Love of Labor
Labor shortages, fuel price hikes, Russia fails to rejoin UNHRC.
October 13, 2023
Hello from the Bear Market Brief!
This week in the news:
Russia tried and failed to rejoin the United Nations Human Rights Council.
Labor shortages continue to cause problems in the Russian economy.
The Russian government revised their strategy for dealing with fuel price hikes and shortages.
Ukraine's Ministry of Economy reported increased GDP growth and decreased inflation.
UN Human Rights Council
Russia failed to regain its spot on the United Nations Human Rights Council this week. Russia used to be a member of the body, but its participation was suspended by a two-thirds majority vote following last year’s invasion of Ukraine. On Tuesday, the UN General Assembly voted to elect 15 new members to the Council, and Russia was among the candidates. Candidates were divided by region, but only two regions had more candidates than available seats: Latin America (Brazil, Cuba, the Dominican Republic, and Peru competed for three seats) and Eastern Europe (Albania, Bulgaria, and Russia competed for two seats). In a secret ballot vote, Bulgaria received 160 votes, Albania received 123, and Russia only 83. Although less than half of the 193 UN member nations voted in Russia's favor, 83 is not an insignificant number. The vote took place just a day after a Russian missile strike killed 52 people in the Ukrainian village of Hroza. In the Latin American race, Brazil, Cuba, and the Dominican Republic defeated Peru.
Following the vote, Russia blamed the U.S. for campaigning against its return to the Council. Indeed, senior U.S. diplomat Robert Wood said that Russia’s membership would be “an ugly stain” on the credibility of the Council and the UN. The U.S. was not the only country that spoke out against Russia; Albanian Ambassador Ferit Hoxha compared letting Russia on the Council to confusing “an arsonist for a firefighter.” The advocacy group Human Rights Watch also spoke out against the candidacies of Russia, Cuba, and China. Russia, however, accused its critics of oversimplifying the issue. There “are no beacons of democracy or rogue states, as is sometimes being portrayed,” Russian Ambassador to the UN, Vassily Nebenzia, said. “No member-state can claim to be immune from human rights violations,” he added.
The Human Rights Council consists of 47 member states. The 15 new members include: Albania, Brazil, Bulgaria, Burundi, China, the Ivory Coast, Cuba, Dominican Republic, France, Ghana, Indonesia, Japan, Kuwait, Malawi, and the Netherlands.
— Sara Ashbaugh
Snapshot
President Putin is visiting Kyrgyzstan this week in his first trip abroad since the ICC issued a warrant for his arrest last March. While there, Putin will meet with the Presidents of Kyrgyzstan, Azerbaijan, and Tajikistan, in addition to attending a meeting of the Council of Heads of State of the Commonwealth of Independent States (CIS) on October 13. Armenian Prime Minister Nikol Pashinyan declined to attend the summit following increased tensions between Armenia and Russia. Putin can be seen here with Kyrgyzstan’s President Sadyr Japarov at a welcome ceremony following his arrival to Bishkek on Thursday. (Photo: Sergei Karpukhin, Sputnik, Kremlin Pool Photo via AP)
Labor Problems
For months, the defense-industrial complex siphoning workers away from other industries has been causing problems for the Russian economy. The prioritization of the war, military mobilization, the flight of tens of thousands of skilled professionals and workers, and a demographic slump have all resulted in record low unemployment rates. According to the Central Bank’s September report on regional economies, 60% of companies have experienced labor shortages. The situation is especially bad in transportation and manufacturing—industries that now work around the clock to serve the state defense order. In addition, according to Rosstat, labor productivity in Russia dropped by 3.6% over 2022, the biggest one-year drop since the global economic crisis. This itself could be the consequence of labor shortages, as companies are now hiring less qualified workers (often for higher salaries).
This week, Tatarstan’s government suggested that the Defense Ministry could use conscripts to work in military industrial plants as an alternative to military service. The fact that this is even a possibility suggests that, for the time being, the government prioritizes ramping up military production over recruitment for the war. Currently, under Russian law, conscripts cannot be deployed in war zones.
At the same time, deputies from the Fair Russia–For Truth party introduced a draft law to the State Duma about limiting the proportion of migrant workers in various sectors of the Russian economy, including education and health services in government institutions. In a way, the draft law is a logical continuation of the growing suspicion towards foreigners in Russian politics, fueled by government propaganda and the security services. But the timing is odd given the labor shortages in various sectors in the Russian economy, which the government would like to remedy by increasing the number of migrant workers.
— Andras Toth-Czifra
Dampened Crackdown on Oil Exporters
Starting October 1, the government will again provide so-called “damper” payments to oil companies in full in order to calm the situation on the domestic fuel market. These payments, which compensate oil companies for selling oil on the domestic market for lower prices, were effectively cut in half in September. Their reinstatement will earn oil companies an estimated 400-500 billion rubles ($4-5 billion) from the federal budget before the end of this year. Earlier, the government tried to reduce soaring domestic fuel prices by introducing export bans. However, this led to overstocking, prices did not drop as quickly as the government expected them to, and some regions continued to experience price hikes or shortages. This ban will also be lifted for producers that sell at least half of their production domestically.
The move reveals serious anxiety about fuel price hikes and fuel shortages. There is concern about their effect on Russians’ mood and on key industries such as agricultural production before the election year of 2024. Fuel price hikes have led to scattered protests across several regions over the past week, but higher prices can also cause ripple effects in other industries. This suggests that even as the government is trying to cut costs almost everywhere in order to satisfy the needs of the military industrial complex, it is unable to economize on domestic fuel subsidies, as the drastic move to ban oil exports was unsustainable.
— Andras Toth-Czifra
Snapshot
On Wednesday, Ukrainian President Volodymyr Zelenskyy spoke via video link at the annual meeting of the International Monetary Fund and the World Bank Group, which is taking place October 9-15 in Marrakech, Morocco. During his remarks at a ministerial roundtable, Zelenskyy emphasized the need for continued assistance from the international community. IMF Managing Director Kristalina Georgieva agreed; “Ukraine’s recovery can only be sustained with unwavering support,” she said. (photo: IMF)
Positive Trends in the Ukrainian Economy
Ukraine’s Minister of Economic Development and Trade Yulia Svyrydenko said that by the end of this year, Ukraine will experience GDP growth of about 4%, according to the Ministry of Economy’s forecast. “Almost all sectors are showing positive trends. In particular, in agriculture, we are recording an increase in harvest compared to last year. In industry, production rates are gradually recovering—we are experiencing over 10% growth in mechanical engineering, food industry, and furniture production. Construction is increasing due to the continuation of restoration works, there is a revival in demand for the eOselia mortgage program, which, in turn, will give an impetus to the activation of the primary real estate market,” Svyrydenko commented during the Dialogues on Resilience event held in Kyiv last week.
According to preliminary Ministry of Economy estimates, the GDP growth in September 2023 amounted to 9.1% y-o-y. Svyrydenko explained that the Ukrainian budget (which largely consists of the international aid during wartime) as well as business support programs have been the main sources of economic growth. She added that the Ukrainian government should strengthen business support, so next year the budget will include over 40 billion hryvnia (about $1 billion) for programs that stimulate the development of entrepreneurship, particularly affordable lending programs and grants for starting new businesses. In addition, for the first time, the budget will include funding for the construction of industrial parks and humanitarian demining.
In September, Ukraine's consumer price inflation level decreased to 7.1%, down from 8.6% in August. Inflation was at 26.6% last year and has declined faster than the National Bank of Ukraine (NBU) predicted, resulting in the NBU abandoning the fixed exchange rate that had been in place since the start of the full-scale invasion.
— Lisa Noskova
Quickfire
Regions
The Parliament of the Altai Republic refused to adopt new rules for taxis that are required by federal law. These laws entered into force in September and established tougher requirements for taxi drivers. The deputies argued that the new rules would lead to several local carriers going out of business, depriving residents in rural settlements of their only available means of transportation. What makes the deputies’ decision notable is that this is the second time over the past month that the regional Parliament turned against an initiative of Governor Oleg Khorokhordin, whose term ends next year. Weeks ago, the legislature forced Khorokhordin to withdraw planned amendments to the Republic’s constitution, which, among other things, would have removed references to the Republic’s territorial integrity. It is also interesting that, while this is not Khorokhordin’s first clash with local elites, the legislature seems to have intentionally turned on him shortly after a similar instance in the neighboring Khakassia. There, local elites successfully pushed back against the Kremlin’s desired gubernatorial candidate, Sergey Sokol.
The government is reportedly cutting federal support for the construction of nuclear icebreaker ships. Nuclear icebreakers are a key component of the government’s plans to make the Northern Sea Route, a maritime trade corridor along Russia’s northern coast, navigable year-round. While federal funds make up only a small part of the project’s budget, the decision will nonetheless mean that Rosatom, the state corporation overseeing the development of the icebreakers and the Northern Sea Route, will have to find alternative financing or postpone the construction of the vessels further. Due to Western sanctions, the development of icebreakers has suffered significant delays over the past year. Last month, Alexey Chekunkov, the Minister in charge of developing the Far East and the Arctic, admitted that Russia did not have enough icebreakers in the pipeline to support the development of the Northern Sea Route.
Due to the Russian government’s temporary sliding export tariffs introduced last month, the energy company Inter RAO may increase prices in Far Eastern regions. Currently, the company’s profit on energy sales to China is capped at 5%, while the rest is used to subsidize the price of electricity domestically. The new export duties, however, make sales to China unprofitable, unless Inter RAO raises the prices either in China or in the Russian Far East. As of mid-October, the company has not been able to come to an agreement with its Chinese partners. Completely stopping exports to China would be, according to the company, even costlier for Far Eastern consumers. The decision highlights another effect of the Russian government’s scramble to fund war expenses.
— Andras Toth-Czifra
Ukraine
Ukrainian developers received over $1 million in defense technology grants from Brave1, a joint initiative among the Ukrainian Ministry of Defense, the General Staff, the National Security Council, the Ministry of Strategic Industries, and the Ministry of Economy. The initiative brings together hundreds of top developers and military personnel. Defense forces can set specific tasks for developers, and companies can get specialized support and grants for product development. According to the Minister for Digital Transformation, Mykhailo Fedorov, 57 unique developments have already passed a thorough inspection by the General Staff of Ukraine’s Armed Forces and have been recognized as essential to Ukraine’s victory. Some of the technology is already saving the lives of Ukrainian service members at the front and helping to defeat the enemy. Fedorov added that in total, Brave1 received 583 projects, 305 of which have already passed inspection.
Russia has intensified attacks on the Ukrainian city of Avdiivka in the Donbas region. On Wednesday, the Russian Defense Ministry announced that its troops had “improved their position” around the city, which is currently controlled by Ukraine. The Armed Forces of Ukraine said that more than 2,000 Russian soldiers and dozens of armed vehicles are advancing on the town, in what Avdiivka’s mayor called the “largest offensive” in the area since the initial invasion. The General Staff of Ukraine reported repelling dozens of attacks since Tuesday. “We are holding our ground,” President Zelenskyy posted on social media, “It is Ukrainian courage and unity that will determine how this war will end.” As Zelenskyy’s post suggests, Avdiivka is symbolically as well as strategically important to Ukraine. The city has become a symbol of Ukrainian resistance because it has remained under Ukrainian control during the long occupation. For Russia, capturing Avdiivka would push the frontlines away from the city of Donetsk, a key military hub for Russian forces.
— Lisa Noskova & Sara Ashbaugh