The Losing Western Bet by Karim Al-Mudhaffar

With the start of the Russian special military operation in Ukraine, and the influx of comprehensive Western sanctions against Russia, the Western world, at all levels, bet on the speed of overthrowing the Russian economy (a knockout), by including its sanctions in all basic areas of the economy in Russia, such as banking, energy, various industries, and even Russian people and officials, as well as the ban on foreign exchange reserves of the Russian Central Bank, the disconnection of many large banks from the international SWIFT settlement system, and the announcement of more than 1,000 foreign companies that they are withdrawing from Russia.
But even today, and as we write these lines, what the West “desired” has not been achieved. On the contrary, many major European economic countries are threatened with bankruptcy. It is not strange to hear from the French President addressing his people, “The time of luxury is over.” While Russia’s economy and budget experienced a very unusual period in 2022, which will certainly remain in the history books, despite the pressure of massive sanctions from the West, its economy not only collapsed, but also strengthened in many ways – and this caught the entire world by surprise.
The year 2022 has brought many surprises to the Russian economy, and in fact, the year 2022 has broken many of the trends that have developed over the past few decades – with Russia focusing mainly on Western export markets, capital and technology markets, the government and the Central Bank of the Russian Federation have taken measures emergency to prevent the collapse of the economy, and Russia began a sharp and painful turn to the east, which is a structural transformation “with great costs to both the Russian and European economies, and the global economy as a whole.
And now, according to experts and economists, a fundamentally new model for the participation of the Russian economy in the global economy is being formed. The changes have affected foreign economic relations, the financial sector, companies’ access to technology, budgets at various levels, and employment. However, it turns out that the Russian economy has a high degree of The resilience to such external shocks is extensive, notes Vladimir Klimanov, director of the Center for Regional Policy at the Institute for Applied Economic Research at RANEPA.
Everyone was surprised by the stability of the Russian economy, from Russian experts themselves to analysts from major international banks and funds. Back in the spring, many were sure that Russia would not be able to recover so quickly from the economic shock that occurred in the winter. The geopolitical situation and the departure of many From foreign brands from Russia and sanctions to the collapse of the ruble in March 2022, to a decline in industrial production, a drop in GDP, a sharp jump in inflation and the emergence of a new round of declining real incomes of the population, however, by the end of the year the situation has improved significantly, and from The decline in GDP in 2022 is expected to be in the range of 2.5 to 3.5%, but it is not comparable to the drop in GDP of about 9% in a relatively prosperous 2009, and there was no recession as deep as in 2009, whether during the crisis of 2014- 2016, or in 2020, or now, although the 2009 crisis was the only one that Russia went through without being subject to Western sanctions, then there were no restrictions, and foreign manufacturers did not leave Russia, but there was Deep recession
The same can be said about inflation, the maximum level of annual consumer price inflation in Russia since the beginning of the 21st century was recorded in 2015 – this is 13%, but it is not expected to exceed this maximum in 2022, if the Central Bank of the Russian Federation predicts In the spring the occurrence of inflation by the end of the year at the level of 18-20%, it actually turns out to be close to 12%. And in 2023, it is expected to decrease.
Prices of gas, oil, metals, mineral fertilizers and grains rose sharply, and these are the main Russian export commodities, and they were keen to maintain revenues even with a significant drop in exports, and the measures taken by the government, the central bank and regional authorities helped, which were immediately able to adopt a package A wide range of anti-crisis measures, the stabilization of the Russian economy has helped, among other things, the growth of budgetary spending and preferential lending programs, the growth of investment in fixed assets, the maintenance of a record low unemployment rate, and government support measures in the areas of aviation have also helped Construction, the auto industry, domestic tourism, changes in trade and logistics chains, as well as the rationing of parallel imports help mitigate the negative impact of sanctions.
Continued oil exports, along with a collapse in imports, have resulted in record foreign trade and current account surpluses estimated at $250 billion, along with restrictions on capital movement, have greatly strengthened the ruble, and by the end of June, the exchange rate has fallen The dollar against the ruble briefly fell below 50 rubles, which in turn had a strong deflationary effect, and all these seemingly somewhat unexpected events in 2022 actually have the same interpretation: in 2022 the Russian economy is no longer, First, it is as heavily dependent on hydrocarbons as it was 13 or even seven years ago; Secondly, the Russian economy is no longer as dependent on imports from Western countries as it was during previous economic crises, and according to Natalia Melchakova, a senior analyst at Freedom Finance Global, for nearly 20 years, the Russian economy has been built on a rather weak economic model, called It is called “oil and gas in exchange for cars and consumer goods.” However, the Russian food embargo imposed in 2014 on many types of food from “sanctioned” countries helped in many ways to get rid of excessive dependence on imports, and in 2022 to ease effects of penalties.
And another important point: in 2022, Russia has ceased to depend on assistance in the form of investments from the West, and on the other hand, it has begun to strengthen cooperation with friendly countries from the BRICS group, the Eurasian Economic Union and OPEC +, and the active process of de-dollarization of the Russian economy will continue, Which started in 2022, and local companies will occupy the vacated places in the Russian market. Also, despite the sanctions, Russia has shown an increase in housing construction, road construction, as well as in agriculture. Therefore, in 11 months of 2022, a record number of Housing in Russia – 93.26 million square meters of housing, exceeding last year’s commissioning volumes by about 15%, although 2021 was a record year for housing starts in the entire history of Russia, including the Soviet era.
2022 was also the best year in Russia in terms of the pace of road construction since Soviet times, and this year, 165 million square meters of asphalt was laid on regional and local roads (versus 162 million square meters last year), while agriculture shows up in The outgoing year grew, for ten months, the production increased by 5%, and the grain crop – the main export commodity in agriculture – was adjusted again and again, and by the end of the year it became clear that this was again a record crop, and the Ministry of Agriculture reported 159 One million tons of grain, of which 105 million tons are wheat. Also, the development of industry is helped by the good loading of defense industry enterprises.
So the negative events of 2022 for Russia turned out to be only one of many crises that must be experienced, in order to become stronger and overcome dependence, firstly, on imports of consumer goods, and secondly, to generally solve the problem in order not to depend too much on imports, But to produce non-food products on its own, and the situation is generally stable, with the effective transformation of the Russian economy at the end of 2023, it can move to growth, and it is true that this will happen on the condition that the global recession does not begin, and the chances of it starting are very high.