Link here.
I’m actually reading Philip Short’s mammoth biography of Putin. I’m about 2/3 of the way through it right now. I think Short gets a few things wrong and I disagree with a couple of points he makes in this interview, but overall I’m finding it to be a reasonably even-handed and interesting account. I will write an in-depth review after I finish it. – Natylie
The Bell, 4/7/23
Household incomes are a sensitive issue for any government. For Russians, the last 10 years represent a “lost decade” in terms of real disposable income (i.e. income after mandatory payments and inflation-adjusted loan repayments). The last time Russians saw a consistent increase in household incomes was back in 2013. Since then, people have had to get used to wage stagnation. A Russian in 2023 is about 6% poorer than in 2013.
From 2014 to 2017, incomes in Russia fell. In 2018, they showed near-zero growth (+0.1%) and then increased by 1% year-on-year in 2019. By the end of the pandemic in 2020, they were 11% down on 2013 levels. In 2021, incomes began to grow once more, but this was a consequence of pre-election payments from the state.
Last year, the fall in incomes was likely more than the official estimate (-1.1%) as official calculations do not include anybody working outside of large or medium-sized businesses. Economist Nikolai Kulbaka expects real incomes to fall this year at the same rate as in 2022. “The Russian economy is like a powerful, heavy ship that is sinking very slowly,” he said.
Russia finds itself in an unusual situation when it comes to employment and wages. As a rule, Russia’s labor market responds to crises by reducing salaries while preserving jobs – we saw this in the 1990s and in 2014-15. Instead of laying off staff, Russian employers prefer to cut wages or put people on extended, unpaid leave.
Last year, however, average salaries did not fall. Instead, they rose — despite record low unemployment (3.5% according to the latest official figures). In January, the average nominal monthly salary was 63,260 rubles ($781), up 12.4% compared with the same month a year earlier. This odd situation is the result of Russian businesses facing a labor shortage following mobilization for the Ukraine war. To retain staff, they have been forced to increase salaries. We wrote more about what is happening on the labor market in a recent newsletter.
Salaries rose fastest in 2022 in the following sectors:
The highest salaries now are:
Lowest salaries now:
The impact of social handouts
Last year, for the first time, Russia began publishing data about how incomes are distributed among different parts of the population. These figures are based on information from the Tax Service, the Social Fund, the Central Bank, credit organization and others. They make it possible to assess the incomes of different social groups.
It shows that the poorest Russians are seeing their salaries increase faster than the wealthiest — mostly due to increased welfare payments, benefits and one-off payments (for example, to soldiers injured in Ukraine). In the last three months of 2022, salaries for this group were up 1.8% compared with the equivalent period in 2021. That’s six times more than the income growth of the “wealthiest” group, which was up just 0.3%. In absolute terms, the per capita income of the “poorest” group was 10,535 rubles ($130), while the “wealthiest” group earned 165,695 rubles ($2,046).
The state spent 4.7 trillion rubles on social payments in the last three months of 2022, up 13.1% on the same period the year before. However, welfare payments are playing a slightly lesser role in overall salaries than in coronavirus-afflicted 2021. Payments have been more carefully targeted and favor low-income families with children, said Alexander Isakov of Bloomberg Economics. Incomes among the middle class barely increased in the last quarter of 2022 (ranging from 0.7% to 1%). While the government supports the poor, the middle class is left to fend for itself, explained expert Natalia Zubarevich.
Increased welfare payments in Russia have reduced poverty levels to record lows, according to the State Statistics Service (Rosstat). Its calculations suggest that, in 2022, the number of Russians below the poverty line fell by 0.7 million people — making up 10.5% of the population. That’s the lowest figure since records first began in 1992.
However, when talking about social handouts, it’s worth remembering that this includes compensation for soldiers injured while fighting in Ukraine and payments to bereaved families. Each of these payments is several million rubles. In addition, everybody mobilized to fight in Ukraine receives a one-time payment of 195,000 rubles ($2,388).
Some predict real incomes could enjoy double-digit growth this month and, for 2023 as a whole, many believe income growth could reach 5%. This means that the warnings of Central Bank chairwoman Elvira Nabiullina look set to come true and wage growth will significantly exceed labor productivity. And that increases the risk of inflation: firstly, because businesses will pass increased labor costs into prices and, second, because the population will switch from saving to spending.
Bloomberg Economics anticipates the strong growth in labor costs seen in 2022 will continue this year in all private companies (apart from in the financial sector). What will happen next can be seen in Russia’s stagnant construction sector (many builders were mobilized and sent to Ukraine). The sector’s labor shortage has since eased, but only at the expense of cutbacks, output and prices. In the long term, this process will have significant consequences for the Russian economy’s potential growth.
In the absence of a collapse in incomes or abrupt declines in standards of living, it’s easy to understand why most Russians are passive about the war. It can be summed up in the phrase: “negative stabilization.” Things are not bad enough to spark protests and there is more money available — albeit due to mobilization and an imbalanced labor market. However, income growth is something ordinary Russians are unlikely to see for many years.
In April, the ruble recorded the worst performance of any developing country currency. By 13:50 on Thursday it had passed 81 rubles to the U.S. dollar for the first time since April 15 last year. It hit the psychological mark of 80 rubles to the U.S. dollar the previous day.
Finance Minister Anton Siluanov linked the ruble’s fall to a reduction in foreign currency inflows from exports and an increase in imports: “In recent months, trends have swung from one to another,” he said. He expressed hope that the ruble would strengthen due to rising oil prices. However, there is a time lag before this will buoy the currency.
Another reason for the sudden weakening of the ruble could be foreign companies selling their Russian assets. It emerged on Wednesday that oil major Shell might be able to take $1 billion out of Russia. As well as Shell, other companies could follow suit: for example, Tatneft’s buy-out of Nokian Tyres or Gazprom’s purchase of Salym Petroleum.
Before the Russian invasion of Ukraine, the Russian currency market would hardly have reacted so strongly to this kind of outflow – its daily turnover was five times greater than now. However, without non-residents and isolated from global capital markets, even small volumes can influence the exchange rate.
Although the ruble fell below 80 to the U.S. dollar, analysts are not rushing to revise their projections and still expect the exchange rate this year to be in the 75-80 range against the U.S. dollar. “The ruble is close to its localized low point and in the near future I expect to see it stabilize or even climb,” said Loko-Invest’s director of investments Dmitry Polevoy.
The main problem is actually not the dollar rate itself, but the dramatic fluctuations. The implied monthly volatility calculated on April 4 reached 30%.
Since the start of the war in Ukraine, when the Russian authorities stopped publishing trade data, the ruble’s worth has become the leading indicator of Russia’s international economic isolation. Currency volatility last spring after the invasion was the greatest ever seen. Exchange rates swung by as much as 10% in a single day, a level normally associated with toxic third-tier securities or crypto-currencies. When the ruble eventually strengthened to as much as 50 against the U.S. dollar, it was reflecting a record trade surplus and a collapsing import market.
Russia’s trade surplus is expected to normalize in 2023. In addition, the Finance Ministry is selling off yuan from the National Wealth Fund to smooth over volatility. In the coming months, there are plans to sell 74.6 billion rubles’ worth of yuan.
In one of her first interviews as head of the Central Bank, Nabiullina said: “a strong economy has a strong exchange rate.” But it becomes difficult to talk of a strong economy when the currency is subject to 30% volatility. In the long term, this weakens the ruble’s payment and savings functions as economic agents set higher costs and postpone investments. And this makes the ruble less attractive as the world transitions to trade in national currencies.
Russia Matters, 4/14/23
A Russia-NATO war may have been more likely than you thought: Few paid attention when UK defense chief Ben Wallace said in October that a Russian jet fired a missile in the vicinity of a British plane. It now turns out that the firing resulted in a “near-shoot down” of the British surveillance plane off the coast of Crimea on Sept. 29, according to the leaked U.S. intelligence documents. Two U.S. defense officials quoted in the leaked documents said the Russian pilot had misinterpreted what a radar operator on the ground was saying to him and thought he had permission to fire. The pilot, who had locked on the British aircraft, fired, but the missile did not launch properly. Had the missile struck the plane, the UK could have invoked Article 5 of the NATO treaty in a move that may have led to a full-blown war.
Link here.
By Ben Aris, Intellinews, 4/13/23
Russian Foreign Minister Sergey Lavrov is attending the fourth ministerial conference of Afghanistan’s neighbouring countries on April 13 in the Uzbek city of Samarkand to try to find a solution to the Afghan problem.
Russia and the Central Asian states are seeking to uncork the southern trade route out of Central Asia that is currently blocked by instability in Afghanistan.
Since extreme sanctions were imposed on Russia it has entered into a process of re-orientating its trade to the South and East. In theory it could redirect some of its oil and gas exports to the huge markets of South Asia, starting with Pakistan and India, by running pipelines and improving rail and road links, but the infrastructure has to run via Afghanistan, which has been in chaos since the Taliban took back control of the country last year.
The Central Asian states are very interested in the same idea, but have made little progress. Uzbekistan has taken a lead on the Afghan question with President Shavkat Mirziyoyev calling on the UN to set up a special group to deal with the problem during his inaugural UN speech in September 2020. The Uzbek president had identified an unstable Afghanistan as Central Asia’s most pressing security issue long before the Taliban retook control in August 2021 and the war in Ukraine changed the geopolitical landscape in Eurasia from February 2022.
Uzbekistan has been trying to help its neighbour improve its economy. For instance, it signed an electricity transition deal to provide the country with power. There are other even more ambitious projects for a transmission line that would transit Afghanistan and provide power to northern Pakistan, where there is an electricity deficit. There are also plans for a trans-Afghan railway line from the northern Afghan city of Mazar-i-Sharif, near the border with Uzbekistan, to Pakistan. The railway line could even be extended to ports on the Indian Ocean.
However, more recently relations between Kabul and Tashkent have soured. One sore point with the Afghans is that Uzbekistan shut down power exports to Afghanistan when it was hit by severe winter cold and a shortage of generation capacity early this year.
China is also interested in opening up transit via Afghanistan as part of its Belt and Road Initiative (BRI) to build transport links between Asia and Europe and other continents. Beijing recently signed off on the first large mineral extraction project in Afghanistan to tap that country’s significant mineral resources. A US report a few years ago identified over $1 trillion worth of mineral deposits in the country, including large amounts of lithium, essential for making electric vehicle (EV) batteries.
Russia was also quick to cosy up to the new Taliban leadership and signed off on deals to provide the embattled country with oil, gas and wheat in September last year to help stabilise the crisis-pressured government.
Work to bring Afghanistan into the fold is ongoing as Russia starts to reform the Eurasian Economic Union (EAEU). Previously the idea of the EAEU was to provide a partner to the EU in creating President Vladimir Putin’s long-standing foreign policy goal of forming a single market that would stretch “from Lisbon to Vladivostok.” Since the war in Ukraine has led to a breaking of relations and trade with Europe, the EAEU has been retasked with building up trade ties with the Global South, making transit via Central Asia key.
Likewise, China is already moving on to its second phase of developing its foreign relations by building up the Shanghai Cooperation Organisation (SCO) in Eurasia, which overlaps with the EAEU, by improving trade, economic and cultural ties. That makes the EAEU, SCO, Russia, China and the states surrounding Afghanistan natural partners.
Lavrov’s meetings in Samarkand on April 13 will include representatives from Russia, Iran, China, Pakistan, Tajikistan, Turkmenistan and Uzbekistan. The agenda will focus on discussing steps to facilitate the political settlement process in Afghanistan, and stabilise the humanitarian, social and economic situation in the country.
Russia has suggested creating a five-party “G5” platform to resolve Afghan’s problems, bringing together Russia, China, India, Iran and Pakistan. President Putin has expressed concern that the situation in Afghanistan has not improved since the withdrawal of US troops in the summer of 2021, and “international terrorist organisations are increasing their activities in the country.”
Russia and the Central Asian states, especially Uzbekistan and Kyrgyzstan, have suffered from terrorist attacks originating in Afghanistan. The heroin trade flowing from the Afghan poppy fields is also a problem for all the countries along the path of its export to Europe, largely via Kyrgyzstan, Kazakhstan and Russia.
Putin also said that Russia is worried about “non-regional countries” building and expanding infrastructure facilities under the guise of fighting international terrorism, in a reference to US meddling in the region, “without doing anything required for a genuine fight against global terrorism.”
The ministerial conference will also focus on regional economic integration and the implementation of transport and energy projects with Kabul, based on previous agreements. Last year, the Taliban’s interim government, which Russia still officially designates as a “terrorist organisation banned in Russia,” said it would provide security and push hard to get the trans-Afghan railway project completed.
The parties may also discuss gas supplies, with Russian Deputy Prime Minister Alexander Novak stating last December that Russia might send its natural gas to Afghanistan and Pakistan.
After the US announced its plans for a troop pullout from Afghanistan in 2021, the Taliban rapidly took control of the country, easily defeating the US-backed Afghan national army, which scattered to the wind. In August 2021, Taliban fighters captured Kabul without any resistance, and Afghan President Ashraf Ghani stepped down and fled the country. The US completed its troop withdrawal in September 2021, ending its almost 20-year presence in the country.