Business as usual
Putin discusses economic issues with Russian business leaders
Hello from the Bear Market Brief.
This week in the news:
President Putin gave a speech to the Russian Union of Industrialists and Entrepreneurs about economic issues, including labor shortages and changes to taxation.
Flooding continues in many Siberian regions, prompting federal transfers in order to begin to repair the damage.
Ukrainian Commander-in-Chief Oleksandr Syrskyi published a Telegram post in which he describes the current situation on the frontline.
Telegram unexpectedly blocked some chatbots that the Ukrainian government uses to collect information about Russian troop positions.
— Sara Ashbaugh, Editor in Chief
Putin discusses the economy with business leaders
On April 25, President Putin held a speech in front of business representatives at the congress of the Russian Union of Industrialists and Entrepreneurs. The purpose of the speech was to discuss current economic issues such as labor shortages and taxation. Usually, one aim of such meetings is to signal to governors how they are expected to approach these problems in their own regions. Additionally, this time, the upcoming appointment of the new government added importance to the remarks.
Putin mostly focused on taxes, suggesting that the government will introduce new tax laws shortly after his inauguration for his fifth presidential term on May 7. In March, the investigative outlet iStories reported that the government wanted to increase the profit tax rate from 20% to 25%, while personal income tax rates would also be modified (with a rate of 15% for incomes above one million rubles and 20% above five million rubles) but the exact changes might still be adjusted. According to estimates by the AKRA rating agency, these changes would produce a little more than 1% of GDP in extra income.
For employers, the most important expectation is predictability. After the hectic changes to taxes and duties over the past two years, employers would probably welcome an increase in taxes as long as they remain stable. This would not, in and of itself, solve the problem of falling profit margins and stagnating investment activity in a number of industries. Putin also acknowledged that labor shortages would continue to cause problems for the economy in the foreseeable future and that productivity remains low. However, he stated that this “cannot be solved” by migrant labor, which Russia plans to restrict following the Crocus City Hall terrorist attack. Nonetheless, it is unlikely that businesses will be able or willing to eschew this kind of cheap labor due to a lack of alternatives.
Putin also touched upon the nationalization of a growing number of private enterprises under the pretext of national security or privatization irregularities, stressing—as he has several times over the past year—that there is no “deprivatization” campaign in Russia. He reiterated that expropriation can only be justified in cases where assets were taken over in an unlawful way or the security of the state is in danger. It seems unlikely that this will reassure business owners, however, given the ease with which the authorities have bent the definition of national security over the past few years. Kommersant noted that there was no applause during this part of the speech.
— Andras Toth-Czifra
On Wednesday, Russia opened a new exhibition showcasing some of the Western military equipment it has captured during the war in Ukraine. Large crowds gathered in Moscow’s Victory Park to see the 32 armored vehicles on display, including an American M1 Abrams tank. The exhibition is decorated with flags proclaiming “Victory!” and a large sign that reads, “Our victory is inevitable.” By flaunting its military trophies, the Kremlin is likely trying to reinforce the narrative that the West is the aggressor in the war, as well as bolster domestic support for the war effort. “It's incredible. Jaw-dropping,” one attendee told the BBC, “It's amazing to think that our guys managed to get these trophies.” (photo: Sergei Bulkin / TASS)
Reconstruction and infrastructure renewal
Costs are mounting to repair the damage caused by floods in several regions over the past weeks. The federal government will transfer 490 million rubles ($5.3 million) from its own reserve fund to one of the hardest-hit regions, the Orenburg Region, to be spent on social support. The region has spent more than twice this amount on payments already, according to official data, but total damages are estimated at 40 billion rubles ($432.4 million). In the Kurgan Region, which experienced its peak floods over the past weeks, the regional government has doubled the maximum amount of compensation payable to residents to 100,000 rubles ($1,081) (albeit most have received smaller sums), with total damages estimated between 4 and 9 billion rubles ($43-97 million). 2024 budgets were adopted with total planned expenditures amounting to 144 billion rubles ($1.6 billion) in Orenburg and 78 billion ($843 million) in Kurgan, making it likely that both regions will need further federal transfers. Meanwhile, flooding continues in several regions. Authorities in the Tyumen Region expect waters to peak in the first week of May, and meteorologists expect a new wave of floods to begin in the coming weeks in Siberia and Northwestern Russia. Several regions in the South Urals that experienced major floods over the past weeks are not ready for wildfire season either, according to the Federal Forestry Agency.
The federal government also expects regions to pay more attention to the renovation of dilapidated housing: this was mentioned as a major problem at a recent meeting of the All-Russian Association for the Development of Local Self-Governance, which discussed “key performance indicators” to be introduced for the evaluation of municipal leaders. Regions and municipalities have had to raise their expenditures on housing repairs over the past years due to construction material and labor becoming more expensive. Deputy Prime Minister Marat Khusnullin recently said that the total price tag could be around 4 trillion rubles ($43.2 billion) between 2024 and 2030, even though the federal budget significantly cut funds allocated for housing this year. Another politically sensitive issue that the Kremlin expects regions to address, but they are unlikely to receive higher budget transfers for, is the renovation of utility networks. Putin even highlighted this topic in his state-of-the-nation speech in February. It appears that at least part of the estimated 4.5 trillion rubles ($49.1 billion) that will have to be spent on this problem will be in the form of preferential loans through VEB, the government’s main investment vehicle.
Both situations underline the stress on regional administrations and budgets. They are expected to maintain and finance a growing array of priorities, with costs mounting due to the war and military production. These priorities also include, apart from the ones mentioned above, military recruitment (including payments to contract soldiers and their families), public transportation, and social payments.
— Andras Toth-Czifra
The situation on the frontline
In his recent Telegram post, Ukrainian Commander-in-Chief Oleksandr Syrskyi warned of a worsening situation on the battlefield after Ukrainian troops were forced to retreat from the Berdychi, Semenivka, and Novomykhailivka villages in the Donetsk region. He commented that the situation is changing dynamically along the whole frontline, with some positions “changing hands” as often as several times a day. “The most difficult situation is in the Pokrovsk and Kurakhove directions, where fierce battles continue. The enemy has engaged up to four brigades in these directions, and is trying to develop an offensive west of Avdiivka and Marinka, making its way to Pokrovsk and Kurakhove,” Colonel General Syrskyi wrote.
Meanwhile, Russian forces are also continuing their offensive operations in the direction of Kupiansk in the Kharkiv region. According to Syrskyi, in the most tense areas, Ukrainian troops have been reinforced by artillery and tank units. Additionally, the situation remains strained in the Zaporizhzhia and Kherson regions, as Russians are trying to advance near the village of Krynky in the Kherson oblast and towards the Robotyne and Verbove villages in the Zaporizhzhia oblast. However, in the Kherson region, Ukrainian forces managed to establish control over the island of Nestryha and made advances near the village of Veletenske.
Ukraine’s Commander-in-Chief added that in the northern part of Ukraine, Russians continue shelling border settlements in the Sumy and Chernihiv oblasts, although there are no signs of preparations for an offensive there. He noted that Ukraine is continuing to train military personnel and fortify defense positions to repel Russian attacks.
— Lisa Noskova
Russian missiles struck the Ukrainian port city of Odesa on Monday, killing five people and injuring at least 23 others. A locally famous building, known as the “Harry Potter castle,” was hit and severely damaged during the attack. A large fire nearly completely destroyed the structure, which was home to the Odesa Law Academy and its president, former member of parliament Serhiy Kivalov. On Wednesday, Russia attacked Odesa again, damaging a postal depot and injuring 13 people. As a key hub for Ukrainian exports via the Black Sea, Odesa is a frequent target of Russian strikes. Odesa’s Mayor Hennadii Trukhanov posted a video on Telegram in response to Monday’s attack. “Monsters. Beasts. Savages. Scum. I don't know what else to say,” he said. (photo: Oleksandr Gimanov / AFP)
Ukrainian intelligence chatbots suddenly blocked
On Tuesday, Telegram unexpectedly blocked the chatbots that Ukraine’s military intelligence, security service, and the Ministry of Digital Transformation use to collect information about Russian troops’ locations in Ukraine. The chatbots resumed their work later the same day. Telegram founder Pavel Durov did not provide any official statement to explain why these bots were blocked. However, earlier this month, he wrote that Telegram received official letters from Apple about news channels “that indicate that certain changes here may be unavoidable, at least for users accessing Telegram on iPhones from Ukrainian SIM cards.” In the same post, Durov also said that Telegram “bans accounts and bots that collect coordinates to target strikes or post direct personal information with calls to violence.” Ukraine’s military intelligence commented that the chatbots were blocked against the rules, and that the blocking contradicted Telegram management’s previous public statements.
As a result, Ukraine’s National Council on Television and Radio Broadcasting stated that Telegram should be regulated. “In cases of such blockings or any legal violations, [Telegram] may be fined just like any other company would,” Head of the Council Olha Herasymiuk said. She added that even though Telegram is a convenient communication channel, state officials and bodies should not be using it for official correspondence.
In early April, there was already a discussion about potentially blocking Telegram in Ukraine altogether, as the company allegedly refused to cooperate with Ukraine to block Russian propaganda channels. Additionally, some Ukrainian officials were concerned that because Telegram’s founder is Russian, the site may be somehow controlled by the Russian authorities. However, at that time, head of Ukraine’s Center for Countering Disinformation Andrii Kovalenko said that it would be impossible to fully block or ban Telegram in Ukraine.
— Lisa Noskova
On the Podcast
The Bear Market Brief goes nuclear! Andrey Baklitskiy dropped by to discuss all of Russia’s strategic red lines, what the introduction of hypersonic weapons means for global security, and more.
Quickfire: Regions
With a presidential decree, Vladimir Putin placed the Russian assets of the Italian water heating company Ariston and the German appliance firm BSH Hausgeraete under the “temporary management” of a Gazprom-owned company. According to the Russian government, this was a response to “hostile actions” by Western governments concerning Russian assets. Russia’s ambassador to Italy was summoned by Italy’s government as a protest against the move, and both Italy and the EU called on Russia to reverse the decision. Over the past two years, the Russian government has forced investors from “unfriendly countries” to sell their assets at a major discount. The purpose of more direct asset seizures is likely to signal Russian resolve to seize various Western holdings and to discourage plans to use frozen Russian assets in the West to support Ukraine.
In the North Caucasian region of Karachay-Cherkessia, a group of militants killed two policemen on April 28. All five attackers—who were involved in a similar raid a week before—were killed, according to news reports. Such clashes are not uncommon in the North Caucasus, and the attackers are often linked to criminal groups, not separatists. While Russian domestic security services routinely arrest radical Islamists in the North Caucasus, this time the authorities did not disclose the religious affiliation of the attackers.
Russia’s Financial Monitoring Agency added the non-existent “I/We Sergey Furgal Movement” to its list of terrorists and extremists, two months after a court in the Khabarovsk Territory did the same. Khabarovsk is where Furgal’s 2020 arrest triggered protests that coined the slogan ““I/We Sergey Furgal.” Meanwhile, the Ministry of Justice suggested labeling the “Anti-Russian Separatist Movement,” which also seems to be non-existent, as extremist. Given that the authorities have the right to freeze the financial accounts of individuals associated with extremist movements, the designation of vaguely defined or non-existent movements can serve as an intimidation tactic or a carte blanche for the authorities to harass government critics.
— Andras Toth-Czifra