments for Russian exports fell to 48%, the Central Bank said. Almost all the rest were settled in rubles and yuan (34% and 16%), with currencies from other “friendly” nations amounting to 2%. At the start of last year, 87% of trades were made in dollars and euros, 12% in rubles and 0.5% in yuan.
• When paying for imports, the dollar and euro share fell from 65% to 46%, but they were not replaced by the ruble — but by the yuan. The Chinese currency’s share increased from 4% to 23% while the ruble’s share fell slightly from 29% to 27%.

What to look out for

• Russian Union of Industrialists and Entrepreneurs Congress — March 16
• Central Bank board meeting to set interest rates— March 17

Further reading

• Lies, damn lies and statistics — how many prisoners has Wagner really recruited? Judith Pallot points out why any inmate recruitment estimates based off Russian federal prison data is shoddy journalism and should be treated with caution
• Chasing Russia’s shadow reserves  Martin Sandbu uncovers how the how the financial infrastructure works, and what the new reality of reserves might look like

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The author of this newsletter is one of Russia’s leading writers on this topic: independent economic analyst Alexandra Prokopenko. Alexandra worked as an advisor at Russia’s Central Bank and Moscow’s Higher School of Economics from 2017 to 2022 — and before that she was an economic journalist for Vedomosti, then Russia’s leading business newspaper. Today, Alexandra is a columnist at the Carnegie Endowment for International Peace, and a visiting Fellow at the Center for Order and Governance in Eastern Europe, Russia, and Central Asia at the German Council on Foreign Relations. She holds an MA in Sociology from the University of Manchester.

Wrtten by Alexandra Prokopenko

Translated by Andy Potts

By Branko Marcetic, Responsible Statecraft, 3/23/23

The 20th anniversary of the U.S. invasion of Iraq has spurred reflection on the far-reaching geopolitical fallout of the war. But one facet has gone largely undiscussed: its contribution to deteriorating U.S.-Russia relations that have brought the countries to the brink of war today, as laid out in U.S. diplomatic cables released by WikiLeaks in 2010.

By the end of 2002, the relationship was at an inflection point. Russian president Vladimir Putin had spent significant political capital on an attempt at rapprochement with George W. Bush’s administration. “No Russian leader since Peter the Great has cast his lot as much with the West as Putin has,” observed then-Senate Foreign Relations Committee Chairman Joe Biden at the time.

The evidence was there. The Kremlin had closed Soviet-era bases, allowed U.S. forces to invade Afghanistan from Central Asia, and accepted further NATO enlargement and Bush’s withdrawal from the Anti-Ballistic Missile Treaty. Although Putin had “given the United States most everything it could want […and] made concessions on strategic issues once unthinkable for a Kremlin ruler,” the Washington Post reported, he had “been able to show few tangible benefits to justify his policy to domestic skeptics,” including the lifting of Cold-War era U.S. restrictions on trade with Russia.

This was the context in which Bush began pushing for the invasion. Kremlin officials were reportedly primarily concerned with what a war would mean for Russia’s ability to collect the nearly $8 billion it was owed by Iraq due to its eight-year war with Iran, and the cables corroborate that version of events. “Putin expressed to [Italian Prime Minister Silvio] Berlusconi his concern about the possibility of a U.S. military action in Iraq, noting that Russia wants to be able to collect on Iraq’s heavy bilateral debt,” an April 2002 cable reads. “Putin stressed the need to use the UN to deal with Iraq.” The matter of the $40 billion trade deal with Iraq that Moscow was set to sign, as well as Russian business interests in Iraqi oil fields, also loomed large.

Indeed, Putin at times suggested he might be more flexible on his objections to the use of U.S. military force if it might later serve Russia’s interests. “Putin stressed that if the U.S. and other countries were given a green light to deal with their problem in Iraq, he should have similar acquiescence for dealing with his terrorist problem in Chechnya and Georgia,” one October 2002 cable records Putin as telling Berlusconi. The press had earlier reported on the Kremlin toying with an “Iraq-for-Georgia” tradeoff.

But it’s clear other concerns were also involved. In a later meeting with Berlusconi that came as Bush was pressing for a tougher UN Security Council resolution on weapons inspections — which, according to the UK’s Chilcot Report, was merely a strategy to legitimize an invasion Bush was committed to launching no matter what — Putin “made clear” that “Russia had gone as far as it could go” in the language it could support.

“The Russian president identified two red lines that he could not cross,” states an October 2002 cable. “A UNSC [UN Security Council] resolution that contained an automatic trigger for the use of military force if Iraq failed to meet all of its obligations, and acceptance of unilateral resort to force by the U.S. without ‘international legitimacy’ (i.e. UN sanction).”

Following Secretary of State Colin Powell’s infamous February 2003 address to the Security Council, Russian Foreign Minister Igor Ivanov, while calling on Baghdad to fully cooperate with inspectors, stressed the need for a political settlement and emphasized that the situation could only be resolved through international cooperation through the Security Council and in compliance with the UN Charter.

That this should be the case is hardly surprising. Significantly weakened by the Soviet Union’s collapse and the economic shock therapy it underwent in the 1990s, Russia had a direct interest in a global system that relied on multilateralism and international law instead of on the unilateral use of power by the remaining superpower. Kremlin officials had just gotten an unpleasant taste of what that might mean for them with the U.S. bombing — without the Security Council’s authorization — of Serbia, a campaign that led the otherwise ardently pro-Western Boris Yeltsin to protest in outrage and suspend cooperation with NATO (which Putin swiftly reversed a year later).

Whatever the exact mix of motivations, Putin’s government unsuccessfully teamed up with war-skeptical U.S. allies France and Germany to try to prevent the war. From December 2001 until the invasion’s eve, Putin repeatedly warned Bush in public and in private that expanding the war on terror to Iraq would be a mistake and that the “problem” of Iraq should be resolved through the UN and weapons inspections instead of unilateral military force. Putin said he would use his veto power, if necessary, to block any potential UN authorization of force.

Though he briefly wavered under U.S. pressure, what may ultimately have kept Putin in line with European opponents of the war is the Bush administration’s lack of reciprocation to his overtures. Russian trade with Europe dwarfed its trade with the United States, which maintained the restrictions Moscow had sought to end, and Putin had little to point to in convincing a Russian foreign policy establishment that opposed joining the war that a break with powers like Germany and France was worth the benefit of aligning with Washington’s unpopular invasion.

A March 19, 2003, cable outlines an “anticlimactic” end to the Security Council debate on the invasion, its author describing how most members “defensively postured about the relevance and significance of both the Council and, more broadly, the United Nations.”

“We remembered 9/11 and were there for you — but no linkage with Iraq,” was how the cable summarized Ivanov’s speech, which stressed that inspections were working and should continue, that a “comprehensive settlement” must be worked out through the UN, and that “no prior council decisions authorized the use of force outside the UN Charter or approved the violent overthrow of the leadership of a sovereign state.”

Bush’s decision to invade anyway didn’t precipitate an immediate collapse of U.S.-Russia relations. One September 2003 cable describes Putin’s consideration of deploying Russian troops to Iraq under U.S. command as an example of his still “pro-Western” views, while another cable sent a month later documents then-State Department official John Bolton’s belief that “that the U.S. and Russia had overcome pre-war disagreements.”

But numerous cables point to the bitter taste the episode left for the Russian side. “While 9/11 precipitated unparalleled cooperation, Iraq and other events had eroded this relationship,” Russian Security Council Secretary Ivanov told U.S. Ambassador to Russia (and current CIA director) William Burns in 2006. “The Germans did not hear much that was new from the Russians during the talks [in Siberia over Iran],” Burns was told later that year. “Moscow’s position was still shaped largely by its ‘Iraq experience,’ with Russia fearing that action in the UN Security Council would create a slippery slope leading to the use of force.”

As late as 2009, a roundtable of Russian analysts emphasized to a congressional delegation their “deep displeasure” with the U.S. government and noted “that the war in Iraq played a large part in souring Putin on wanting to be a ‘member of the club’ of forward-leaning countries by demonstrating that if a country had enough power it could do what it wanted and ignore international opinion.”

U.S. officials were told Russian resentment over the war went far beyond Kremlin hardliners. “Anti-American sentiment is growing in Russia and U.S. moral authority, which is a key component of the relationship, is slipping,” former Yeltsin official Anatoly Chubais warned in 2006. “Those who criticize the U.S. argue that rhetoric on democracy building and actions in Iraq do not coincide. These arguments are resonating with the population and could bring U.S. critics to power.”

Grigory Yavlinsky, chairman of the liberal opposition Yabloko party, bitterly admonished U.S. officials interested in encouraging democracy in Russia to “‘leave Russia alone’ and, alluding to Iraq and Abu Ghraib, ‘put its own house in order,’” according to a February 2007 cable. “For nationalists, he said, the U.S. was a hostile force; for liberals, it was discredited due to Iraq, Kosovo, and NATO,” a 2008 cable recounts Kremlin adviser Vyacheslav Nikonov as saying, echoing liberal Putin critic Boris Nemtsov’s verdict on U.S. democracy promotion: that “Russians don’t welcome U.S. commentary, against the backdrop of an unpopular war in Iraq” and a host of other issues.

Yet the cables also hold lessons for Russian officials today, as they remain mired in their own illegal war that is — from unilateral force to faulty intelligence — remarkably similar to Bush’s. “No modern problem can have a military solution,” Russian foreign minister Sergei Lavrov, who still holds the post today, told his French counterpart in 2007 in response to saber-rattling over Iran. Putin’s own words to the Russian Federal Assembly, recorded in a May 2006 cable, are even more prophetic: “It is known that the use of force rarely brings the hoped-for results, and its consequences at times are more terrible than the original threat.”

By Dana Abizaid, Counterpunch, 3/7/23

As the grim one-year anniversary of Russia’s invasion of Ukraine neared last month, President Biden and Vladimir Putin gave competing speeches laying the blame for the tragedy at each other’s feet. The western press showed great analytical skill in breaking down Putin’s speech for falsehoods and half-truths. The same can’t be said of Biden’s speech. Although the western press fact checks and criticizes much of Biden’s domestic policy, mainstream journalists applaud rather than analyze his pro-war rhetoric. Accordingly, the BBC chided the Russian President by stating, “Truth was an early casualty of Mr Putin’s lengthy speech”, while praising Biden for his strong statement that autocrats only understand: “No, no, no!”

This type of white hat vs. black hat narrative makes for good copy and confirms western stereotypes.  If peace is going to prevail, however, a more nuanced examination of Russia’s response to US political and military meddling in Ukraine is needed. This should also include a more honest analysis of NATO expansion eastward and a sober look at the threat that far-right Ukrainian militias pose for Europe.

In this sense, it would be beneficial to lean on one of the main lessons former Secretary of Defense, Robert McNamara, outlined in Errol Morris’s 2003 documentary, The Fog of War. Regarding the peaceful resolution of the Cuban Missile Crisis, McNamara explained that it was essential for President Kennedy to empathize with the enemy. More specifically, McNamara urged that when confronting the enemy “[we] must try to put ourselves inside their skin and look at us through their eyes just to understand the thoughts that lie behind their decisions and their actions.” Taking this radical but simple step helped Kennedy and Khrushchev step back from the edge of nuclear annihilation. With rising tensions between the US and Russia again threatening the specter of nuclear Armageddon, Biden should consider McNamara’s advice.

This, of course, would demand that the US government and media objectively listen to some of Putin’s claims. Given the historic climate of mistrust between the West and Russia, this is an admittedly big ask. But when Putin outlines US involvement in the crisis that led to the Ukrainian Civil War, he is providing essential context that both Washington and western journalists leave out. Still, given the fact that in late 2013 John McCain was rallying the masses on Kyiv’s Maidan Square, it’s hard to deny US interference. Furthermore, a leaked 2014 conversation between State Department official, Victoria Nuland, and Ambassador to Ukraine, Geoffrey Pyatt, clearly highlights US kingmaking attempts in Ukraine. Is it too much to ask how this was perceived by Putin and the Russians?

Or how about Putin’s claims that the “Special Military Operation” is designed to de-militarize and de-Nazify Ukraine? Even before last February’s invasion, the US was responsible for 90% of Ukraine’s military aid, including lethally effective Javelin anti-tank missiles. As far back as 2014, Lt. General Ben Hodges, former commander of the US Army in Europe, stated that “First and foremost, U.S. military aid represents a physical manifestation of American support, which is essential.” Exposure to such facts, combined with knowledge of NATO expansion since 1991, might provide insight into how this threat is perceived by Russians.

Presented in this context, the question of who provoked the war in Ukraine could be seen in a new light.  Nearly ten years ago, the Associated Press’s Matt Lee pressed State Department Spokesman, John Kirby, precisely on this issue. “Is it not logical to look at this and say the reason that the Russian army is at NATO’s doorstep is because NATO has expanded rather than the Russian’s expanding? In other words, NATO has moved closer to Russia rather the Russian’s moving closer to NATO.” When Kirby responded that “NATO is not an anti-Russian alliance”, Lee countered, “[F]or 50 years it was an anti-Soviet alliance…Do you not understand how, or can you not even see how, the Russians would perceive it as a threat?”

Regarding denazification, prior to Russia’s invasion, the western press had reported assiduously on the rise of far-right militias within Ukraine’s military ranks. Numerous articles, many focused on the Azov Battalion, appeared in the Guardian, BBC, and Reuters detailing the disturbing xenophobia and antisemitism espoused by these extremists. One particularly frightening investigation by Time correspondent Simon Shuster quoted militia members claiming that “We are Aryans and will rise again” and “Being tolerant to LGBT people, this not natural. This is brainwashing.”  On this note, Putin’s recent speech repeated that there is a fascist presence in Ukraine and that “the West will use anybody – terrorists, neo-Nazis – if they fulfill its aims” of fighting against Russia.

Shuster’s report takes on greater significance in light of increasing attacks by neo-Nazi groups worldwide. In 2018, The Guardian reported that the outgoing head of UK counter-terrorism policing, Mark Rowley, revealed that four far-right terror plots had been foiled in 2017 and extreme right groups linked to Ukraine were seeking to build international networks. Since the US has a history of allying with radical groups, it’s worth remembering the devastating consequences of such alliances. One might recall Zbigniew Brzezinksi, President Carter’s National Security Advisor, proudly claiming, “We created the mujahedeen”. Besides the short-term goal of driving the Soviets from Afghanistan, this “creation” also led to the emergence of the Taliban, the September 11 attacks and the ensuing US “War on Terror”. This is not to say that Ukraine will become a failed state like Afghanistan and fertile ground for neo-Nazi groups, but considering this possibility might shed light on Russia’s goal to denazify the Ukrainian military.

The war in Ukraine is the tragic consequence of Russian aggression. But trying to understand the reasons why the Russian government took the decision to invade might help defuse the conflict. Since the West’s current plan of escalation promises more destruction of Ukraine and its people, as well as the threat of nuclear holocaust, following McNamara’s advice and trying to see the conflict through Russian eyes, is an important first step toward negotiating peace.

Dana E. Abizaid teaches European History at the Istanbul International Community School.

By Ben Aris, Intellinews, 3/21/23

Chinese President Xi Jinping and Russian President Vladimir Putin held a second day of talks on China’s plan for the settlement of the Ukrainian conflict and expanding economic and trade ties during a meeting in Moscow on March 21.

“We are always on the side of peace, justice and historical fairness. We respect the UN charter. We have reached a consensus with President Putin and we have decided to expand and build our stable co-operation,” Xi said.

Dmitry Peskov, the Kremlin spokesperson, confirmed the two leaders had discussed the conflict and a possible peace plan but neither confirmed whether any progress had been made nor gave any details.

Putin suggested that Russia should endorse the Chinese peace plan and will work with Western partners, but gave no further details. China published a 12-point peace plan on the anniversary of the start of the war, which called for a ceasefire, the resolution of the humanitarian crisis in Ukraine and the resumption of talks between Moscow and Kyiv.

Xi has also not spoken with Ukrainian President Volodymyr Zelenskiy yet by phone. When asked why, Chinese Foreign Ministry Spokesman Wang Wenbin said that China was in contact with all sides involved in the Ukrainian conflict.

“China takes a steadfast and clearly defined position on the issue of Ukraine,” Wang Wenbin said at a news conference to the question from a Western reporter. “The Chinese side maintains communication with all sides.”

Peskov also gave no details of other major topics of conversation, including on whether the leaders had discussed the issue of natural gas contracts or military-technical co-operation, but said this would be addressed in their upcoming statements.

He also referred to the Defence Ministry for information on whether the Russian and Chinese defence ministers would hold a separate meeting during Xi’s visit to Russia. The US has accused China of supplying Russia with arms, although Beijing has denied the charge.

Chinese Foreign Ministry Spokesman Wang Wenbin says that Beijing intends to take an objective position on the Ukrainian crisis and, together with the international community, promote peaceful dialogue.

Xi visited Russia as part of his first foreign trip since his re-election as president for an unprecedented third term.

Deals

The Russian Prime Minister, Mikhail Mishustin, also met with Xi the same morning and highlighted the importance of strengthening comprehensive partnership and strategic co-operation between the two countries.

“We have chosen Russia for the Chinese leader’s first foreign visit. This fits into the bigger picture, because we are the largest neighbouring powers and all-round strategic partners,” Xi said during a meeting with Mishustin.

Mishustin and Xi agreed on 79 projects worth over $165bn in the Intergovernmental Russian-Chinese Commission on Investment Co-operation, which focuses on energy, high-tech areas, and transport and logistics corridors.

“We prioritise investment co-operation. The Intergovernmental Investment Commission’s portfolio includes 79 projects totalling more than $165bn,” Mishustin said.

China considers it extremely important to link the Belt and Road Initiative with the Eurasian Economic Union (EAEU), Xi told Mishustin.

“China attaches great importance to co-operation to jointly create a link between the Belt and Road Initiative and the Eurasian Economic Union,” Xi Jinping was quoted by China’s Central Television as saying.

He also noted that Beijing is ready to fully implement the agreement on trade and economic co-operation between the EAEU and China and carry out regional co-operation with Russia at a higher level.

Mishustin also highlighted the strategic energy partnership between Russia and China, emphasising co-operation in high-tech areas, and the agro-industrial complex. He also highlighted co-operation on some of the key energy projects, including Yamal-LNG, Arctic LNG 2, the Amur Gas Chemical Plant and the Ust-Luga gas processing complex, as all being examples of successful joint energy projects.

“I would like to highlight co-operation in high-tech areas. We are discussing aircraft construction, mechanical engineering, machine tool construction, space research, and end-to-end technologies aimed at creating innovative products and providing services. I am convinced that expanding innovative co-operation will strengthen Russia’s and China’s technological sovereignty,” Mishustin said.

In some brief comments after the morning meetings Putin also stressed the co-operation in both logistics and technology so that both countries could become “technologically sovereign.”

“By joining our rich scientific potentials and production capabilities, Russia and China can become world leaders in the field of information technology, network security and artificial intelligence,” Putin said. He also drew attention to the fact that the key to sustainable development of Russia and China is “to ensure technological sovereignty.” 

As part of the sanctions regime, the export of tech and equipment to Russia has been banned. Likewise, in January similar restrictions on the export of technology to China were introduced by the US.

One of the few comments on energy co-operation was Putin’s announcement that almost all parameters of gas pipeline Power of Siberia 2 (Sila Sibiri 2) have been agreed.

After Russia’s exports of gas to Europe have been cut to a fraction of those in previous years and are unlikely to restart after the Nord Stream pipelines were destroyed last September, Russia is seeking to reorientate its gas sales from West to East but needs to build a very large new pipeline running to China through Mongolia.

Gazprom said on March 20 that gas exports to China via the existing Power of Siberia 1 pipeline reached a record 15bn cubic metres in 2022, but this still only a fraction of the approximately 150 bcm Russia used to sell to Europe.

Power of Siberia 1 has a nameplate capacity of 34 bcm and the new Power of Siberia 2 could have as much as 50 bcm or 60 bcm, but will take at least five years to build, and possibility longer.

“We have just discussed a good project, this is a new gas pipeline Sila Sibiri 2 running across Mongolia. Almost all terms of this deal were agreed. This means 50 bcm of gas, stable and reliable shipments from Russia,” Putin said.

Putin also stressed that Russia wants to develop mutual payments in Chinese yuan in trade with Asian, African and Latin American countries.

“We support the use of Chinese yuan in payments between Russia and countries of Asia, Africa and Latin America,” the head of state said. The Russian leader also expressed confidence that such “forms of payments will be developed between Russian partners and their colleagues in third countries.”

“National currencies are more and more actively used” in the bilateral trade and two thirds of the trade turnover between Russia and China are already “made in rubles and yuan,” Putin noted. “This practice should be encouraged further” and mutual presence of financial and banking institutions on Russian and Chinese markets should be expanded, he added.

Since Russia was cut off from the global payments system with the SWIFT sanctions that were imposed only days after Russia’s invasion of Ukraine in February, the country has been going through a rapid process of yuanisation of its financial system, adopting the Chinese currency as its reserve currency and for settlement of international trade deals.

US reaction

The high-profile meeting between Xi and Putin has strained relations between China and the US further. Analysts have argued that by the high-profile visit to Russia, China has adopted a more assertive role on the geopolitical stage and is openly challenging the US’ claim to be the global leader.

By offering to mediate in a peace process, China is also challenging the US authority there as well, which makes the issue of a conversation between Xi and Zelenskiy – which would be their first since the war began – of considerable weight.

In comments following Xi’s first day in Russia, US Secretary of State Antony Blinken was dismissive of the visit, blasting Xi decision only days after the International Criminal Court chose to issue an arrest warrant for Putin on charges of kidnapping Ukrainian children.

“China feels no responsibility to hold the Kremlin accountable for the atrocities committed in Ukraine, and instead of even condemning them, it would rather provide diplomatic cover for Russia to continue to commit those very crimes,” Blinken said at a press conference.

Notably, none of the US, China, Russia nor Ukraine are under the ICC’s jurisdiction. US President Joe Biden has called the arrest warrant “justified,” adding that “it makes a very strong point,” while China has called it into question.

The court should “respect the jurisdictional immunity of a head of state under international law, prudently exercise its mandate in accordance with the law, interpret and apply international law in good faith, and not engage in politicisation or use double standards,” China Foreign Ministry spokesperson Wang said.

In what appears to be a slight aimed at China during Xi’s trip, the head of the Taiwanese administration, Tsai Ing-wen, is due to stop off in the US on her way to Guatemala and Belize and intends to meet with US House Speaker Kevin McCarthy.

Beijing has objected strongly to the plan and possible meeting, as it refuses to acknowledge the legitimacy of the Taiwanese government and hence objects to the official recognition by the US government that any high-level meeting applies.

The White House has countered that such meetings are standard practice and shouldn’t be used by China as a pretext for escalating the situation in the Taiwan Strait, a senior US administration official said, Reuters reported on March 21.

“We see no reason for Beijing to turn this transit, again, which is consistent with long-standing US policy, into anything but what it is. It should not be used as a pretext to step up any aggressive activity around the Taiwan Strait,” the official said. “There is nothing new from our point of view.”

According to the official, every leader of Taiwan had transited through the US, and Tsai has done so herself six times since taking office 2016, meeting with members of Congress during all of those visits.

Intellinews, 3/21/23

Russian President Vladimir Putin took time out from meetings with Chinese President Xi Jinping, who had just arrived in Moscow for a three-day state visit, to speak to lawmakers from more than 40 African countries on March 20 and woo them with generous promises of economic and military aid in a speech.

As the battle for influence in Africa heats up, Putin reminded delegates of Russia’s long-standing close ties and played on his favourite troupe of the need for a multipolar world, a sentiment echoed by many delegates, whilst vigorously rubbing raw the lingering resentment in Africa of the European colonial-era, to good effect.

“Ever since the African peoples’ heroic struggle for independence, it has been common knowledge that the Soviet Union provided significant support to the peoples of Africa in their fight against colonialism, racism and apartheid, how it helped many African countries to gain and protect their sovereignty, and consistently supported them in building their statehood, strengthening defence capabilities, laying the foundations of their national economies and workforce training,” Putin told the delegates to a round of applause.

The conference is a warm-up event ahead of the second Russia Africa summit slated for July in St Petersburg, where most of the continent’s heads of state are expected to attend. This will be the much-delayed second Russia-Africa summit after the first one, held in 2019 in Sochi, attended by 48 out of 54 African heads of state. Attempts to organise a second summit have been repeatedly delayed by the coronavirus pandemic and then the start of the war in Ukraine.

As followed by bne IntelliNews, Western and Russian diplomats have recently been travelling the world trying to shore up support in the clash that followed Russia’s invasion in February 2022. Africa has been a key battleground where Moscow has been able to capitalise on warm Cold War-era relations between Africa and the Soviet Union. The Kremlin has also been playing on and stoking lingering resentment amongst many Africans of the colonial period that still shapes politics today.

“I think that it is necessary to raise loudly the issue of compensating damage,” stressed Valentina Matvienko, the chairwoman of the Federation Council, the upper house of Russia’s parliament and the most powerful woman in Russian politics, who was also in attendance. “I mean financial payments to all the people in Africa who suffered during the colonial period from European oppressors, from the consequences of colonialism.”

Warm reception

Putin was playing to a receptive audience. Recent trips by US Secretary of State Antony Blinken to South Africa and French President Emmanuel Macron to francophone Africa have not gone well. Blinken leaned on Petroia to end its trade and cooperation with Moscow, only to receive a cold shoulder. South Africa went ahead with joint naval exercises with Russia that began on February 24, the anniversary of the start of the war in Ukraine.

Macron was roasted by Felix Tshisekedi, the President of the Democratic Republic of Congo, during a joint televised press conference two weeks ago. “This must change, the way Europe and France treat us, you must begin to respect us and see Africa in a different way,” Tshisekedi said. “You have to stop treating us and talking to us in a paternalistic tone. As if you were already absolutely right and we were not.”

The parliamentary delegates have voiced similar complaints during their remarks to the summit in Moscow.

The Chairman of South Africa’s National Council of Provinces Amos Masondo said that “Russia has no colonial heritage in Africa and no African country sees Russia as an enemy. On the contrary, you helped us in our liberation, you are a reliable partner.” He echoed Putin’s favourite catchphrase, saying that his country stood for a multipolar world.

Putin is playing on a widespread feeling of resentment in Africa that its people are treated as second-class citizens by the Western world and excluded from the geopolitical decision-making process. Several delegates, including the President of the Senate of the Parliament of the Republic of Congo Pierre Ngolo and the Chairman of the National Council of the Republic of Namibia, Lukas Sinimbo Muha, called for a reform to the UN Security Council to make it more inclusive with at least one African seat.

“The permanent historical imbalance in the Security Council must be changed,” Muha said.

In counterpoint to the bad feelings left over from European colonialism in Africa is the warm regard many countries there have for the Soviet Union that supplied many liberation movements with arms as well taking the best African students into its higher educational institutes.

The Congo’s Ngolo recalled: “Relations between Russia and Africa became special during the period of struggle for independence, when the Soviet Union was the main force supporting the national liberation movements. Thus, the USSR became the defender of the oppressed. Then it was the USSR, and now it is Russia taking a special place among the friends of Congo in difficult times,” also adding that Congo backs the idea of a multipolar world.

There were similar remarks from the representatives of Benin, Burkina Faso, Guinea, Guinea-Bissau, Zimbabwe, Mali, and others.

Soviet Union revanche

Putin has followed through on Russia’s promise to play the same role in Africa today as the Soviet Union did before, which was already Kremlin policy before the war in Ukraine started.

During the COVID-19 pandemic, Moscow earned a lot of credit by actively exporting hundreds of millions of dollars worth of its Sputnik V vaccine to many countries in Africa at a time when the West already had a full stock of vaccines to cover its own population but were reluctant to sell doses to Emerging Markets, in what was dubbed a “vaccine apartheid” by the director of the World Health Organisation. In October 2021, the WHO reported that rich countries had an average of 133 vaccine doses per 100 people, whereas low-income countries had less than four doses per 100 people.

“I want to emphasise that our country has always and will always consider cooperation with African states a priority. It would not be an exaggeration to say that it is one of the unchanging priorities of Russia’s foreign policy,” Putin said. “During the coronavirus pandemic, Russia was among the first countries to provide African states with large volumes of vaccines, test kits, personal protective equipment, and other medical and humanitarian cargoes.”

Amongst the delegates to the Russia Africa conference were members of the scientific, educational, and expert communities from Russia and African countries, the State Duma, federal executive authorities, senators of the Federation Council, chairmen of the legislative bodies of the constituent entities of the Russian Federation, as well as representatives of the business community.

The US has largely ignored Africa as unimportant until recently, highlighted by the fact is only one full-scale military base in Djibouti on the Horn of Africa, as described in a bne IntelliNews feature Playing Real Risk and investment into raw materials and energy on the Continent is dominated by China and Russia. The US held its own US-Africa summit in December that was attended by all 49 heads of state invited and has established a $600bn infrastructure fund led by the G-7 dedicated to Africa. However, Russia is much further ahead in terms of active investment projects on the continent.

Russia means business

“Large Russian investment projects are being implemented in Africa, involving such domestic companies as Rosneft, Gazpromneft, RusHydro, ALROSA, Lukoil and many others. We will continue to help African countries with electricity production, which so far covers only a quarter of the continent’s needs,” Putin emphasised.

One of the main successes of the first Russia-Africa summit in 2021 was to establish the African Continental Free Trade Area (AfCFTA) that Putin promised will integrate more closely with both the Russia-led Eurasian Economic Union (EUU) as well as bilaterally with Russia itself.

“In the future, this zone will become a continental market with a total GDP of more than $3 trillion. We are in favour of actively developing ties with this new association both within the Eurasian Economic Union and bilaterally,” Putin added.

The promise of power is especially appealing as Russia has been actively selling its world-class nuclear power technology in Africa via the state-owned Rosatom, which is increasingly playing the same foreign policy role that Gazprom used to in places like Europe.

“Today we are offering new environmentally friendly technologies, primarily in nuclear energy. Rosatom is already building a nuclear power plant in Egypt and plans to expand its involvement in the development of the national energy systems of the African continent. I would like to note that significant, in some countries 100% funding, is provided by Russia. These are serious projects worth $15bn, $20bn or $25bn,” Putin said.

Nuclear power plant deals are particularly appealing to the Kremlin as in addition to locking in the client state with billions of dollars of debt, the NPP comes with typically 60-year servicing and fuel supply contracts that cement relations for the long term.

And Putin was flogging other Russian-made high-tech solutions. For example, Russia is helping to create the ANGOSAT satellite communication and television broadcasting system in Angola. Yandex is actively introducing information services to organise the transportation of passengers by taxi and other modes of transport in African countries.

“At the same time, Russia is always ready to share its technologies with African countries; it offers precisely joint, diverse technological development,” Putin said before specifically referring to military cooperation. “Military and defence industry cooperation continues, including the supply of Russian weapons and military equipment to African partners, and the training of relevant personnel. Currently, military personnel from over 20 African countries are studying at the institutes of the Russian Ministry of Defence.”

Russia’s Wagner PMC is already active in many African countries that are suffering from insurrections and Russia is a major supplier of arms and materiel across the continent.

And finally, Putin offered food. Russia is currently the world’s biggest grain exporter and Africa is particularly dependent on imports of Russian grain. A new Black Sea grain export deal was agreed on March 14, although some uncertainty remains over if it will run for 60 days or the full 120 days of the previous deals. The Kremlin’s room for manoeuvre on grain exports is limited as while preventing grain exports starves Kyiv of a major source of foreign exchange earnings, it also plunges Russia’s partners in Africa into famine and crisis. Putin assured delegates that would not happen.

“I would like to stress that Russia is reliably fulfilling all its obligations pertaining to the supply of food, fertilisers, fuel and other products that are critically important to the countries of Africa, helping to ensure their food and energy security,” Putin said. “You probably know that we are ready to supply some of the resources we have frozen in European countries to countries in need free of charge, including fertilisers; and the first batches have already been sent. But unfortunately, there are obstacles here as well.”

On the subject of grain exports, Putin didn’t miss the opportunity to rub raw the colonialist resentments by pointing out that while the Black Sea grain deal was sold as necessary to prevent famine in Africa, most of Ukraine’s grain was actually sold to the EU.

“For reference, I can give you the following information. From August 1, 2022, to March 20, 2023, 827 ships left Ukraine, of which only 3mn tonnes of grain were sent to Africa and 1.3mn to the poorest countries in Africa. As I said, almost 45% went to well-fed European countries, despite the fact that this whole deal was presented under the pretext of ensuring the interests of African countries,” Putin said. “By the way, let me note that at the same time, despite all the restrictions and limitations on the export of Russian grain, almost 12mn tonnes were sent from Russia to Africa.”

Putin went on to promise that if the deal does expire after 60 days, Russia was prepared to continue to export grain to Africa in the same volumes as under the deal, and send it to the countries in most need at no cost, which brought a round of applause.