This is not a comforting picture. All of which makes Russia's posturing a full bluff.
Worse than that we get no obvious sense of wealth creation. Mortgage lending is still in its early stages and represents about five percent of activity as compared to sixty percent elsewhere.
however we do get a sense of a now stable economy working its way forward and we can expect developed status to be reached in thirty years..
Something Rotten in the State of Russia?
Feb 13, 2017
By George Friedman and Jacob L. Shapiro
Geopolitical Futures’ forecast for 2017
says the following: “In hindsight, the coming year will be an
inflection point in the long-term destabilization of Russia that we
predict will reach a boiling point by 2040.” This may seem
counterintuitive in light of the Russia hysteria
following the US presidential election. Yet in the first six weeks of
2017, it is already possible to observe indicators that this forecast is
on track.
These indicators fall roughly into four separate categories
of instability: the distribution and prevalence of wage arrears,
pressure on the Russian banking system, low-level social and economic
unrest, and government purges. The map below summarizes these
developments.
Before we get started…
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Show Me the Money
The bottom part of the Russia map shows wage arrears as
reported by region. “Wage arrears” is a fancy term for workers not being
paid. In December 2016 (the last month for which Russia’s Federal State
Statistics Service has data), total wage arrears amounted to 2.7
billion rubles (roughly $46.4 million in USD).
The regions with the largest wage arrears can be divided
into two categories. The first is port regions. Primorsky region, whose
capital Vladivostok is Russia’s largest port on the Pacific, has by far
the worst incidence of wage arrears. It accounts for 21.2% of the
country’s total. The area where it is the second most prevalent is
Siberia (in places like Irkutsk and Novosibirsk).
The importance of these wage arrears is not their size in absolute figures. It is where Russian workers are not getting their paychecks. Russia’s economy is highly regionalized.
More than a fifth of Russia’s wealth is generated in Moscow and its
surrounding areas. The central government keeps the Russian Federation
together by redistributing wealth to interior regions.
The first places to expect economic trouble are port and
interior regions. The port regions will struggle because trade is the
oxygen that port cities need to breathe, and Russia’s main export, oil,
is facing prolonged low prices. The interior will struggle because the
central government will have less money to allocate. This forces a
lose-lose choice between austerity and cutting military spending
The wage arrears map is an indication that GPF’s model for
Russia is accurate. If the model is accurate, the probability of the
forecast coming to fruition greatly increases.
Russia’s Banking System
The decline in the price of oil has had a predictably
negative effect on the Russian banking system. Incidents of Russian
depositors applying for deposit insurance have increased markedly.
Some regions are suffering from banking crises. In
Tatarstan, for example, the region’s leading bank suspended operations
in December, depriving both individual depositors and businesses of
access to funds. This led to workers not being paid and to bankruptcies.
It also required intervention from the central government.
The above map identifies regions where over 100 banks have
had their licenses revoked. By itself, this indicator does not present a
clear picture. Russia’s banks could be under severe pressure. The fact
that the main fund used by Russia’s Deposit Insurance Agency has
decreased in value by 75% in two years gives this argument some weight.
Russia could also be cleaning up its banking system and shutting down
banks involved in illegal or irresponsible activity. In view of the
other negative indicators about the current state of Russia’s economy,
the former is a more likely explanation.
Protests in the Countryside
The logical consequence of economic difficulty is social
unrest. The world is not always logical, but in this case, what logic
would dictate appears to hold true. Small-scale protests have been
observed throughout the Russian countryside. Small incidents have also
occurred in major cities like Moscow and St. Petersburg. The map plots
areas where protests have been observed.
It is important to note two things. First, none of these
protests have indicated any sort of wider national organization. Second,
they are relatively small (often in the low hundreds). They are
important, but they should not be over-exaggerated. The Russian
countryside is not singing the songs of angry men, nor is it close to
doing so.
There are, though, concrete signs of dissatisfaction
bubbling to the surface. These are tangible indicators of frustration
with salary cuts, unpaid wages, and social services reduced by Moscow.
These small events are the canary in the coal mine and spell trouble
down the line for the Russian government.
Purges
The remaining two items on the map show political and
security purges ordered by President Vladimir Putin. Russian media have
described these moves as a “major political reshuffle.” That is a
euphemism for what it really is.
The point of a purge is to get rid of potential challengers
and install loyalists in their place. On Feb. 6–7, two governors from
Perm and Buryatia regions were forced to resign. Vedomosti, a
leading Russian-language business daily, reported that additional
resignations and removals are expected in the regions identified in the
map.
Unlike wage arrears, these purges are not confined to any
one geographic area. Some are in Siberia to the east, some are in the
regions toward the Caucasus, and others are in the immediate vicinity of
Moscow. That Putin feels unsure enough of his own position to carry out
these kinds of political changes reveals a great deal about the
position in which he currently stands.
Presidential elections are coming for Russia. They will
likely be held in 2018 (though there have been rumors they could happen
in 2017). Like President Xi Jinping in China, who is using
“anti-corruption” as a pretense to remove rivals ahead of his
reappointment at this fall’s Communist Party Congress, Putin is securing
his political position in the name of fighting corruption.
The purges are not limited to governors who have
significant powers in the Russian Federation’s political system. Putin
has also removed generals from the Interior Ministry as well as the
Ministry of Civil Defense, Emergencies and Elimination of Consequences
of National Disasters. These ministries are responsible for forces that
are used to control domestic social order and quell protests. Ensuring
the loyalty of such ministries is essential and must be done before
serious problems emerge. A total of 16 generals have been removed,
according to RIA Novosti, and two of those were also removed from
military service.
Writing on the Wall?
This report is not meant to be alarmist. It is not GPF’s
forecast that the Russian Federation is in danger of imminent collapse.
None of these data points by themselves indicate that GPF’s forecast has
been confirmed. They simply highlight Russia’s underlying weakness and
explain why Putin, who just a few months ago was strutting on the world
stage, has gone somewhat quiet. Important things need to be done at
home. This is where Moscow’s focus is right now, and in choosing that
focus, GPF and Russia have something in common.
