Hello from the Bear Market Brief.
This week in the news:
President Putin delivered his annual state of the nation address.
Mourners gathered in Moscow to say farewell to Alexei Navalny.
Russia’s heightened military industrial production has created labor shortages in other sectors.
President Zelenskyy discussed Ukrainian casualties and potential negotiations with Russia during the “Ukraine. Year 2024” forum.
Zelenskyy announced the launch of the Made in Ukraine platform, a venue for dialogue between state institutions and businesses.
— Sara Ashbaugh, Editor-in-Chief
Putin’s copy-paste speech
President Vladimir Putin held his state-of-the-nation speech on February 29. The speech, which comes two weeks before Russia’s presidential election, received massive promotion domestically, including being broadcasted live in movie theaters across Russia’s regions (although in many cases to empty chairs). The speech contained statements meant both for domestic and international audiences, reflecting the fact that the Russian presidential election, which will surely anoint Putin for a fifth presidential term, is only one of several important votes that the Russian leader has to win this year in order to achieve a decisive turnaround in the war in Ukraine. In a significant part of the speech—which domestic pro-Kremlin media outlets mostly ignored—Putin repeated warnings to Western countries supporting Ukraine. This time he was responding to comments made by French President Emmanuel Macron, who said that the option of sending NATO troops to Ukraine “cannot be excluded.” Putin again raised the prospect of nuclear warfare and stressed that a large majority of Russians stand behind his war.
Most of the speech covered domestic issues, and Putin shared a couple of promises for his upcoming fifth presidential term. These largely concerned improving Russians’ social standing and the country’s demographics, with a special focus on birth rates. This will ostensibly include 4.5 trillion rubles ($49 billion) to modernize Russia’s ailing public utility infrastructure, which caused a series of accidents and disruptions in multiple regions in January and February; at least a trillion rubles ($11 billion) for improving health care infrastructure and schools; and several family and child support measures. The total sum of Putin’s promises is around 10 trillion rubles ($109 billion) over 6 years.
It is unclear where this money will come from, as Russia’s 2024 budget and its budgetary plans for 2025-2026—which are based on optimistic assumptions about fiscal incomes as it is—do not foresee such generous spending on these goals. The planned spending is twice the value the liquid part of Russia’s National Welfare Fund. It seems that the promises are based on the assumption that Russia will achieve a decisive advantage in the war in Ukraine as early as this year, after which its economy will enter a period of sustained growth. Otherwise, the government will have to find extra resources to finance elevated spending, such as raising taxes (Putin hinted at this) or printing money. A significant part of the spending, if it is implemented, will likely affect regional budgets, where Putin plans to write off two-thirds of the debt now mostly held by the Federal Treasury.
It is more likely that Putin simply wanted to indicate that he is aware of the day-to-day problems that Russians face due to the country’s neglected and underfunded public services. This in itself is notable, as it suggests that the Kremlin deems the pro-war narrative inadequate to underpin Putin’s new coronation. Shortly after Putin’s speech, the government confirmed a renewed gasoline export ban for 6 months in order to stabilize domestic prices (after Russia’s fuel production dropped by 7% in the first seven weeks of the year due to unplanned repairs and drone attacks against oil infrastructure).
Some of the promises could easily have been part of Putin’s 2018 speeches (when, for instance, he promised to significantly bring down Russia’s poverty rate, just as he did now). However, between 2018 and now, the government’s focus has changed completely from domestic development to prioritizing the war against Ukraine at all costs. This is unlikely to change as long as the war continues.
— Andras Toth-Czifra
President Putin gave his annual state of the nation address to the Federal Assembly on Thursday, with predictable messages of defiance against the West. He can be seen here at the podium during his speech, which was delivered to an audience of government officials, members of parliament, and civil society figures at Moscow's Gostiny Dvor. (photo: kremlin.ru)
A final goodbye to Navalny
Thousands of Russians, as well as several Western ambassadors, said farewell to Alexei Navalny on March 1 at the funeral of Russia’s most formidable opposition politician of the Putin era. The funeral, which took place in Moscow two weeks after Navalny’s death in an Arctic prison colony (and after several days of the authorities stalling the handover of Navalny’s body to his grieving family and his team, who were struggling to organize the funeral), turned into the biggest opposition march in Russia since the early days of the 2022 invasion of Ukraine. People queued for several miles in front of the Church of the Icon of the Mother of God and at the Borisovskoye Cemetery where Navalny was laid to rest. The crowd chanted Navalny’s name, anti-war and anti-Putin slogans (calling the President a murderer, among other things), and demanded freedom for political prisoners.
At the time of this writing, the authorities have not made any arrests at the funeral itself, even though police presence was overwhelming before and during the funeral march. However, based on earlier experiences, it is likely that security services are going to analyze footage to identify and harass at least some participants in the coming days.
— Andras Toth-Czifra
Economic mobilization and its discontents
The past week saw several stories illustrating the flip side of Russia’s heightened military industrial production over the past two years. Industry Minister Denis Manturov said that companies working in the military-industrial complex recruited more than 500,000 people in 2023 as the government supercharged military production. Manturov also added that salaries in the industry have increased by 30-60%. This comes on top of more than two million Russians working in these industries as of 2022 and at the detriment of other sectors, which have increasingly experienced labor shortages in the same period. The military-industrial complex, fed by state orders, was the main driver of Russia’s economic growth in 2023. However, it is difficult to see where further growth could come from, as industrial production seems to have hit a ceiling in spring 2023. It is clear that military production saps other industries of workforce and the steep rise of salaries in the sector squeezes profits elsewhere.
There are other problems, too. As part of the government’s effort to increase military production, authorities are increasingly focusing on nationalizing factories in or adjacent to the military-industrial complex. The most recent such move was the nationalization of three factories belonging to the Chelyabinsk Electrometallurgical Plant last week followed by the arrest of its former owner, Yury Antipov. The business elite have been following these developments with increasing (and increasingly openly-voiced) concern since last year. The Russian Union of Industrialists and Entrepreneurs (RSPP) last week proposed that these procedures should be better regulated by law and investors should be compensated. However, it is unlikely that the authorities are going to stop this practice, as the government is trying to create new capacities in the sector as well as a coalition of winners from the war.
— Andras Toth-Czifra
February 24 marked the second anniversary of the Russian full-scale invasion of Ukraine. Thousands of Ukrainians around the world gathered to show their solidarity, thank Ukraine’s armed forces, and remember those killed as a result of the war. This large Ukrainian flag was made in Zaporizhzhia and unfolded on Times Square in New York City. (photo: Instagram @higregfernandez)
“Ukraine. Year 2024” forum
On February 25, high-ranking Ukrainian officials gathered in Kyiv at the “Ukraine. Year 2024” forum to discuss the country’s future. During the event, President Zelenskyy held a press conference in which he said that around 31,000 Ukrainian service members have been killed during the war. This was the first time that Zelenskyy has disclosed the number of casualties on the Ukrainian side. The Ukrainian leader, however, did not clarify whether this figure encompasses the entire ten years of the Russian aggression or just the last two years of the full-scale invasion. Zelenskyy added that Russians have lost 180,000 troops, which raised questions, as daily numbers reported by the General Staff of Ukraine’s Armed Forces have been much higher. On Tuesday, the General Staff clarified that their figures include both the wounded and killed. Zelenskyy also said that Russia is planning to launch a new offensive either in the spring or the beginning of summer, and Ukraine is preparing for it.
When asked about potential negotiations with Putin, Zelenskyy responded that Ukraine will “offer him a platform to admit that he lost the war and that it was a big mistake.” Ukraine’s President added that the country is preparing to conduct a counteroffensive. “There is a plan, and it is clear. I cannot say the details, I do not have the right to do so. This plan is related to the change in leadership; several plans will be prepared due to information leaks,” said Zelenskyy. He also noted that the first summit on the Ukrainian peace formula will be held in Switzerland in the spring. The plan developed at the summit will then be handed over to Moscow, and Russian authorities will either approve or decline. Zelenskyy emphasized that Ukraine does not want any negotiation formats to be imposed on it during this summit. He believes that the diplomatic initiative should come from Kyiv.
In addition, during the conference, Zelenskyy expressed hope that the U.S. will provide long-range weapons to Ukraine, commented on the mobilization needs, and addressed questions about the ongoing Polish-Ukrainian border blockade.
— Lisa Noskova
A new economic platform
On Monday, President Zelenskyy announced the launch of the Made in Ukraine platform, a venue for dialogue between state institutions and businesses. Ukraine’s President said that government representatives have already begun engaging with entrepreneurs to simplify business processes in the country. “We are working on changes in our institutions to give more confidence to business. In particular, the Verkhovna Rada needs to reform the Economic Security Bureau of Ukraine. Any opportunities for state bodies to exert pressure on business must be eliminated,” he said.
In addition, Zelenskyy introduced the development of the Buy Ukrainian cashback program, which will allow Ukrainians to receive cashback from purchases of certain goods made in Ukraine. “Our task is to ensure that Ukrainian money stays in Ukraine and works in Ukraine. These are taxes. These are the salaries of our warriors. These are the capabilities of our state, including defense. The parameters of the Ukrainian cashback—financial and technical—are already being prepared, and we must do our best to make this program work this year,” Zelenskyy said. He did not, however, specify where these cashback funds will be coming from.
— Lisa Noskova
On the Podcast
Despite Western economic policy, Russia has been able to continue its war against Ukraine, and even seen economic growth. Join as we kick off our season with Nick Trickett and Iikka Korhonen investigating what's driving Russia's economy these days, and whether sanctions are "working."
Quickfire: Regions
Repressive court cases continued in several Russian regions. At a re-trial following a guilty verdict in October 2023, which was widely seen as a warning that he should leave the country, renowned human rights campaigner Oleg Orlov, the head of the Memorial group, was sentenced to two and and a half years in prison for “discrediting the Russian army” (a newspeak expression for criticizing Russia’s war in Ukraine). Orlov’s prosecution was prompted by an essay in which he called Russia’s current rulers fascist. Meanwhile, a court in Chechnya sentenced Nikita Zhuravel, a 19-year-old activist who burned a copy of the Q’uran in Volgograd last year, to three and a half years in prison and 300 hours of community work. Zhuravel’s case became a show of power by Chechnya’s despot, Ramzan Kadyrov; Zhuravel, a resident of Volgograd, was transferred to Chechnya for unclear reasons by the Investigative Committee, which allowed Kadyrov to position himself in the role of the unofficial leader of Russia’s Muslims. Later, a video was released of his teenage son beating the captive Zhuravel. The younger Kadyrov was subsequently decorated by the heads of several Muslim-majority regions.
According to the Central Electoral Committee, more than three million Russians have requested to vote online in the March 15-17 presidential election outside of Moscow (in Moscow, voters do not have to register and online voting takes place in the city’s own system), two weeks before registration closes. In last year’s regional elections, around 1.1 million people voted online outside of Moscow, according to official data. Even this was enough for the effect of online votes, usually skewed towards pro-government candidates, to be significant. The authorities have been rolling out and actively promoting online voting for several years, even as grave concerns remain about its lack of transparency and its ability to make traditional forms of electoral manipulation and rigging (e.g. forced voting or ballot stuffing) more cost-effective for the authorities.
At a gathering of municipal officials near Moscow, organizers claimed that more than 3,000 officials have participated in Russia’s war in Ukraine. This includes several mayors (e.g. of Vorkuta, Chita, Petrozavodsk) who, for various reasons (but usually due to the risk of removal or criminal prosecution), chose to serve in the war zone. The purpose of the gathering was to highlight some examples where participation in the war was a career elevator for officials and where those who returned were at least able to continue working in their previous positions. Supporting returnees and keeping a pro-war coalition together has been a focus of the Kremlin, while it has been simultaneously hesitant about actually providing career lifts to the majority of returning war participants.
— Andras Toth-Czifra