March 21, 2023

The annual congress of the Russian Union of Industrialists and Entrepreneurs this year opened on March 16 with an almost half-hour speech by Vladimir Putin. More than 1,000 delegates were promised to be brought to the event, which will last until March 18, among them many owners of large businesses, in particular, the owner of Severstal Alexei Mordashov, Norilsk Nickel Vladimir Potanin, MMK Viktor Rashnikov, Russneft Mikhail Gutseriev, Renova ” Viktor Vekselberg, Rusala Oleg Deripaska, and German Khan from Alfa Group. All of them are under Western sanctions.

This seemingly ordinary event this time was unusual in that this is the first communication between the President of Russia and business representatives since February 24, 2022. Then, a few hours after the start of the invasion of Ukraine, Putin convened entrepreneurs in order to prevent panic and the outflow of capital from Russia. Since then, the president has missed the annual RSPP congress and the traditional New Year’s Eve meeting. Why did Putin need to speak to big business now, DW figured it out.

Deficit budget

“The situation has changed a lot since the last address, Putin clearly had something to say to big business, to reassure everyone,” said Oleg Vyugin, an economist and professor at the Higher School of Economics. In the context of sanctions pressure and the protracted war, the Russian government is experiencing obvious problems with filling the budget. Budget deficit in January and February of this year alone amounted to almost 2.6 trillion rubles.

Economist Sergei Aleksashenko predicts that this figure will grow to 4.5 trillion rubles by the end of the year. “The Ministry of Finance has two sources for closing this hole: to use national wealth fund, which now has 6.5 trillion rubles. Accordingly, if they close the hole for 2023, then a couple of trillion rubles will remain in it. The second option is a loan from state-owned banks, it will be easy to negotiate with them, and banks, in the current reality, have nowhere to invest, so this is also beneficial for them. Now the Ministry of Finance can feel relatively safe, but the 2024 budget is already starting to feel uncomfortable,” Aleksashenko argues.

Coping with this deficit with the usual oil and gas revenues seems to be increasingly difficult. “Russia has lost its main sources of income, we have lost the gas market, Europe is rebuilding on American gas. Of the major oil markets, only China and India remained. they will not buy, with China the future is still unclear. Pay in your currencies doesn’t help much either. Indian rupees you can’t change it at all, we are now selling oil for paper money,” says professor and doctor of economic sciences Igor Lipsits.

Contributions to the war and the situation in the RSPP

One of the main topics of the RSPP congress was to be the introduction of the so-called “voluntary” contribution to the Russian budget from big business. There was talk about this for some time, the amount of the contribution fell in proportion to the enthusiasm of entrepreneurs, and now 300 billion rubles were left from the original trillion rubles. Shortly before the RSPP congress, 15 people left its presidium, “this shows how people relate to such a decision,” Oleg believes Vyugin. The long resistance of the business seems to have been broken, but in a different format – a tax on excess profits or, as Finance Minister Anton Siluanov called it, “a tax that was blown by the winds.” Companies with a profit over the past two years of more than 1 billion rubles will be levied with an additional contribution. At the same time, the oil and gas sector was excluded from the equation, and no one is going to levy additional taxes on it.

“No one wanted to pay this money from the very beginning. Because if you voluntarily contribute money to the treasury, then you become a sponsor of the military operation that Russia is conducting. Then you automatically find yourself under sanctions. Because of this, a voluntary gift to the president – it was expected that “It will be announced before the congress – it failed. I had to come up with an additional tax, 5% on excess profits, to plug a hole in the budget. By this decision, business showed disloyalty to the president and the authorities, and Putin came to put out the fire,” Igor Lipsits believes.

Confrontation with the West and GDP from Putin

One of the main points in Putin’s speech at the congress has traditionally been confrontation with the West. According to the President of Russia, the country’s economy withstood the sanctions war and managed to “replace imports” with everything needed.

According to the Ministry of Finance, which Putin voiced in his speech, Russian GDP is growing by 4%, inflation has the same percentage, which, according to the president, is much lower than in Europe. “Yes, this is such a juggling of numbers. In March, we had an inflation figure of 4%, but in March last year it was 120%. At the same time, we have no other categories for comparison. We can be guided in many ways only by personal experience. I personally became spend 40% more on the same grocery basket than before,” says Oleg Vyugin.

The economist also speaks very reservedly about the GDP figure, paying attention to how this GDP is collected. In 2022, retail trade in Russia fell by about 10%, which leads to a decrease in the range of goods, the destruction of the sector of expensive products, cheaper production and, ultimately, a deterioration in the standard of living of ordinary citizens. At the same time, against the background of falling retail trade indicators, the manufacturing industry showed growth, which is associated with the production of military products. “The structure of the economy has undergone such strong changes that the gross domestic product must be perceived differently. It is not comparable to previous years, now the graphs of the quality of life are much more indicative,” Vyugin said.

Planned economy of the new Russia

At the very beginning of his speech, Putin said that now Russia has a “new model” and a “new quality” of the economy. “Putin did not begin to explain what is behind these definitions, but it is clear that this is a model of closing the Russian economy in itself, as well as its militarization,” Lipsits said.

The concentration of the Russian economy within itself explains Putin’s phrase and Oleg Vyugin. “The cooperation between the Russian economy and the Western one was very useful, it was a mutually beneficial exchange, we gave resources, we were given technology. Now our cooperation is directed to Asia, and I doubt that it will be also beneficial. Of the developed countries, there is only China, but it pursues a different policy, not of exchange, but of economic pressure and expansion. And such a policy is not beneficial to Russia,” Vyugin believes.

DW experts do see a rapprochement between the state and business, but it is still too early to talk about the planned and Soviet economy. Sergey Aleksashenko notes that “the economy is becoming more and more dependent on the state. An example is that you all need to fold, otherwise we have problems. Immediately, a voluntary contribution becomes mandatory, and everyone races to the Ministry of Finance to help draw up a law, even if this is not required. Under the conditions of an authoritarian regime, any business depends on the state: a large one from the Kremlin, a medium one from the governor, a small one from the local authorities,” the economist says.

See also:

The people are complaining to the president. “Reserve”, issue 255

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