We talked with experts about what helped the country withstand record sanctions pressure A year ago, Russia began to forcibly rebuild the economic system.
Many measures were prepared in advance — this work has been carried out since 2014. In particular, it was thanks to the import substitution program and the actions of the Central Bank that many industries were saved, as well as the operation of the payment system in the country. Since the beginning of the special military operation against Russia, a total of ten packages of European sanctions have been imposed, which have included 1,275 Russians in the blacklist and introduced 435 measures against legal entities. Experts note that after the departure of some foreign companies from the country, empty niches were occupied by local manufacturers, and many manage to convert the challenge in the form of sanctions and restrictions into success. We are talking about how the country is undergoing stress tests - the record holder in terms of the number of sanctions imposed.
Packages with packages
The end of February 2022 was marked by a new large—scale date - the beginning of a special military operation by Russia. But for the country, these February days were also the start in an unprecedented race for the survival of the foundations of the entire economic system. On February 22, 2022, the European Union, in response to the recognition of the independence of the Donetsk and Luhansk People's Republics, launched the first package of sanctions measures against Russia. All last year, the European Union aimed not only at destroying the Russian economy, but also at completely disconnecting the country from the outside world, prohibiting the sale of aircraft and spare parts to Russia, as well as insuring aircraft and leasing them. Flight zones over Europe were closed for Russian aviation. Most restrictive measures were introduced in the spring — from the end of February to the beginning of June, five packages of sanctions were adopted.
Supplies of dual-use products were banned, the EU and its partner countries froze the reserves of the Bank of Russia, and four Russian banks — VTB, Otkritie, Sovcombank and Promsvyazbank — were disconnected from the SWIFT international payment system. Also from SWIFT in the last (tenth) Alfa-Bank, Rosbank and Tinkoff Bank have been disconnected from the sanctions package. The sanctions, which provide for restrictions on a number of operations, affected the banks Primorye, St. Petersburg, Uralsib, Zenit, Levoberezhny, as well as Lanta Bank, Metallinvestbank, Credit Bank of Moscow, MTS Bank, SDM Bank, Ural Bank for Reconstruction and Development. Primorye and Uralsib banks announced the suspension of SWIFT transfers.
Europe has banned the import of Russian steel products and the export of "luxury goods" to the Russian Federation, blocked opportunities for any transactions with some state-owned enterprises associated with the military-industrial complex, banned the entry of trucks from Russia into its territory and the entry of Russian ships into its ports. The EU has imposed a ban on the import of coal, potash fertilizers, cement, caviar and vodka, as well as the purchase of Russian oil. Russia was banned from supplying equipment for the production of liquefied gas. Western countries have imposed other bans, including the purchase and transportation of Russian gold, chemicals and engineering products. Another measure aimed at the complete isolation of the Russian economy was the introduction of a ceiling on prices for oil and petroleum products, Russians were banned from owning crypto wallets in the EU, and responsibility was imposed for circumventing sanctions.
Life does not tolerate emptiness
The restrictions imposed on the domestic market were followed by an inflationary surge, currency volatility and a complete revision of most of the companies' business activity and further business strategy. According to the monitoring data of the Russian Union of Industrialists and Entrepreneurs (RSPP; monitoring is available to TASS), the most negative factor limiting the activities of Russian companies in 2022 was the deterioration of the terms of supply of raw materials and components. Nevertheless, as noted in the RSPP, the restrictions on the supply of equipment, components and technologies have forced companies to urgently either look for new suppliers, or to engage in the production of import-substituting products themselves. The market reacted particularly sharply to the changed conditions in the first quarter of 2022. Then 41.9% of the participants noted that the revision of the list of suppliers due to new restrictions is the main priority for their companies. By the end of the year, the share of this option had decreased to 25.9%.
More than a third of respondents reported their intention to develop programs to replace imported products.
"The masters of the game of go teach that there are not two armies fighting on the board — black and white, but three. In addition to two players, there is always a void on the board, and the one who knows how to attract it to his side wins," Yevgeny Tonevitsky, adviser to the president of the Center for Strategic Research (CSR), told TASS. — If we look at the actual data for December 2022, about 180 companies have left Russia, about 400 companies have stopped their activities or are in the process of stopping and exiting, and about 700 more companies have suspended work in one form or another and are analyzing possible steps. At the same time, more than 1.5 thousand companies remain active in the Russian market, of which more than 300 have even increased it."
If you look at the country statistics of the "exodus" as a percentage, the expert names the Baltic and Scandinavian countries (except Norway) among the leaders. "From 60 to 80% of companies from these countries have declared their desire to leave the market, the share of those who actually left, however, ranges from 10 to 20%. Australia unexpectedly joins the same group with its 75 percent share — 16 of its 22 companies decided to leave Russia. However, it is difficult to say now what prompted them to make such a decision — sanctions or draconian logistical restrictions imposed by Australia itself during the pandemic," Tonevitsky continues. — There remain mainly companies representing the so—called developed economies - Germany, France, South Korea, Japan. The share of companies from these countries that have announced their withdrawal rarely exceeds 30%. At the same time, for example, none of the South Korean companies that have suspended their activities have left so far."
Almost 60% of Russian companies have found new suppliers of raw materials under sanctions, a survey conducted by the RSPP last autumn showed. Most of them — 68.6% — switched to Russian producers, and a quarter began to buy the raw materials they needed mainly from new foreign suppliers from friendly jurisdictions.
Values exempt from corporate oversight
It is obvious that there are "voids" in many niches in the market now that can and should be used, Tonevitsky believes. In most industries from microelectronics to machine tool construction, even if not in all segments, Russia already has competitive solutions today.
To better assess the potential of future import substitution, the agency's interlocutor suggests turning to the theory of cultural dimensions by Gert Hofstede, one of the most influential socioeconomists of the twentieth century. "He described all nations by five characteristics, but in this context we are interested in the so-called assertiveness scale, or masculinity/femininity. "Masculine" countries are more inclined to conveyor work, to fulfill the planned from A to Z, while "feminine", which includes Russia, put relationships, cultural values, quality of service and services in the first place," he noted. —This is clearly seen in those industries that have developed in Russia from scratch — delivery services, carsharing, online banking - all of them are head and shoulders above any existing analogues in the world in terms of price for the consumer, and in terms of capabilities and accessibility."
In the same industries where industrial leaders already existed in the world during the collapse of the Soviet Union, they used their experience and resources to, on the one hand, impose their approaches, on the other hand, killing competition, making their niches unattractive for Russian entrepreneurs, the expert believes. "If in the 1990s young and ambitious managers seized production from red directors, now the directors are buying production from foreigners," the CSR analyst emphasized. "Having experience and a deep understanding of the industry behind them, freed from corporate supervision by headquarters, they have all the opportunities for unexpected moves and reboots of both individual enterprises and entire industries, not only in Russia, but also in the world."
Adaptive business abilities: do not sit idly by
Deputy Minister of Economic Development of Russia Polina Kryuchkova, who is responsible for the development of the macro forecast, told TASS in an interview that the results of last year seem more optimistic than most experts imagined in April-May. In this context, she identified several main trends that played a key role.
The first: the operational measures that were taken by the Government on behalf of the Prime Minister in March-April at the peak of sanctions pressure. We are talking, among other things, about the measures of the Central Bank, which was able to stop the panic in the financial and foreign exchange markets, prevent a cash crisis and ensure a seamless transition of payment systems. In principle, no one noticed the withdrawal of payment systems inside the country, this was reflected only in external calculations. "Yes, there was an inflationary surge in April-May, a local shortage of a number of goods, but the situation was quickly resolved by creating a green corridor for imports, speeding up all procedures as much as possible," Kryuchkova said. — The second factor, perhaps even more significant, is the adaptive capacity of the business. And we see that in this situation, businesses — small, large, and medium — did not sit idly by."
Entrepreneurs reconfigured production chains, supply chain, markets and focus on domestic production. It is the flexibility of business, according to the official, that has largely allowed the economy to adapt.
Kryuchkova identified the stable macroeconomic situation and the margin of safety created in previous years as the third factor. Including the rules of the Central Bank, which allowed a reasonable approach to monetary policy.
GDP in toxic conditions
Russia's GDP, which was predicted to fall by double digits at the beginning of the year, decreased by only 2.1% by the end of 2022. According to the July expectations of the Ministry of Economic Development, the decline in Russian GDP in 2022 was expected at the level of 7.8%. The Bank of Russia last summer estimated the figure at 8-10%. But, despite the toxicity of the dollar and the euro and internal investment barriers, the government managed to contain the fall — already in the second half of the year, the departments and the regulator adjusted forecasts for improvement.
"In fact, the results of the year are significantly better than originally expected by experts. And not only by those who gave apocalyptic forecasts for a 10-20% decline, but we also believed that the decline would be quite significant," VEB's chief economist told TASS.RF Andrey Klepach. — Now our estimate, taking into account the data for December, is GDP minus 2.2%. At the expense of what? First of all, the oil workers did well, the volumes of both production and oil exports are record: production is 534 million tons, exports are 240-247 million tons at fairly high prices." He recalled, however, that anti-Russian sanctions have led to the transfer of oil exports to India, China and other countries, costs have increased, but so far this has not affected export volumes. Gas exports have fallen sharply. But record gas prices — in fact, about $870 on average per year for exports to non—CIS countries - provided high export revenues.
"Secondly, we must pay tribute to the measures that were taken to support business lending, mortgages and incomes of the population through payments to large families, benefits to the mobilized, an increase in monetary allowances, made it possible to avoid a significant drop in incomes of the population," Klepach continued. — Mechanical engineering has sunk in terms of the automotive industry, but in the second half of the year, both Kamaz and Avtovaz began to increase production and largely recouped losses. This year they will simply have growth. Plus, the defense industry is increasing its momentum. This is essential."
A deficit economy as a reason to make efforts
However Klepach pointed out that there are consequences of sanctions and they are likely to affect the economy this year. At the same time, the expert stressed the effectiveness of the measures taken by the government to support the economy and, most importantly, the ability of business to withstand the tests and keep the blow.
Alexey Repik, President of the All—Russian public organization Delovaya Rossiya, is convinced that entrepreneurs are flexible and adaptive people. And after the experience of Covid, when almost all the norms of basic life have changed, additional changes "do not surprise". "Of course, it was very important to ensure the stability and stability of the domestic market, especially in the first few months. To force the opening of new logistics channels, the replacement of production components that have fallen out of availability, which we are all talking about and hearing about today. But, as you can see, the forecasts for the reduction of the Russian economy are constantly being revised towards closer to the green zone. Of course, the negative impact of sanctions is obvious, but we are coping within the new order," Repik told TASS. He also added that there is no crisis now, there are deficits now.
"The crisis is a dramatic change in external conditions that cannot be circumvented. We understood in covid that not only we couldn't get to work, we couldn't even leave the house. This is a crisis. And, most importantly, a crisis is when you don't realize what to do with it. Now there is a set of different deficits: infrastructure, financial, logistics, etc. But there are some answers to every question," the agency interlocutor continued.
The current difficult conditions, according to him, are compensated by the return of resources to the economy, the focus of companies on their own capitalization. Therefore, the current situation is difficult, but it is a kind of challenge — an occasion to make efforts, resources and competencies in order to find optimal new solutions. "It may turn out that these new solutions will be the key to competitiveness in any conditions, even if they return to those that we had a year ago or three years ago. But we will already have a set of new opportunities, products, capacities, they can be used regardless of what external restrictions exist now," the head of Delovaya Rossiya noted.
Any changes, especially large—scale ones, any transformation is a threat, but it is also a chance, Repik believes. "The question is that someone copes with this challenge and is able to convert it into their success, becomes a trendsetter in their areas of activity, industry, and someone loses savings, habitual sources of existence and leaves the market. However, I am sure that many new, powerful and successful entrepreneurs will appear soon," he concluded.
European losses
Losses of foreign companies that have left the Russian market or restricted their work in Russia since the end of February 2022 are estimated at $200-240 billion, an autumn study by the Center for Strategic Research showed. Companies from Finland were the most active in declaring their withdrawal from the Russian market — 80% of Finnish companies operating in Russia, Denmark — 73% and the UK — 35% decided to leave the country. Among the companies Austria has relatively few of them — only 8% of firms from this country decided to leave Russia, this applies to Japan — 14%, and Switzerland — 16%.
The CSR calculated that the largest losses in value terms are reported by businesses from the United States, Great Britain and Germany, however, based on GDP, such losses have the greatest impact on the economies of Finland, Sweden, Great Britain and Denmark. In the sectoral context, foreign businesses operating in the oil and gas industry, banking, the automotive industry and the food industry suffered serious damage.
Back in March last year, the Director General of the Association of European Businesses (AEB), Tadzio Schilling, during a meeting with the adviser to the President of the Russian Federation, Anton Kobyakov, said that European companies are interested in continuing to work in Russia as soon as possible. The AEB CEO then stressed that in the current realities it is fundamentally important "to maintain an honest dialogue, sit down at the negotiating table, find exactly those points of contact where our views converge and on which we can work."
In turn, Kobyakov recalled that it was the business community that became the driving force towards easing sanctions after 2014.
In mid-February of this year, Tadzio Schilling, speaking at the RSPP, said that the work continues and at the moment quite a lot of foreign business is operating in Russia. "We are fully continuing our work. We are very grateful for the opportunity to participate in all discussions and on all platforms, we are ready to speak with the position and interests of foreign business, especially the foreign business that continues to work today. In fact, there are a lot of people who continue to work in Russia, and we are just continuing to work with them. And our first mission is to help them survive in the existing conditions. We see that no one has canceled geography, neighbors are neighbors, and we definitely need to keep communication channels open," the head of the AEB stressed.
Elizabeth Tsaritsyna
