Location: Russia

SITE’s Development Day Conference Showcases Strategies to Strengthen Sanctions on Russia

Posted on December 19, 2023 | News

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The Stockholm Institute of Transition Economics (SITE) hosted its highly anticipated annual Development Day conference at the Stockholm School of Economics on December 5. The event brought together experts, policymakers, and industry representatives to explore effective measures to reduce financing to the Russian war machine, contain the Russian economy, and support Ukraine’s reconstruction efforts, all while winning the information war.

Under the theme of “Taking Action for a Secure Future”, the conference featured a series of insightful presentations and engaging discussions. Attendees had the opportunity to gain valuable insights into the multifaceted challenges posed by Russia’s aggressive actions and explore innovative strategies to counter them.

“We are thrilled to have brought together such a diverse and knowledgeable group of individuals who are committed to addressing the complex issues surrounding Russian influence,” said Anders Olofsgård, Deputy Director of SITE. “Our annual Development Day conferences serve as platforms for sharing ideas, fostering collaboration, and ultimately working towards a more secure and stable world.”

The Ukrainian Government’s view

Vladyslav Vlasiuk, Sanctions Advisor to the Office of the President of Ukraine.

The Russia sanctions as a human rights instrument: Violations of export controls regarding war-critical goods to Russia

Aage Borchgrevink, Senior Advisor at The Norwegian Helsinki Committee. See and download the presentation here!

Reducing Russian government revenues

Petras Katinas, Centre for Research on Energy and Clean Air. See and download the presentation here!

Daniel Spiro, Associate Professor, Department of Economics, Uppsala University. See and download the presentation here!

Chloé Le Coq, Professor of Economics, University of Paris-Panthéon-Assas, Economics and Law Research Center (CRED). See and download the presentation here!

Yuliia Pavytska, Manager of the Sanctions Programme at KSE Institute. See and download the presentation here!

Reducing the Russian economic capacity

Benjamin Hilgenstock, Senior Economist at Kyiv School of Economics Institute. See and download the presentation here!

Eric Livny, Lead Regional Economist for Central Asia at EBRD. See and download the presentation here!

Michael Koch, Director at Swedish National Board of Trade. See and download the presentation here!

The Swedish Government’s Perspective

Håkan Jevrell, State Secretary to the Minister for International Development Cooperation and Foreign Trade.

Concluding remarks

Torbjörn Becker, Director of SITE, and Tymofiy Mylovanov, President of the Kyiv School of Economics.

Thank you

We would like to thank everyone who participated during this year’s SITE Development Day conference “How to undermine the Russian war effort and support Ukraine” on December 5th, 2023, at the Stockholm School of Economics. We hope to see you all again in the next Development Day conference.

Risks of Russian Business Ownership in Georgia

Posted on November 27, 2023 | Policy Brief

Image of Tbilisi at night representing risks of Russian business ownership in Georgia

This policy brief addresses risks tied to Russian business ownership in Georgia. The concentration of this ownership in critical sectors such as electricity and communications makes Georgia vulnerable to risks of political influence, corruption, economic manipulation, espionage, sabotage, and sanctions evasion. To minimize these risks, it is recommended to establish a Foreign Direct Investment (FDI) screening mechanism for Russia-originating investments, acknowledge the risks in national security documents, and implement a critical infrastructure reform.

Russia exerts substantial influence over Georgia. First and foremost, Russia has annexed 20 percent of Georgia’s internationally recognized territories of Abkhazia and South Ossetia. Further, it employs a variety of hybrid methods to disrupt the Georgian society including disinformation, support for pro-Russian parties and media, trade restrictions, transportation blockades, sabotage incidents, and countless more. These tactics aim to hinder Georgia’s development, weaken the country’s statehood, and negatively affect pro-Western public sentiments (Seskuria, 2021 and Kavtaradze, 2023).

Factors that may also increase Georgia’s economic dependency on Russia concern trade relationships, remittances, increased economic activity driven by the most recent influx of Russian migrants, and private business ownership by Russian entities or citizens (Babych, 2023 and Transparency International Georgia, 2023). This policy brief assesses and systematizes the risks associated with Russian private business ownership in Georgia.

Sectoral Overview of Russian Business Ovnership

Russian business ownership is significant in Georgia. Recent research from the Institute for Development of Freedom of Information (IDFI) has addressed Russian capital accumulation across eight sectors of the Georgian economy: electricity, oil and gas, communications, banking, mining and mineral waters, construction, tourism, and transportation. Of the eight sectors considered by IDFI, Russian business ownership is most visible in Georgia’s electricity sector, followed by oil and natural gas, communications, and mining and mineral waters industries. In the remaining four sectors considered by IDFI, a low to non-existent level of influence was observed (IDFI, 2023).

Figure 1. Overview of Russian Ownership in the Georgian Economy as of June 2023.

Source: IDFI, 2023.

There are several reasons for concern regarding the concentration and distribution of Russian business ownership in the Georgian economy.

First, it is crucial to keep Russia’s history as a hostile state actor in mind. Foreign business ownership is not a threat in itself; However, it may pose a threat if businesses are under control or influence of a state that is hostile to the country in question (see Larson and Marchik, 2006). Business ownership has been a powerful tool for the Kremlin, allowing Russia to influence various countries and raising concerns that such type of foreign ownership might negatively affect national security of the host country (Conley et al., 2016). Similar concerns have become imperative amidst Russia’s full-scale war in Ukraine (as, for instance, reflected in Guidance of the European Commission to member states concerning Russian foreign acquisitions).

Further, Russian business ownership in Georgia is particularly threatening due to the ownership concentration within sectors of critical significance for the overall security and economic resilience of the country. While there is no definition of critical infrastructure or related sectors in Georgia, at least two sectors (energy and communications) correspond to critical sectors, according to international standards (see for instance the list of critical infrastructure sectors for the European Union, Germany, Canada and Australia). Such sectors are inherently susceptible to a range of internal and external threats (a description of threats related to critical infrastructure can be found here). Intentional disruptions to critical infrastructure operations might initiate a chain reaction and paralyze the supply of essential services. This can, in turn, trigger major threats to the social, economic, and ecological security and the defense capacity of a state.

Georgia’s Exposure to Risks

Identifying and assessing the specific dimensions of Georgia’s exposure to risks related to Russian business ownership provides a useful foundation for designing policy responses. This brief identifies six distinct threats in this regard.

Political Influence

Russia’s business and political interests are closely intertwined, making it challenging to differentiate their respective motives. This interconnectedness can act as a channel for exerting political influence in Georgia. Russians that have ownership stakes in Georgian industries (e.g. within electricity, communications, oil and gas, mining and mineral waters) have political ties with the Russian ruling elite facing Western sanctions, or are facing sanctions themselves. For instance, Mikhail Fridman, who owns up to 50 percent of the mineral water company IDS Borjomi, is sanctioned for supporting Russia’s war in Ukraine. Such interlacing raises concerns about indirect Russian influence in Georgia, potentially undermining Georgia’s Western aspirations.

Export of Corrupt Practices

The presence of notable Russian businesses in Georgia poses a significant threat in terms of it nurturing corrupt practices. Concerns include “revolving door” incidents (movement of upper-level public officials into high-level private-sector jobs, or vice versa), tax evasion, and exploitation of the public procurement system.  For instance, Transparency International Georgia (2023) identified a “revolving door” incident concerning the Russian company Inter RAO Georgia LLC, involved in electricity trading, and its regulator, the Georgian state-owned Electricity Market Operator JSC (ESCO). One day after Inter RAO Georgia LLC was registered, the director of ESCO took a managerial position within Inter RAO Georgia LLC. Furthermore, tax evasion inquiries involving Russian-owned companies have been documented in the region, particularly in Armenia, further highlighting corruption risks. We argue that such corrupt practices might harm the business environment and deter future international investments.

Economic Manipulation

A heavy concentration of foreign ownership in critical sectors like energy and telecommunications, also poses a risk of manipulation of economic instruments such as prices. The significant Russian ownership in Armenia’s gas distribution network exemplifies this threat. In fact, Russia utilized a price manipulation strategy for gas prices when Armenia declared its EU aspirations. Prices were then reduced after Armenia joined the Eurasian Economic Union (Terzyan, 2018).

Espionage

Russian-owned businesses within Georgia’s critical sectors also pose espionage risks, including economic and cyber espionage. Owners of such businesses may transfer sensitive information to Russian intelligence agencies, potentially undermining critical infrastructure operations. As an example, in 2022, a Swedish business owner in electronic trading and former Russian resident, was indicted with transferring secret economic information to Russia. Russian cyber-espionage is also known to be used for worldwide disinformation campaigns impacting public opinion and election results, compromising democratic processes.

Sabotage

The presence of Russian-owned businesses in Georgia raises the risk of sabotage and incapacitation of critical assets. Russia has a history of using sabotage to harm other countries, such as when they disrupted Georgia’s energy supply in 2006 and the recent Kakhovka Dam destruction in Ukraine (which had far-reaching consequences, incurring environmental damages, and posing a threat to nuclear plants). These incidents demonstrate the risk of cascading effects, potentially affecting power supply, businesses, and locations strategically important to Georgia’s security.

Sanctions and Sanction Evasion

Russian-owned businesses in Georgia face risks due to Western sanctions as they could be targeted by sanctions or used to evade them. Recent cases, like with IDS Borjomi (as previously outlined) and VTB Bank Georgia – companies affected by Western sanctions given their Russian connections – highlight Georgia’s economic vulnerability in this regard. Industries where these businesses operate play a significant role in Georgia’s economy and job market, and instabilities within such sectors could entail social and political concerns. There’s also a risk that these businesses could help Russia bypass sanctions and gain access to sensitive goods and technologies, going against Georgia’s support for international sanctions against Russia. It is crucial to prevent such sanctions-associated risks for the Georgian economy.

Assessing the Risks

To operationalize the above detailed risks, we conducted interviews with Georgian field experts within security, economics, and energy. The risk assessment highlights political influence through Russian ownership in Georgian businesses as the foremost concern, followed by risks of corruption, risks related to sanctions, espionage, economic manipulation, and sabotage. We asked the experts to assess the severity level for each identified risk and notably, all identified risks carry a high severity level.

Recommendations

Considering the concerns detailed in the previous sections, we argue that Russia poses a threat in the Georgian context. Given the scale and concentration of Russian ownership within critical sectors and infrastructure, a dedicated policy regime might be required to improve regulation and minimize the associated risks. Three recommendations could be efficient in this regard, as outlined below.

Study the Impact of Adopting a Foreign Direct Investment Screening Mechanism

To effectively address ownership-related threats, it’s essential to modify existing investment policies. One approach is to introduce a FDI screening mechanism with specific functionalities. Several jurisdictions implement mechanisms with similar features (see a recent report by UNCTAD for further details). Usually, such mechanisms target FDI’s that have security implications. A dedicated screening authority overviews investment that might be of concern for national security and after assessment, an investment might be approved or suspended. In Georgia, a key consideration for designing such tool includes whether it should selectively target investments from countries like Russia or apply to all incoming FDI. Additionally, there’s a choice between screening all investments or focusing on those concerning critical sectors and infrastructure. Evaluating the investment volume, possibly screening only FDI’s exceeding a predefined monetary value, is also a vital aspect to consider. However, it’s important to acknowledge that FDI screening mechanisms are costly. Therefore, this brief suggests a thorough cost and benefit analysis prior to implementing a FDI screening regime in Georgia.

Consider Russian Ownership-related Threats in the National Security Documents

Several national-level documents address security policy in Georgia, with the National Security Concept – outlining security directions – being a foundational one. Currently, these concepts do not specifically address Russian business ownership-related threats. When designing an FDI screening mechanism, however, acknowledging various risks related to Russian business ownership must be aligned with fundamental national security documents.

Foster the Adoption of a Critical Infrastructural Reform

To successfully implement a FDI screening mechanism unified, nationwide agreement on the legal foundations for identifying and safeguarding critical infrastructure is needed. The current concept for critical infrastructure reform in Georgia envisages a definition of critical infrastructure and an implementation of an FDI screening mechanism. We therefore recommend implementing this reform in the country.

Conclusion

This policy brief has identified six distinct risks related to Russian business ownership in several sectors of the Georgian economy, such as energy, communications, oil and natural gas, and mining and mineral waters. Even though Georgia does not have a unified definition of critical infrastructure, assets concentrated in these sectors are regarded as critical according to international standards. Considering Russia’s track record of hostility and bearing in mind threats related to foreign business ownership by malign states, this brief suggests regulating Russian business ownership in Georgia by introducing a FDI screening instrument. To operationalize this recommendation, it is further recommended to consider Russian business ownership-related threats in Georgia’s fundamental security documents and to foster critical infrastructural reform in the country.

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

How to Undermine the Russian War Effort and Support Ukraine

Posted on November 20, 2023 |

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This year SITE’s Development Day will focus on sanctions and other strategies to curb Russian export revenues and the Russian war economy more generally, support Ukraine’s reconstruction efforts, and combat disinformation.

Conference Speakers

Håkan Jevrell, State Secretary to Minister for International Development Cooperation and Foreign Trade Johan Forssell.

Vladyslav Vlasiuk, Sanctions Advisor to the Office of the President of Ukraine and Secretary of the International Expert Group on Russian Sanctions.

Registration & Program

The program will feature both analytical presentations of the current situation and moderated panel discussions. Key topics include the effectiveness of sanctions on Russian energy exports and imports of sanctioned goods from the West, trade and smuggling through neighbouring countries, and sanctions violations of Western companies. The conference will also scrutinize efforts to release frozen Russian assets to contribute to Ukraine’s reconstruction and discuss disinformation and the hybrid war over the medial narrative.

Registration

Please proceed with your registration via the Trippus platform by clicking the following link (see here). If you have any questions regarding the event, please contact site@hhs.se.

Disclaimer: Opinions expressed during events and conferences are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Macroeconomic Effects of Sanctions on Russia: Analysing Economic Impact

Posted on September 1, 2023 | Videos

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The Annual Conference, “The Effects of New Geopolitical Risks on Financial Markets and Firms,” was organized by the Swedish House of Finance. This event brought together leading academics and practitioners in financial economics to explore the latest developments in the field.

The conference focused on the significant impact of emerging geopolitical risks on financial markets and corporate operations. Key topics included the influence of pandemics, climate-related risks, geopolitical conflicts, and sanctions, which had heightened the urgency of addressing geopolitical threats.

The event delved into how these disruptions were expected to affect various elements such as international currencies, supply chains, financial markets, and the broader macroeconomy. Attendees examined methodologies for quantifying these risks, identifying vulnerable companies and assets, and analyzing empirical evidence on the effects of these disruptive events.

Torbjörn Becker, Director of the Stockholm Institute of Transition Economics (SITE), presented a talk on the macroeconomic impacts of sanctions on Russia.

Participants gained a deeper understanding of the intersection between geopolitical risks and financial systems and how to navigate these complex challenges effectively.

Energy Infrastructure Resilience and Sustainable Future

Posted on April 18, 2023 |

The Stockholm Institute of Transition Economics (SITE) and the Forum for Research on Eastern Europe: Climate and Environment (FREECE) would like to invite you to its 2023 SITE Energy Talk. This year it will focus on the opportunities and challenges that the energy infrastructure will face in the near future.

As we move towards sustainable, low-carbon energy systems, it is essential to guarantee the energy infrastructure’s resilience against various challenges, such as supply chain disruptions, network congestion, rising energy costs, and other potential threats. Valuable insights have been gained from recent shocks such as the Covid-19 pandemic, the energy crisis, and the ongoing Ukrainian war concerning the energy infrastructure’s resilience.

The next SITE Energy event will focus on the opportunities and challenges that the energy infrastructure will face in the near future.

Speakers

Ewa Lazarczyk Carlson

Associate Professor at Reykjavik University and also affiliated to Luleå University of Technology

Lazarczyk Carlson will focus on the Baltic Sea region’s energy security and the network dependency on Russia as an electricity power supplier.

Yuliya Markuts

Ph.D., Head of the Center of Public Finance and Governance at the Kyiv School of Economics, Associate Professor of Finance at the State University of Trade and Economics

Markuts will address the energy of Ukraine during the Russia full-scale invasion: resilience and future prospects for transformation.

Igor Piddubnyi

Analyst on Energy sector Damages and Losses, Researcher at the Center for Food and Land Use Research at Kyiv School of Economics

Piddbunyi addresses the question of Ukrainian energy infrastructure, its current status, and damage evaluations.

Mikael Toll

Senior Advisor at Ramboll Management Consulting

Toll will discuss how well-prepared the Nordic energy infrastructure is for the green transition from a security of energy supply perspective, in the light of recent and current energy crises.

Moderators

The seminar will be moderated by Chloé Le Coq, Professor of Economics at the University Paris-Panthéon-Assas (CRED) and Research Fellow at SITE, and Elena Paltseva, Associate Professor at SITE.

Registration

The event will take place in Terrasrummet at Holländargatan 32, 113 59 Stockholm (near the main building of SSE) and the registration opens at 11.45 near the entrance of Holländargatan.

The event will also be streamed online via Zoom for those who cannot join the event in person. Please register via the Trippus platform:

  • In-person participation (here)
  • Online participation (here)

NOTE: A light lunch will be provided for those who will participate the event in person.

Please contact site@hhs.se if you have any questions regarding the event.

Russia’s Data Warfare

Posted on April 18, 2023 | Policy Brief

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After Russia’s invasion of Ukraine in February 2022, a broad spectrum of previously publicly available statistics on economic indicators has been removed from the public eye. This reduced transparency affects any analysis of the state of the Russian economy and assessments of the effects of sanctions. The strategy is also part of a larger disinformation campaign that has become an integral part of Russia’s war on Ukraine. In this brief we provide a short overview of the main indicators on economic activity that have been masked in various forms by Russia’s data producing institutions. We also touch upon some alternative strategies, employed to gain a better understanding of the actual state of the Russian economy while official data is unavailable or unreliable.

Following Russia’s war on Ukraine, Russia has ceased to publish large amounts of previously publicly available statistics on economic indicators. This reduced transparency affects any attempts to analyze the Russian economy with regular data and models, and is an integral part of the information war that has followed Russia’s aggression. In particular, it aims to reduce or obscure the analysis of the effects of sanctions that have been imposed on Russia by Ukraine’s partners. The reduced precision of this analysis is then used in various propaganda channels to claim that sanctions are useless and that they are, instead of hurting Russia, harming the EU, the US and other sanctions implementing countries.

In this brief we present a short overview of some of the most important statistics on Russia’s economic performance no longer publicly available (with a detailed list to be found in the Online Appendix). We also discuss some alternative measures to track the Russian economy which can be used to provide more accurate assessments of the effect of sanctions and thus reduce the impact of Russia’s data warfare.

What Data is Being Masked?

Russia’s cessation of statistical publications has occurred across several dimensions including foreign trade, budget, and finance.  Most notably, data has been masked by the Central Bank of the Russian Federation (CBR), the Ministry of Finance of the Russian Federation (Ministry of Finance), the Federal State Statistics Service (Rosstat) and the Federal Customs Service of Russia.

Budget Data

Data on federal and consolidated budgets in Russia was previously easily accessible on the Ministry of Finance’s and Rosstat’s webpages.

The Ministry of Finance has however, as of January 2022, ceased publishing data on budget expenditures. This includes monthly data for a wide range of budget expenditure categories such as spending for public administration, national defense and law enforcement, environmental protection, education, healthcare, social politics, mass media and culture. This data is no longer available despite the webpage for budget expenditures being updated as late as March 17th 2023.

Data on certain budget indicators is also missing on Rosstat’s webpage. While statistics on taxes, fees and other mandatory payments are available for 2022, budget expenditures are available only for 2021. This is however not surprising given that Rosstat receives its figures on the financial sector, including figures on public finances partly from the Ministry of Finance.

Foreign Trade Data

Foreign trade statistics is normally published by the Federal Customs Service of Russia, CBR and Rosstat.

Since the invasion, the Federal Customs Service of Russia has however stopped publishing statistics on foreign trade and commodity structure. The latest available monthly data on Russian foreign trade with its main partners (the EU, Commonwealth of Independent States countries and others), and the commodity structure of exports and imports – including processed goods and oil and gas – is from January 2022 (as of April 3rd 2023).

Foreign trade data from CBR has been withheld throughout 2022. CBR has however recently resumed parts of their publications and, as of April 3rd 2023, monthly data on total export and import is available for all of 2022 as well as for January 2023. Still, these figures display total exports and imports only and are not broken down by trade partner or commodity.

Similar to CBR’s publishing pattern, figures on export and import as part of GDP by use were unavailable on Rosstat’s webpage from February 2022 and throughout the year.  As of April 7th 2023, quarterly aggregated data is however available for all of 2022.  Monthly data on export and import by country is nonetheless still available only for 2021, despite the webpage being updated in November 2022.

Financial Data

To provide information on the national finance system and its dynamics is a main tasks of any country’s central bank, with Russia being no exception. Despite this there are about 40 financial indicators that, since the beginning of 2022, are no longer available on CBR’s webpage (as of April 3rd 2023). This contravenes CBR’s calendar, which states that statistics are supposed to be published in the next reporting period, i.e. the next quarter/month for quarterly and monthly data respectively.

The most deferred data (more than 20 indicators) can be found, or rather can’t be found, in the so-called External Sector Statistics category. For example, monthly data on balance of payments, remittances and financial transactions in the private sector, and international investment position of the banking sector is missing as of January 2022. Similarly, quarterly data on foreign investments, foreign assets and liabilities in the banking sector has been unavailable since January 2022. The same goes for data on external debt of the corporate sector of the Russian Federation in the form of loans, credits and deposits raised as a result of non-resident placement of Eurobonds and other debt securities.

In the so-called Banking Sector Statistics category, data on indicators such as assets, risks, operational data, international reserves and volume of FX operations is no longer available. Furthermore, figures on turnover of the interbank spot and forward markets have also been unavailable since February 2022.

Two comments are due considering the ease of access to above mentioned data/data sources. Firstly, in order to access the CBR’s and the Federal Customs Service of Russia’s webpages, one at times needs make use of a Virtual Private Network (VPN). Secondly, there are, for all sources mentioned, large discrepancies between the Russian language and the English language webpages, with the latter being severely patchier in its information.

Hiding Data: Reasons and Implications

What drives the authorities to mask seemingly relevant figures? Alexandra Prokopenko, an expert on Russian economic policy, argues that Russian authorities mask certain numbers related to the sanctions to impede evaluations of the effect of sanctions (Prokopenko 2023). Making the data less transparent and accessible in order to hide sanctions’ effect across various sectors to try and paint a better picture of the economic activity has also been a Russian policy goals. The head of the Federal Customs Services, Vladimir Bulavin, in April 2022 announced trade statistics were masked partly to “avoid […] speculation and discrepancies in import deliveries” (Uvarchev, 2022).

In this context, it is worth mentioning that Russia is obliged to report to the International Monetary Fund (IMF) on several of the previously discussed indicators since the country is subscribing to the Special Data Dissemination Standard (SDDS) as of 2005. SDDS aims at providing transparent economic and financial data to the public and according to the IMF “Serious and persistent nonobservance of the SDDS, therefore, will be cause for action” (IMF, 2023). If Russia does not publish data according to the SDSS commitments, it could be excluded from the list of countries that subscribe to the SDSS.  This affects how the country is viewed by investors and others and will further increase the risk premia that is applied to dealing with Russia.

Further, in its efforts to restrict insight into how the Russian economy is faring following the sanctions, the authorities have however created a large uncertainty also for Russian domestic markets, adding to the sanction’s effects. For instance, Elvira Nabiullina, Russia’s Central Bank Governor, has been arguing to revoke the decision to classify large amounts of data saying that investors, analysts and researchers simply need the data to do their work properly (CBR News, 2023).

Alternative Ways of Understanding the Real State of the Russian Economy

How can we learn about the state of affairs in Russia without the previously discussed data? While deducing Russia’s budget expenditures and many financial indicators may be cumbersome, more can be done when it comes to trade data. Specifically, a BOFIT Policy Brief by Simola (2022) proxied Russia’s imports and exports by tracking the imports of Russia’s main trading partners (17 economies) between March and June 2022. Similar proxying efforts have been made by Darvas, Martins and McCaffrey (2023), who tracked Russia’s foreign trade by considering detailed trade data from China, the United States, South Korea, Japan, India, the United Kingdom, Turkey and the EU, putting together publicly available datasets which span from January 2019 to January 2023.

Proxying trade data by considering trade partner’s statistics is emphasized by Sonnenfeld et al. (2022), who not only considers such data but rather a wide variety of available and reliable data sources – emphasizing the need to also crosscheck data from official Russian statical sources with more reliable ones (for a full overview of the methodologies used, the estimated indicators on the Russian economy and the implications from this, see Sonnenfeld et al. 2022).

Other efforts to map out Russia’s economic activity consider more creative methods such as using satellite data and/or ship location (AIS) data. Examples of such efforts include a recent Bruegel dataset which tracks Russian crude oil trade (Heusaff et al., 2023) and CREA’s “Russia Fossil Tracker”. For both examples, the authors utilize the location data for individual crude oil tankers, and (for Heusaff et al. 2023) combine it with data from OPEC, BP and Eurostat, to assess monthly crude oil exports from Russia to a set of major destinations (mainly the EU, China and CIS countries).

Similarly, satellite data has been previously used to estimate carbon emissions from flaring (Böttcher et al., 2021). While there is an ongoing debate on whether flaring can be trusted to give insight into gas and oil production (World Bank, 2023), one could potentially make use of such data to get a better view of the productivity within the Russian oil and gas sector following the imposed price cap mechanism and sanctions.

The struggle of creating reliable estimates for an economy polishing or masking information did not arise with the withdrawal of certain Russian statistics. The actual status of the North Korean economy remains much of a mystery to analysts (see The Economist) as the country, in 2017, was yet to publish a Statistical Yearbook. While Russia is far from North Korea in several aspects, the reality is that the alternative measures used to estimate North Korea’s economic activity (such as making use of Chinese trade data etc.) are partly the ones now being undertaken by analysts looking beyond the figures from Kremlin.

Conclusion

Russia’s decision to stop publishing regular economic data is part of the disinformation and propaganda efforts that are integral parts of its war on Ukraine, with the purpose being to complicate any analysis of what is going on in the Russian economy. While being partially successful in this regard, the data withholding likely creates further negative implications for Russia’s external economic relations and undermines the functioning of its domestic markets.

Given the lack of data following Russia’s disinformation efforts it is essential that any analyst concerned with mapping the Russian economy not only considers alternative but also multiple sources and consult experts with a plethora of competencies. Already today, new creative ways of getting hold of relevant data is providing increasing insight into the state of the Russian economy. With continued efforts, these measures will progress over time, improving our understanding of how sanctions affect the Russian economy.

Online Appendix

An overview of all indicators discussed in this brief can be found in the Online Appendix. The information in the Appendix is valid as of April 7th 2023.

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Popular Dictatorships: How Putin’s Strongman Legitimation Fuels Russia’s War in Ukraine

Posted on April 17, 2023 |

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On 17 April, prof. Aleksandar Matovski will discuss his book “Popular dictatorships: How Putin’s strongman legitimation fuels Russia’s war in Ukraine” along with his paper “Russia’s regime-survival realism: How the quest to preserve Putinism drives Russian aggression”.

In his book, Aleksandar Matovski shows that electoral autocracies – the most widespread type of non-democracy today – are largely the product of distinct opinion currents that emerge in the wake of profound political, economic and security crises. He also demonstrates that in such contexts, incumbents with a reputation for an effective, strong-armed rule, gain decisive advantages in popular appeal over their competitors. This allows them to establish and sustain authoritarian rule through the ballot box and with minimal resort to coercion, thus conferring a veneer of electoral legitimacy. Fear of renewed instability, in turn, deters voters from challenging the regime through voting and public protest, enabling even poorly performing autocracies to survive. This legitimation strategy has a key limitation, however: electoral authoritarianism becomes unnecessary both when it succeeds and when it fails in its mission of stabilization. To maintain popular consent to their rule, the author argues that electoral autocracies must therefore sustain, or even manufacture crises that justify their existence – a dynamic recently exemplified by Russia’s invasion of Ukraine.

In his paper, he argues that the kleptocratic, personalist Putin regime lacks genuine programmatic convictions, and is too preoccupied with domestic survival to launch wars for ideological or geopolitical reasons. His research article claims that instead, the main purpose of Russia’s aggression has been to justify Vladimir Putin’s brand of authoritarianism at home. Drawing on insider accounts of Kremlin decision-making and studies of Russian popular opinion over the past 23 years, the article shows that the Putin regime has become increasingly dependent on conflict to defuse internal dissatisfaction with its rule. This dependence has worsened after the 2022 Ukraine invasion fiasco, making the Kremlin more desperate and prone to escalate. To contain the Russian aggression, the article argues that Western responses must be calibrated to target its regime preservation purpose – particularly ahead of Russia’s high-stakes presidential election in 2024.

About the Speaker

Aleksandar Matovski is an Assistant Professor in the Department of National Security Affairs at the Naval Postgraduate School. He is also an Associate at the Davis Center for Russian and Eurasian Studies at Harvard University. Matovski holds a PhD and MA in Government from Cornell University, MA in War Studies from King’s College London and BA in Law from Saints Cyril and Methodius University, Skopje. Prior to his academic career, he was the National Security Advisor in the Government of North Macedonia.

Join the Event

The link to the seminar will be distributed by invitation only. If you are interested in attending the online seminar – please contact site@hhs.se. Follow the instructions below:

  • Type the subject box with “Brown bag seminar *INSERT SEMINAR TITLE*”
  • Indicate your affiliation and field of interest

For registered applicants, a Zoom link will be provided prior to the event via email with further instructions.

Disclaimer: Opinions expressed during events and conferences are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

What Drives Belarus to Be One of the Most Optimistic Nations in Europe?

Posted on March 6, 2023 | Policy Brief

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War in Ukraine, imposed sanctions on Belarus and the worst yearly GDP drop since the 1990s. Despite these challenges, Belarusian households were the third most optimistic in Europe in late 2022, following Lithuania and Montenegro. The Belarusian Consumer Confidence Index, calculated on the basis of four household surveys conducted in Belarus by BEROC’s Belarus Monitoring Project in 2021 and 2022, shows surprising resilience among Belarusians – especially in Q3 and Q4, 2022.  This brief shortly describes the components of the index and their evolution and discusses what factors might have been driving this high index. The brief argues the found optimism among Belarusians could have been driven by a state-owned media influence and by the Belarusian economy performing better than expected.

Optimism Without Grounds?

In 2022, Belarus experienced a 4.7 percent yearly GDP drop, the worst since the 1990s. The main reasons behind the decline is the Russian war on Ukraine and Belarus’ involvement in it, and, consequently, the severe sanctions imposed on Belarus and its main trade and economic partner: Russia. A surge of exports to Russia to counter the sanctions helped prevent the severity of the drop, although it still remains large. Forecasts for 2023 are also not encouraging. The World Bank expects the Belarusian economy to shrink by 2.3 percent. The European Bank for Reconstruction and Development’s forecast is -1 percent, the International Monetary Fund (IMF)’s is +0.2 percent, and the Eurasian Development Bank’s +0.3 percent, whereas the announced official target is +3.8 percent. In total, the GDP decrease could be as large as -6.9 percent in the two coming years, following the World Bank’s worst prognosis. The question is; Is this a lot?

The last GDP decline occurred in 2020 and amounted to a moderate -0.7 percent, despite the apex of Covid-19 related shutdowns, the decrease in the world economy, and the political crisis following the rigged elections in August. The most recent severe GDP drop happened between 2015 and 2016 with a decline of 3.8 percent in 2015 and 2.5 percent in 2016.

Figure 1. A comparison of GDP changes and the CCI values in Belarus in 2021 and 2022.

Note: Based on Eurostat methodology. Source: Belstat, BEROC.

Surprisingly, the lower the GDP, the higher the consumer confidence, as measured by the Consumer Confidence Index (CCI). For example, the CCI was -18.7 percent in Q4 2021, while the GDP increased by 2.3 percent in 2021. On the contrary, the CCI in Q4 2022 was -15.0 percent, while the GDP dropped by massive -4.7 percent (see Figure 1).

The experience from numerous financial crises in the 2010s may play an important role here by moving the expectation baseline and conclusively undermining confidence in the country’s economic institutions. However, even if this is the case, it would not explain the dynamics of consumer confidence in Belarus in relation to the country’s economic performance. In this brief we dig deeper into the determinants of this seemingly ungrounded consumer optimism.

The Consumer Confidence Index

The Consumer Confidence Index (CCI) used for this brief is based on four household surveys conducted in Belarus by the Belarusian Economic and Outreach Center (BEROC)’s Belarus Monitoring Project. The online surveys were conducted in December 2021, and in April, August and November in 2022. The surveys are representative for the urban population aged 18-64 (approximately 5 million people). They have also been weighted by region, sex and age.

The index is designed to measure consumer confidence from -100 percent to + 100 percent (0 being neutral). Consumer confidence is defined as the degree of optimism regarding the state of the economy which consumers express through their saving and spending patterns.

A few approaches for calculating the index can be used. One of them is the Eurostat methodology, which includes answers to four questions about households previous and expected financial position, the expected economic situation in the country, as well as the propensity to buy durable goods. Another approach is the Rosstat methodology, which, in addition to the Eurostat approach, includes one extra question on the previous economic situation in the country. We considered both methodologies to allow for a comparison of Belarus to countries in Europe as well as to Russia.

Belarus Compared to Russia

The CCI value, applying the Rosstat methodology, was -19.4 percent in Belarus in November 2022 (a 3.6 percentage point growth as compared to August 2022), while the index value in Russia was -22.7 percent (a 0.3 percentage point growth).

It is worth mentioning that there was a sharp drop in Q2 2022 in both countries. However, the index values recovered in Q3 2022 to Q4 2021 values, i.e., to the index values prior to the introduction of large-scale economic sanctions and prior to the war.

The pattern is somewhat similar to that during Covid-19-related restrictions, displaying a sharp drop and then a strong recovery. The magnitude of the drop was however much higher in 2020: 20.3 percent in 2020 compared to 10.3 percent in 2022 for Russia. No data is available for Belarus prior to Q4 2021 but the trajectory was likely similar. Apparently, households in neither country appear be desperate (see Graph 1).

Graph 1. The CCI in Belarus and Russia.

Note: Q1 2022 data not available for Belarus. Source: BEROC, Rosstat.

Belarus Compared to Europe

The Belarusian CCI, when excluding the component of the past state of the economy (i.e. applying the Eurostat methodology), was -15.0 percent in November 2022. This was 3.4 percentage points higher than the value in December 2021 and the third highest value in Europe, following Lithuania (-9.2 percent) and Montenegro (-8.6 percent). Moreover, the index was the highest observed for the entire period of observations by BEROC (from December 2021), as depicted in Graph 2.

Graph 2. The CCI in Belarus and the EU.

Source: BEROC, Eurostat.

The index values of the European Union and the Eurozone have not changed significantly from Q2 2022 and currently stand at -26.3 and -24.9 percent, respectively. Naturally, some countries have faced slight reductions, while others have seen slight increases, for instance, the indices for Italy, Croatia and Cyprus had all increased by more than 4 percentage points in Q4, 2022.

As evident from Graph 2, Belarus has since Q4 2021, moved from a below average position to become a leader in optimism on the European continent.

The Past and the Future

Throughout all four surveys, evaluations of the current state of the country and of personal wellbeing contrasted the projections for the future (see Graph 3). The projections for the future are much more positive, which is evident if we compare question 4 and 2 to question 3 and 1. At the same time, the share of negative answers is higher than the share of positive answers for all questions, and the term “optimism” should therefore be taken as the lack of strong negative views on the past and future.

A higher share of “difficult to say or do not know” answers is unsurprisingly found for questions regarding the future.

Graph 3. The composition of the CCI in Belarus for Q4 2022.

Note: All answers to the questions are distributed along a Likert scale from “will improve (has improved)” or “very good” to “will decline (has declined)” or “very bad”. For question 1 (Q1) and question 2 (Q2), the answer options range from “has improved” and “has declined”; and for question 5 (Q5), the answer options range from ”very good” to “very bad”. Source: BEROC.

The largest negative contribution to the index was the question on the current assessment of the country’s economic situation in relation to the previous year (question 1). The share of negative answers was 72 percent in December 2021, and it decreased only to 63 percent in November 2022, even though the economic performance prior to those periods was a 2.3 percent GDP growth and 4.7 percent GDP decline, respectively. Apparently, the worse the economy performed, the better was the perception of the past.

This is however not the case regarding the state of the household’s financial position. The share of negative answers was 48 and 47 percent, and the share of positive answers was 13 and 14 percent in December 2021 and November 2022, respectively.

The answers concerning the future standing of the economy and one’s personal financial position follow the same logic, with large disparities between the evaluation of the country’s economy – which one is negative about – and personal finances – where respondents are more optimistic.

What could influence the changes? We hypothesize that there are at least four possible explanations for the improvement in the CCI from Q1 to Q4, 2022:

a) a stabilization of the situation on the foreign exchange market
b) a slowing GDP decline, reaching a “local minimum”
c) an influence from Belarusian and Russian state-owned mass media outlets
d) failed negative expectations in previous periods

As discussed in a previous FREE Network Policy Brief by Luzgina (2022), the Belarusian currency market has stabilized since April, 2022. The Belarusian exchange rate is somewhat of a “Holy Grail” and a crucial factor for Belarusians after numerous financial crises in 2010s, so its stabilization could act as a positive signal for households. Indeed, when asking respondents about the factors influencing their income, the share of those who attributed this to the exchange rate had in August 2022 decreased by 25 percentage points, as compared to April the same year (from 45 to 20 percent, respectively).

The GDP decline slowed in the second half of 2022, from -4.9 percent in August to -4,7 percent in November. An additional positive development for Belarusians was that the inflation declined in November.

Media consumption is another essential factor in understanding consumer confidence. State-owned and independent media consumers showed significant differences in their assessments of the economy. Only 22 percent of state-owned media consumers rated the economy as “bad” or “very bad” compared to 68 percent of independent media consumers.

In April 2022, the World Bank estimated a possible Belarusian GDP change at -6.5 percent, the IMF
-6.4 percent and S&P -15 percent. The CCI in April was also at the lowest throughout BEROC’s observations at -23.0 percent. Despite these extremely negative forecasts for Belarus’ GDP, the actual outcomes were less catastrophic than expected. This might have improved respondents’ assessment of the future economic situation.

Conclusion

Data from the online household surveys show that imposed sanctions, the Russian war on Ukraine, and a declining economic growth in 2022 have not yet significantly affected the sentiments of Belarusians on a large scale. Rather, Belarusians’ expectations have improved despite serious current and future challenges to the Belarusian economy. In fact, Belarus is among the most optimistic nations in Europe, according to the surveys.

This is arguably due to a financial stabilization and an economic performance above expected, as well as exposure to state-owned media.

With this in mind, we may see an increase in households’ consumption in the following months, which will contribute to a slowdown in the GDP decline or even a slight economic recovery in 2023 – pending no new shocks occur.

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

What More Besides Weapons Does Ukraine Need to Survive as a Nation?

Posted on February 24, 2023 | Videos

20230224 IVA post News Post Image

As of today, Russia’s aggression against Ukraine has persisted for a year. While several countries have helped Ukraine with military, financial and humanitarian aid, Ukraine requires additional assistance to endure the conflict with Russia. What other forms of support and aid are needed for Ukraine’s survival? And how can the EU and Sweden support Ukraine’s victory?

The Royal Swedish Academy of Engineering Sciences (IVA) hosted a seminar in which Ukraine’s needs were discussed from an economic and political science perspective by several leading economists, including:

  • Nataliia Shapoval, Director of the KSE Institute at the Kyiv School of Economics (KSE)
  • Torbjörn Becker, IVA member and Director of the Stockholm Institute of Transition Economics at the Stockholm School of Economics (SITE)
  • Fredrik Löjdquist, Director of the Centre for Eastern European Studies (SCEEUS)
  • Maria Perrotta Berlin, Assistant Professor at the Stockholm Institute of Transition Economics.

Nataliia Shapoval, Chairman of the KSE Institute at the Kyiv School of Economics, joined the seminar from Kyiv to share her views. According to Shapoval,

“Tougher sanctions across the board, hefty sanctions on energy, additional sanctions on trade, and more control over financial transactions with Russia are required by the outside world right now.”

As Russia’s war of aggression against Ukraine has lasted for a year, seminar experts advocated for tougher sanctions against Russia and discussed Ukraine’s needs from an economic and political science perspective.

About IVA

The Royal Swedish Academy of Engineering Sciences (IVA) is an independent academy with a mission “…to promote engineering and economic sciences and the advancement of business and industry for the benefit of society.” Read more: IVA website 

Disclaimer: Opinions expressed during events and conferences are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

Next Steps on Russian Oil and Gas Sanctions

Posted on January 24, 2023 |

20230124 KSE Event

On Tuesday, January 24, at 5 p.m. Kyiv time, KSE Institute will host an online presentation of its research “Next Steps on Russian Oil and Gas Sanctions”.

KSE Institute experts will present five steps to increase pressure on the aggressor’s energy sector. They estimate that these measures – a mix of strengthening existing sanctions and new restrictions – could deprive Russia of $40 billion of oil and gas revenues in 2023.

Currently, European storage facilities hold record volumes of gas, and natural gas prices have returned to pre-war levels. The cost of Russian oil also plummeted after the G7 price cap was implemented and the EU embargo came into effect.

Based on a position of strength, countries of the sanctions coalition should accelerate their complete exit from Russian energy and strengthen sanctions against the aggressor.

The speakers of the event are the authors of the study:

The event will be broadcast online in Zoom. To receive a link and additional materials as well as participate in the following KSE Institute events, please register via Google forms link. 

Disclaimer: Opinions expressed during events and conferences are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.