Analysts have announced the “backfire effects” of sanctions against Russia

The architects of the sanctions overestimated Russia's dependence on external financing and underestimated Russian exports , according to the Sberbank Financial Analytics Center. 4 years of experience have shown the importance of countercyclical policies, experts say

Two years after the introduction of tough Western sanctions against RUSSIA, it can be stated that they did not work as their initiators intended, as indicated in the study “Why did the sanctions not work?”, conducted by the Center for Financial Analytics of Sberbank ( RBC has a presentation with the research materials). The authors of the report explain the low effectiveness of sanctions primarily by such circumstances as the low dependence of the Russian economy on external capital, the high importance of Russian raw materials for the world (Western countries themselves continue to buy them, albeit in smaller quantities), and the establishment of domestic production for the purpose of import substitution .

A source at Sberbank confirmed the preparation of such a study, adding that it was done for internal purposes. The press service of Sberbank did not comment on RBC’s request.

"Reverse Effects"

In general, already in the second half of 2022, it became clear that the Russian economy is withstanding sanctions pressure better than initially expected. “Many people, including myself, saw a much more pessimistic picture when we looked ahead in March [2022]. <...> We were mistaken,” for example, admitted the dean of the Faculty of Economics of Moscow State University, Alexander Auzan, in December 2022. In a number of cases, Western sanctions had the opposite effect, say researchers from the Sberbank Financial Analytics Center and give three examples:

the voluntary or forced withdrawal of Western companies from Russia provided an incentive for the growth of domestic production, the establishment of parallel imports and the import of alternative products from third countries; restrictions on the withdrawal of capital : according to the authors, they make it possible to strengthen the ruble exchange rate and leave the currency within the country; persecution of Russian business in the West leads to the fact that “Western countries are no longer associated among rich Russians (and citizens of other friendly countries) as a “safe haven for storing savings” (that is, these sanctions and the deterioration of the image of Russians abroad lead to the fact that their funds remain within the country, their savings are repatriated). RBC Pro development program Master 52 skills in a year The development program is a convenient tool for continuously learning new skills for a successful career Victim of perfectionism: why you shouldn’t try to do everything perfectly Think like Jeff Bezos . What algorithms do successful businessmen use? Why are you so scared to delegate. Explains The Economist There is no point in making a superproduct for months: 6 rules of the founder of “Vkusvill” How to make a plan so as not to abandon what you started halfway: 6 steps Why challenges paralyze some managers and motivate others How to cope with severe anxiety in 2 minutes Are you tired of living according to someone else’s scenario? How to rewrite these settings yourself Case “Norbit”: how we give feedback to colleagues using dice Make a breakthrough in your career: start listening to your body Does not give advice and is indifferent to prestige: 3 types of magnet leaders If you are tired, downshifting is not an option . How to save your career

“Some of the sanctions even helped the Russian economy,” the authors summarize. And at the same time, they hit the economies of the sanctioning countries themselves, “launching the process of fragmentation of the world economy and reducing the role of the West.” Experts from the Center for Financial Analytics note that after the introduction of restrictions, many unfriendly countries faced difficulties: “the sanctions had a negative impact on them due to the dependence of domestic production on Russian goods and energy resources” (for example, Germany’s GDP in 2023 decreased by 0.1 % at constant prices and adjusted for calendar factors).

It can hardly be said that sanctions in their pure form helped the Russian economy - “of course not,” says Tatiana Orlova, leading economist for emerging markets at Oxford Economics. In addition, it is difficult to separate the effect of sanctions and the overriding effect of anti-crisis anti-cyclical policies, plus one must remember that on one side of the scale are sanctions, and on the other are spending on the military-industrial complex, experts say. Without sanctions and without an increase in spending on the military-industrial complex (and they are closely related), the current GDP would hardly be higher: although the sanctions slightly reduced it, defense spending increases GDP, says Anton Prokudin, chief macroeconomist at Ingosstrakh Investments.

The experience of the past four years, which included two crises, speaks of a great smoothing effect of countercyclical macropolicy, says Sofya Donets, chief economist at Renaissance Capital for Russia and the CIS+. “But this is not a free thing. The margin for implementing countercyclical policies has reached a critical level,” she notes. In the event of a new shock, it will no longer be possible to implement it so effectively.

According to Rosstat, in 2023 real GDP growth was 3.6%, and in 2022–2023 the economy grew by 2.4%, that is, the shock decline of 2022 was overcome. Economist at the Institute for Economies in Transition at the Bank of Finland (BOFIT) Heli Simola estimated that industries related to the military operation in Ukraine could provide about 40% of economic growth in the first half of 2023. At the same time, she expressed the opinion that Russia cannot maintain increased government spending indefinitely, and the military-industrial complex is diverting resources from civilian industry.

Despite the low effectiveness of sanctions and even their unintended positive impact in a number of cases (including through the launch of “positive transformation processes” in the economy), the authors of the study admit that “in the long term, difficulties may arise with the development of new industries without access to Western technologies " Sanctions pose challenges, including in the context of “the relatively low level of geopolitical stability in countries that are new allies of the Russian Federation,” analysts write.

Factors of sustainability

Among the factors of the Russian economy’s resistance to sanctions, experts from the Sberbank Financial Analytics Center also named:

high foreign trade surplus and relatively low level of external debt (established by the beginning of 2022);

The Russian economy is weakly dependent on external financing, but the dependence of the world economy on Russian goods is quite high, the authors state. For example, in January-November 2023, EU countries still imported almost €27 billion worth of Russian mineral fuel, according to Eurostat data (we are talking about natural gas, LNG, oil through the Druzhba pipeline, against which pan-European sanctions were not imposed. — ). In addition, the same EU continues to purchase petroleum products produced in third countries from Russian crude oil. “Sanctions are generally ineffective against countries with significant foreign trade surpluses and low levels of external debt,” the study’s authors say.

The West is severely limited in the possibilities of sanctions due to Russia’s large volume on commodity markets and cannot exclude it with Iranian-type sanctions, Prokudin agrees. At the same time, Russia’s external sector still suffered from sanctions: according to Prokudin, Russia has lost the European gas market (by two-thirds so far, but Europe plans to completely stop gas imports from Russia). “21st-century globalization has increased the economic costs of sanctioning large, highly integrated economies,” Nicholas Mulder, assistant professor of modern European history at Cornell University, noted in a 2022 paper.

the realized attractiveness of the ruble for foreign economic activity;

“Rubles can be used to buy many goods needed all over the world,” analysts point out. In general, the share of national currencies in mutual settlements between Russia and foreign countries will increase to 65% by the end of 2023, with major trading partners it will approach 70%, the authors predict. They believe that sanctions restrictions have created opportunities to earn money by building alternative schemes in logistics and payments. Their separate reasoning: restrictions on the withdrawal of funds lead to a strengthening of the ruble exchange rate, and not to its weakening.

On January 1, 2022, the DOLLAR to ruble exchange rate was approximately 74 rubles, and now it is 91.2 rubles. If the economy had developed as before, it can be assumed that the inflation wave would have been less powerful, and the key rate would have been raised earlier - as a result, the ruble would have been stronger and less volatile, says Anton Tabakh, chief economist at Expert RA. However, discussing specific parameters is “pretty pointless,” he adds.

In fact, “the dynamics of the real ruble exchange rate were comparable to the dynamics of prices foroil in real terms remains the same,” says Donets (the real exchange rate means the nominal exchange rate adjusted for the ratio of inflation rates in Russia and the countries that are the main foreign trade partners. -). The only difference is that under the influence of sanctions there was a big swing around this level. According to her, “there is no reason to believe that without sanctions the ruble would be somewhere else.” At the same time, greater volatility is possible in the new reality, she notes.

successful redirection of most imports through friendly countries / import substitution;

In 2023, imports fully recovered to the level of 2021, the authors of the study indicate, this was due to the establishment of parallel imports and imports through third countries. “The import of transport suffered the most (mainly aircraft and spare parts for cars); in other categories it was possible to replace it with imports from friendly countries,” they write. According to them, many categories of imports, initially identified as critical, were replaced by friendly countries or domestic production was established.

The structure of the Russian economy has proven to be “inertially resistant to external shocks,” despite its dependence on imports at the level of basic production and needs, Tabakh comments. “During the period when the main goal was to increase openness and innovation for EXPORT, this was rather a minus, but in the conditions of resetting to the “basic settings” it turned out to be a plus,” he argues.

Analysts from Sberbank cite “successful cases” of import substitution - in mechanical engineering, in the aviation industry, in the chemical industry, in the agro-industrial complex and the food industry. The industrial decline caused by sanctions was overcome by mid-2023, and prospects for 2024 in Russian industry look “quite optimistic,” HSE experts wrote in the February report “Industrial Production Intensity Indices.” According to their estimates, the last two crises (pandemic and sanctions) have led to “a significant change in the structure of Russian production in favor of highly processed products.”

The Russian economy, unlike Japan or Western countries, relies more on the production and consumption of raw materials or near-raw materials, therefore, on the one hand, it is possible to find alternative suppliers for a fairly significant part of Russian imports, on the other hand, when Russian enterprises have lost their main export market in the form of Europe, they were unlikely to have to radically restructure production in order to find new buyers in other countries, visiting professor at the Einaudi Institute of Economics and Finance (EIEF) Konstantin Egorov gave his version of the high adaptability of Russian business. This opinion is supported by Prokudin: “If Russia produced final goods or technological equipment, then we could hardly quickly replace the loss of the European market.”

the departure of foreign companies, beneficial for Russian business;

According to the authors from the Center for Financial Analytics of Sberbank, new niches have appeared in the consumer market for domestic producers. Thus, based on an analysis of Sberbank data for 7.8 thousand shopping centers for 11 months of 2023, researchers found that retail turnover for Russian brands increased by 25% compared to the same period in the “pre-sanction” year of 2021.

In the global context, there is no confirmation at all for the hypothesis that economic sanctions can work well, Donets states. Tangible damage from sanctions can be expressed in temporary financial and economic chaos, but this “definitely did not happen” in Russia. In addition, it is not entirely clear in what parameters the effectiveness of sanctions can be measured, she summarizes.

Other opinions

The Russian economy, “although it is weakly competitive and over-monopolized,” is a market economy, Auzan said. “And a market economy has one great property: it always establishes an equilibrium (even a bad one),” he added.

Economists at the Higher School of Economics in their 2023 report “Russia’s Economy under Sanctions: From Adaptation to Sustainable Growth” offered the following explanation: the overall market nature of the Russian economy and the high adaptability of Russian business. The second factor, in their opinion, was the large-scale fiscal stimulus from the government. Also, Russia’s advantage was its long border with countries that did not join the sanctions.