mobilization, a new shock for the country’s economy

by time news

The partial mobilization decreed in Russia will cause a shock to the economy that could prove to be greater than that caused by Western sanctions. According to the official figure, 300,000 men are called up. The newspaper Novaya Gazeta thinks it’s more like 1.3 million people. Be that as it may, the first days after Vladimir Putin’s announcement on September 21 showed that there will be consequences.

In Yakutia, in the northeast of the country, a whole brigade of miners was picked up coming out of the mine to be taken directly to the military commissariat; emergency doctors, university professors, computer engineers received a summons; factories in the Urals are warning that they are going to run out of staff…

The figure of 300,000 alone amounts to mobilizing one person in 100 within the male working population of Russia (or 37 million men in 2021, according to the World Bank). “Mobilization will have an impact on activity, particularly in rural areas where a large proportion of recruitment takes place and in the construction sector.says Academician Vladislav Inozemtsev, professor of economics and director of the Center for Post-Industrial Studies at the prestigious Lomonosov University in Moscow. Especially since we also have a large number of people who hide and no longer come to work, so as not to receive a summons. All of this is going to amplify labor issues, hamper a lot of businesses and hold back trade. »

A 4% drop in GDP

Departures abroad do not help matters. At least 260,000 Russians left in one week for Turkey, Georgia or Kazakhstan. The starters are young, fairly educated men. But demography is precisely one of the weaknesses of Russia, which has only 143 million inhabitants and loses about 400,000 a year because of the low number of births. The generation of 20-30 year olds is precisely the one that suffered the most from this fall in the birth rate at the time of the end of the USSR, in 1991.

The lack of arms will result in a loss of activity on 4e trimester. This will also weigh on consumption. Sofia Donets, an economist at Russian investment fund Renaissance Capital, estimates that the drop in demand induced by the mobilization should translate into a further contraction of 0.5% of GDP this year.

Russia recorded a 4% fall in its GDP over one year in the 2e quarter of 2022. As for the IMF, it forecasts a drop of 6% at the end of the year, without taking into account the effects of mobilization. Much more optimistic, Russian President Vladimir Putin assured on September 7, during the Vladivostok forum, that the decline in GDP would be limited to 2% this year. To hear it, Russia has “past the peak” of his difficulties “thanks to the calibrated and effective measures of the government”. According to him, the state suffers very little from sanctions: industry has reorganized and the country has no “lost nothing” because of the war.

The reality is more nuanced. Certainly, the sanctions did not cause a brutal collapse of Russia. But they are slowly weakening the economy and are already having effects that will increase with mobilization.

Restricted access to technology

If the country has not found itself on its knees so far, it is mainly because the European Union (EU) initially maintained its purchases of oil and gas. Hydrocarbon revenues represent 40% of Russia’s budget revenues. The rise in prices more than compensated for the losses linked to the drop in volumes: over the first six months of the conflict, European purchases fell by 55% in volume but increased by 40% in value.

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But in recent weeks, Russia has almost closed the gas tap (apart from a few deliveries that still cross Ukraine and a little liquefied gas). For its part, the EU will end most of its oil purchases from 5 December. But Russia has had time to redirect its black gold exports to India and China. Thanks to these petro-roubles, the country’s Central Bank was able to contain the fall of the currency, which ordinary citizens perceived as a return to stability.

The sanctions that ultimately do the most harm to the Russian economy are elsewhere: it is the deprivation of access to certain technologies. Developed countries have banned the export to Russia of essential electronic components, certain software, spare parts for aeronautics or automobiles and have terminated all commercial relations with a list of public companies.

To circumvent these sanctions, Moscow authorized last March the “parallel imports”, i.e. purchases of these products from resellers in countries that do not apply the embargo, in violation of the rules of intellectual property. The list of products eligible for these imports includes mobile phones, computers, auto parts, electrical equipment, building materials, branded clothing, cosmetics.

The automotive and aeronautics sectors particularly affected

“Russian companies quickly created subsidiaries in Hong Kong, Turkey or the Emirates to set up import circuits, raconte Vladislav Inozemtsev. Around 80% of subcontracting chains were restored within three months. » But imports have become more expensive and some essential products continue to be in short supply.

Some sectors are particularly affected by the restrictions: car factories, which are idling, produce cars without Airbags or ABS. Russian airlines have to take parts from planes to repair others. About 30% of Russian commercial aircraft are grounded. And this share will only increase.

Microwave ovens stripped to salvage electronics

In the defense industry, the lack of components is critical because the sector was massively supplied by European or American companies. The British institute Royal United Service Institute (Rusi) dismantled 27 missiles or weapon systems captured in Ukraine. In a report published in August, it reveals that two thirds of the components they contained are produced by Western countries.

Today, Russian industry is trying to make up for the shortages by importing non-embargoed everyday consumer products. Microwave ovens, for example, are purchased abroad, then stripped to recover the electronic components. However, they must be reprogrammed to work in armaments. And this takes time…

All of this serves the real purpose of the sanctions: to hamper Russia’s war effort. These brakes on production increase inflation, currently at 15% on an annual basis. The real salary of Russians is falling, while the government announces tax increases to finance the war effort. The longer the conflict lasts, the more costly it will be for the country. Which is the goal sought by the West.


An annexation with blurred outlines

Vladimir Putin on Friday, September 30, recorded the annexation of several Ukrainian territories.

Donetsk, Zaporizhia and Kherson regions are only partly controlled by Russian troops.

The Russian army retreats in the Kherson and Donetsk regions, where it lost the city of Lyman this weekend.

Moscow announced on Monday, October 3, that the population of the Zaporizhia and Kherson regions would be “consulted” whether the annexation would concern all of these regions, or only the territories under Russian control.

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