Русский
A decade-long Russian economic bull run is now underway
The Russian President, Vladimir Putin, has taken part in the annual “Russia Calling!” event, which includes an annual address by the President as well as a public Q&A session. Here we analyse what Putin had to say, in a speech that almost exclusively focused on the Russian economy. This included data on GDP growth, manufacturing productivity, inflation, corporate finance, debt, investment, the Russian stock market, Russia’s outbound investment, national insurance policies and personal tax incentives, the digital ruble, and comments concerning the development of the BRICS.
Putin’s statements are prefixed VP, our comments are prefixed RPA and are in italics.
VP: “Good afternoon, ladies and gentlemen, colleagues. I am delighted to welcome the heads of leading Russian and foreign companies, investors and experts to Moscow. The “Russia Calling!” forum has once again brought together representatives of business communities from dozens of countries to help them make new contacts, map out promising projects, and discuss the key trends in global markets and the Russian economy.
I would like to begin with the situation in Russia.
As you are aware, our entrepreneurs, companies and entire industries faced serious challenges in 2022 as a result of actions taken by, let me put it mildly, some countries or more precisely, their leading elites. These countries have shown themselves to be unreliable partners. Many industrial and logistics chains, as well as cooperative ties that took decades to develop, have been endangered or even disrupted.
We often hear people from the political, military, or economic fields say that these countries set the task of inflicting a strategic defeat on Russia, including in the economy and technology, to drastically weaken our country’s manufacturing industry, finance and services, to create an insurmountable shortage of goods on our market, to destabilise the labour market, and to lower the living standards of our citizens. It is obvious that these plans have failed to materialise. Following a challenging period, the Russian economy has not only fully recovered, but is also living through qualitative structural changes, which is vitally important and, perhaps, is the most important outcome of our work in the economy over the past two to three years.”
RPA: In a nutshell, sanctions have failed.
VP: “Russia’s technological, production and logistics potential is making strides. Ties with promising partners are getting stronger.
Last year, Russia’s gross domestic product grew by 3.6%, and increased by 4.1% in January-October of this year. The growth mainly comes from the manufacturing industries and sectors with high added value. Thus, in a matter of ten months, our manufacturing industry has grown by 8.1%. The automotive sector and mechanical engineering are growing faster than other sectors. The inflow of specialists to the high-tech sector with high added value and skilled jobs is increasing as well. In September, the number of the IT employees grew by 8% year-on-year, and by 3.9% in the manufacturing industry.
There has been a fall in unemployment in regions where it was traditionally high, while growing employment rates among young people under 25 is indicative of the structural changes in the labour market. We are aware, though, that youth unemployment is a problem in many countries around the world. We used to have this problem. Today, the youth unemployment rate is below 9% although previously, it ran as high as 20–25% in some Russian regions. Overall, Russia has a record-low unemployment rate of just 2.3%. Compared to the majority of the world’s leading and developing economies, this figure is minimal.
For example, in many European nations, it stands at 7% or higher, whereas in Russia, I reiterate, it is slightly above 2%. As a comparison, to back up my statement: it is 7.6% in Italy, 7.3% in France, a little less in Canada at 5.4%, 11% in Greece, 8% in Brazil, and 7.6% in Sweden.”
RPA: We can add the leading European economies to this diverse list: In France the unemployment rate is 7.4%, in Germany it is 6% and in the United Kingdom, it is 4.3%. The United States has an unemployment rate of 4.1%. Generally speaking, unemployment rates of 5% and above are considered economically problematic.
VP: “The economic upswing has a positive effect on the budget system. From January to October this year, the country’s consolidated budget surplus, inclusive of extrabudgetary funds, amounted to approximately ₽2.5 trillion (USD24 billion). Meanwhile, spending amounted to less than 35% of GDP, on a par with the 2021 levels. This evidences that both the Government and the Central Bank are pursuing a well-balanced strategy indeed. It means that, given the objectively increased spending on certain budgeted items, we are generally not padding public spending but working instead on enhancing its efficiency and following a responsible approach to budget management.
Our goal is to hold firm to the trajectory of long-term sustainable economic development, ensuring quality investment dynamics in the real economy by upgrading industrial facilities and boosting labour productivity. This is, clearly, the overall strategy of our development.”
RPA: This means that the Russian economy is now more profitable than during the pre-sanctions period, with that additional capital being re-invested back into Russian infrastructure and development.
VP: “At the same time, it is imperative to avoid any misalignment in key macroeconomic indicators and prevent sectoral imbalances, which includes the necessity of controlling inflation. As you are aware, it remains at a relatively high level, including when compared to the countries I’ve already mentioned. Russia’s inflation rate stands at 8.8% year-on-year. To achieve positive results, coordinated joint efforts by the Government and the Bank of Russia are required. I would like to stress that this is a guide to action. The Central Bank and the Government understand this perfectly well, and coordination is in place.
It is crucial to correctly and wisely use all economic policy instruments in the fight against inflation, avoid any structural misalignments, including potential risks of increasing income disparity among citizens and reducing the revenue base of Russia’s regions.
As I have already mentioned, the primary, fundamental response to the inflation challenge would be, undoubtedly, to increase supply of goods and services on the market so that their volume meets the domestic demand, both from citizens and businesses that are planning to upgrade and expand their production, expand their capacities, invest in construction, in purchasing equipment and implementing development projects. In this regard, I would like to ask the Government to more clearly set the priorities concerning support measures for industries from the federal budget, and to continue fine-tuning the legal framework and removing excessive administrative barriers for businesses.”
RPA: Inflation in Russia has remained stubbornly high and is partially sanctions related as the costs of imported goods has risen, and along with it, overall wages. Thus far, this situation appears to have been manageable, with very little, if any, public discontent. As Russia continues to create its own industrial development and productivity to reduce reliance on imports, the inflation rate should decrease.
VP: “All these mechanisms must primarily work to expand production, open new production facilities, and strengthen Russia’s technological sovereignty. We must remember that we are operating under the objective conditions of inflation containment, adopting tough approaches to our budgetary policy, and we must adjust our credit policy accordingly.
I would like to note that since August, the retail lending portfolio has stopped growing. At the same time, corporate lending continues to grow. In general, this is the result we have been aiming for, including when it comes to containing inflation. Corporate loans are still growing, which means that companies are implementing their investment plans, and in retail lending there has been a certain decline. And it was exactly the goal the financial and economic authorities have been trying to achieve.
I would like to ask my colleagues to closely monitor the dynamics and to work on preventing sharp fluctuations or decrease in the banking system’s loan portfolio, and also to ensure such portfolio structure, including loan terms, industries and sectors of the economy that are raising loans, that contributes to solving strategic tasks and achieving national development goals.
It is also important to pay attention to debt-laden companies with public ownership. We have been discussing this with the colleagues lately. The debt burden has significantly increased. We need to take into account the large-scale investment programmes of state corporations, as well as the social functions they perform.
I have already instructed the Government and the Bank of Russia to make a decision on managing loan portfolios of partially government-owned companies, so as to prevent an excessive debt burden and imbalance in the corporate lending market to the detriment of other industries and companies.
Please keep in mind that for many small and medium-sized companies, which are playing an increasingly prominent role in the economy, the availability of borrowed funds is crucial for investment. We have set a very specific goal – by 2030, we need to see investment in Russia rise 60% in real terms, against the 2020 level.”
RPA: Some of Russia’s State-Owned Enterprises (SOE) – mostly notably Gazprom – have been badly affected by sanctions and the withdrawal of their previous primary markets in Europe. Others have seen assets seized in Europe and subsidiaries bankrupted. These are multi-billion dollar businesses who main assets have been partially destroyed (such as the case with the destruction of the Nordstream gas pipelines). The financial impact of this is still working its way through the Russian economic system. At the same time, these SOEs also require significant funding to re-direct their infrastructure assets to new markets in the East. Accordingly, numerous Russian SOE’s have been hit twice – the loss of markets and valuable infrastructure (which the West assumed would collapse the Russian economy) coupled with the need to take on more debt to restructure their businesses to service new markets elsewhere. However, the Russian economy has been more robust than previously thought, certainly in the West.
A more interesting question is how these debt loads will be managed through the economy. At present, Russia appears to be simply waiting for a Return on Investment (RoI) when new infrastructure investment begins to generate revenue. This takes time. However, there are other debt management vehicles available to Russia, and particularly as regards friendly countries. We expect to see bond issuances and similar capital raising mechanism to appear from Russian SOEs in the near future.
VP: “Despite current challenges, Russian businesses continue to invest in fixed assets. Their investments continue to grow for the third year in a row despite all the problems we are facing or that outside players have been trying to create for us.
I will cite a few figures. In 2022, fixed asset investment grew by 6.7% in 2023, the growth was 9.8%, and a similar pace was maintained in January-September 2024, at 8.6%.
To support businesses’ motivation to invest in development, to expand production capacities and create jobs, we will continue to strengthen the capital market and help companies list their shares on our stock exchanges. By the end of the decade, Russia’s stock market capitalisation should double and reach two-thirds of our GDP.
I would like to note that this year alone, Russian companies completed 19 initial and secondary public offerings of their shares and were able to raise ₽102 billion (USD972 million).
This is a good result, but still insufficient on a national scale. The Russian capital market should be more actively involved in funding development projects and structural changes in our economy.
The Government and the Central Bank need to prepare a package of additional incentives for issuers of shares to make initial stock market listing a more attractive step. Among other things, it is necessary to stimulate the demand for securities, ensure effective protection of investors’ rights and companies’ information transparency.
Most of the entities entering the Russian stock markets are small companies, while many large businesses, including industry leaders, are not yet listed. This means that measures to support issuers should both take into account the needs of small businesses, promising startups, and encourage large businesses to place their shares.
For example, state subsidies or preferential loans for large businesses could be made conditional on their stock listing. This seems quite fair. Of course, we also invite investors from friendly countries to our stock market. As I have said more than once, Russia is part of the global economy, and we welcome reciprocal capital flows.
At the same time, we are making an emphasis on domestic sources of funding, so that our people and retail investors have an opportunity to invest their resources and earn money inside the country. These investments and their profitability would be no less attractive than opening bank deposits. Today, according to our analysis, over 32 million Russian citizens are interested in buying securities. The total volume of their assets exceeds ₽9 trillion (USD86 billion).”
RPA: 2024 has seen a boom in the Russian IPO market, with listings an average 5 times oversubscribed – a subject we previously discussed here.
In fact, this bull market, according to Putin, appears likely to continue – he predicted a doubling of Russian market capitalisation over the next five years – annual growth rates of 20%. This capital is being invested both in Russian domestic infrastructure and business development, as well as overseas as Russian corporates become increasingly confident in overseas markets. Prior to 2022, Russian businesses had been rather conservative, and especially when it came to Asia. Yet having seen assets seized and business models sanctioned in Europe, Russian capital is now flowing east. A good example is Softline, who are listed on the Moscow Stock Exchange, and have raised money to expand into Indonesia, Kazakhstan, Uzbekistan, the UAE and Vietnam – all during 2024. Other Russian businesses are making similar steps, as Russian outbound investment begins to heat up in what is very much a growth market.
In essence, this is following a very similar trajectory to China’s Belt & Road Initiative, where domestic infrastructure development reached saturation and the only way to re-invest – and at the same time secure supply chains – was to invest overseas. While Russia’s domestic infrastructure still requires longer-term investment, it also needs to secure new supply chains and invest in them – precisely what is happening – a trend which this website is one of the very few that follows and comments upon.
Russia, like China, has also uncovered a wealth of smaller, private household wealth – the so-called ‘under-the-mattress’ savings that remain unutilized. If Putin is correct, and assuming the relevant incentives are put in place, an additional USD86 billion of Russian private equity can be placed into supporting Russian businesses via purchasing shares on the national stock exchanges. Assuming these investments prove fruitful, Russia appears poised to enter a two decade period of national wealth development, in a similar manner to that previously experienced by China.
VP: “In the last few years, important decisions have been made to ensure the influx of long-term money into the market and expand the range of relevant instruments. This year, a programme was launched to support voluntary long-term savings. Relevant contributions are insured and co-financed by the state, and a tax deduction can be obtained for the funds contributed. As of November 22, over 2.1 million depositors joined the long-term savings programme, bringing in ₽145 billion (USD1.4 billion).
We have a more ambitious goal set in this respect: in 2026, the total amount of funds raised under the programme has to exceed 1% of GDP, that is constitute at least ₽2.3 trillion (USD22 billion) and steadily grow onward.
I will add that Type 3 individual investment accounts were introduced this year to accumulate citizens’ funds. They can be used for long-term investment and to conduct transactions on stock market while receiving tax benefits.
I suggest expanding the functionality of this instrument for the investor to be able to choose an account for dividends on shares registered on their individual investment accounts, that is, to use the income received as they see fit and, importantly, at any time. Of course, a regulatory instrument like this will increase potential investors’ interest in this work, in this case, together with the state.
I would also like to note that co-financing of life insurance will be launched on January 1, 2025. In fact, it is a combination of conventional insurance and investment, where a citizen simultaneously invests funds in assets, in shares, receives return on them, and at the same time insures their life and health. As we agreed, it is necessary to guarantee the return of these funds and provide for (individual insurance) of up to ₽2.8 million (US$27,000, per person) to be guaranteed by the state.
In addition, tax incentives should be offered, primarily tax deductions on the amounts contributed. I would like to ask to draft relevant federal laws and adopt them in the near future.
Let me also add that there is a proposal to create a financial mechanism that would become a family savings instrument, allowing all working family members to receive a tax deduction. Accordingly, the amount of funds eligible for such a deduction should increase to at least ₽1 million (USD9,500) per year. I ask the Government and the Bank of Russia to determine the parameters for this family support mechanism and implement these decisions.”
RPA: Putin is being generous to Russian citizens here, with the introduction of a much-improved life insurance programme and a near USD10,000 annual income tax deduction to be made available – provided Russian citizens invest their money.
VP: “The Russian banking system and stock market are developing dynamically on the basis of modern technologies. Approximately three-quarters of our adult population now use cellphones and the internet to transfer funds from their bank accounts and access various financial services. More than 80% of payments for goods and services within our economy are conducted via bank transfers.
At the same time, the Bank of Russia is gradually introducing the Digital Ruble. As part of a pilot programme, replenishing funds and making Digital Ruble transfers between individuals and legal entities have been tested. This project already involves over 9,000 citizens and 1,200 companies, with numbers continuing to rise. As agreed, from next year, Digital Ruble settlements will be mandated for use within the federal budget system, and by July 1, 2025, it will be available nationwide.
RPA: Russia will be the first country worldwide to launch a digital version of its sovereign currency for public use on a national basis.
VP: “Here I would like to say a few words about the use of the Ruble in international settlements. We continue to develop the necessary infrastructure to facilitate these transactions, making them more efficient for businesses and reducing related costs. Among other measures, we plan to introduce an experimental legal regime that will enable banks to fine-tune methods for remote client identification, while of course ensuring full compliance with anti-money laundering regulations.
Furthermore, we will adopt a flexible approach to tax registration of non-residents, following a model already successfully employed by our banks when opening accounts for such companies. I ask the Government to speed up the drafting of the necessary documents and call on the State Duma to ensure their swift adoption in the coming months.
It is worth noting that the level of digitalisation in Russia’s financial services sector exceeds the global average, a testament to the high technological capability of this sphere of our economy. This confirms that Russia’s financial sector is forward-looking, capable of setting ambitious goals, and proactive in its approach.
Our analysts forecast that the introduction of national digital infrastructure in the financial sector will be one of the key long-term drivers of global economic growth. While some jurisdictions, such as the European Union, Australia, and Singapore, are still in the process of developing certain elements of this infrastructure, Russia has already successfully implemented all of its components, which are operating efficiently. This is not only a significant achievement for our developers and specialists, but also a substantial competitive advantage of our economy, providing a powerful lever for its development in the global context.
Russia’s leadership in financial technologies positions us well to forge flexible partnerships with foreign counterparts, promote integration projects, and leverage the complementary strengths of our respective economies. I also refer to the investment platform we are developing with our BRICS partners. This work is in its early stages, but all the parties involved agree on its potential benefits and prospects. It is expected to become an important instrument for supporting our economies and providing financial resources to the countries of the Global South and East.
RPA: Much has been made recently about the incoming US President, Donald Trump’s threats to impose 100% import tariffs on BRICS nations products if they drop their use of the US dollar. That comment was aimed at the US electorate and should not be taken seriously, as it implies that the BRICS may not use their own sovereign currencies, a somewhat absurd notion.
There has also been talk of the development of a “BRICS Currency” to replace the US Dollar, however this would be a long way off, if it ever appeared. What is already happening is the use of sovereign currencies to settle bi-lateral BRICS trade on transactions that do not include the United States in any event, rendering Trumps threats somewhat irrelevant.
A more pressing issue in Russian and BRICS settlements is the introduction of an alternative to the SWIFT global financial settlements system. There is one – mBridge – however the Bank of International Settlements has declined to authorise its use. That is a more pressing issue than Trump’s statements.
Putin wasn’t specific about developments within BRICS as concerns the digitalisation and settlement of intra-BRICS currencies, but for sure these are in the pipeline.
VP: “The rapid development of information technologies, which Russia is currently demonstrating, alongside our advanced solutions in the financial sector, will significantly contribute to the growth of this platform and play a key role in its success, which – I have no doubt – will be achieved. This success is essential for the further development of international business cooperation, the increase of mutual investments, and the creation of new production chains.
In this context, allow me to offer a few words on the investment climate in Russia. As you are aware, the World Bank is no longer operating in our country, therefore, it is unable to assess the domestic business environment. However, other independent bodies are fully capable of doing so. We undoubtedly possess the necessary intellectual potential.
This year, the Russian Agency for Strategic Initiatives (ASI) evaluated the business climate in our country and compared the results with those of other nations. In its new ranking, the ASI used the same methodology as the World Bank did. Over 800 criteria were taken into account, ranging from the process of starting a business to addressing insolvency issues.
The study has shown that Russia is among the global leaders in terms of investment climate. Moreover, Russia is ahead of all other nations in terms of the strength of its regulatory framework and the quality of public services. In specific areas such as business registration and real estate management, the country ranks second in world rankings.
Of course, certain areas still require additional efforts. We see and understand this, and we are fully aware of the need for further work. These efforts will be necessary from the Government, regional authorities, and the business community at large, with which the Government maintains constant contact. This includes the development of labour relations, the simplification of international trade procedures, rules of international trade, and the integration of engineering infrastructure. Significant progress has already been made in these areas, but there is still work to be done. Additionally, some other issues require our special attention.
Russia is uniting the efforts of the state, society, and business to strengthen its economic sovereignty, achieve technological leadership, develop a sustainable, nationally focused banking system, and build a robust financial market. We extend an invitation to foreign partners from all countries who are interested in engaging with us in this endeavour in cooperating with us in this area. Such aspirations will, of course, be supported at all levels of government within the Russian Federation. Thank you for your attention. I wish you all the best.”
RPA: If the World Bank had been able to offer an analysis of Russia’s economic indicators, the news would have made international financial headlines. The fact that it has been pressured not to examine the Russian economy on the pretext that doing so “Would assist Russia” merely serves to obscure the fiscal reality – the Russian economy is healthy and appears to be heading for a long-term bull market. It should also be pointed out that Russia is a member of the World Bank!
In fact, earlier this year, the World Bank did issue a statement concerning Russia, saying that it recognised Russia as a high-income nation in its official global rankings.
Apart from the somewhat discredited issuance of sanctions against Russia – they have clearly failed to have the intended economic impact – this flat refusal to acknowledge any information about the Russian economy also damages the longer-term potential for Western businesses to engage. This in turn implies that the West’s attitude to Russia has shifted from trying to destroy the economy, to largely ignoring it. This is now what is meant by the West referring to “Russia’s isolation.”
Yet this too, must be taken in context. The ‘isolation of Russia’ only refers to its estrangement from Europe, a position that Europe itself, and not Russia, created. As can be seen, Russia’s engagement with other countries – on a global basis, and including powerful players within the BRICS group – means that Russia is far from isolated. In fact, it is booming and engaging with the rest of the global community.
In the pre-conflict days, President Putin often bemoaned the lack of entrepreneurial activity and general lack of interest of Russian companies to invest overseas and develop new markets. Russian wealth was largely invested in the West – the UK, Europe and the United States, with wealthy Russians content to place money in what were seen as gilt-edged investments protected by law. They were proved wrong, in the sudden imposition of sanctions and asset seizures (the legality of which continues to be questioned) aimed directly at Russian wealth and wealth creation. Suddenly, the West proved itself as completely unreliable in Russian eyes.
Ironically, this has played exactly into Putin’s hands. Instead of Russian wealth, created in Russia, flowing West, it began to behave differently. Russian overseas wealth, where it could, immediately sought refuge back in Russia – with Putin offering tax incentives to help. In addition, newly created Russian wealth began to look for opportunities in Russia, and to invest in the country of origin. Again, Putin encouraged this by offering incentives. Finally, with the need to fast track new, non-European supply chains, Russian businesses began investing overseas. Both these latter trends have been accelerating, with Russian investments now going global – with the exception of the United States, Europe, and a handful of smaller economies such as Australia, Singapore and South Korea.
Putin, in essence, achieved with the help of Western sanctions, what he had identified as a major economic development strategy several years previously. The result has been an expansion of trade, investment and the overall worldwide development of the Russian economy. With further incentives described above set to come into play, and with Russia able to sit on a massive energy resource bank to underpin it, fiscal policies laid out by Putin in his speech indicate that not only has Russia overcome Western sanctions, it is poised to enter a significant bull market that can realistically be expected to last at least a decade and possibly two. This is a very similar situation as previously occurred with China in its boom years of 2000-2020 – and is still continuing, albeit at a slower pace. (China’s 2024 GDP growth rate is 5%). If comparisons need to be made, it is that Moscow is following the same fiscal and development trajectory as Beijing did beforehand. That growth saw China rise from fifth to first place in PPP terms relating to global economic size. Russia’s turn has now arrived. That Europe wishes to ignore this development, however, is completely contra to its own economic interests and will in time, we predict, be seen as a huge strategic mistake. But for Russia, a major bull run has just begun.
Further Reading
Putin’s Plenary Speech At The Eastern Economic Forum: Analysis
