On June 29, the Russian consulting firm Awara published a study claiming that Russia has achieved major economic breakthroughs despite Western sanctions and low oil prices, becoming a “quadruple superpower.”
Titled “What Does Not Kill You Will Make You Stronger – The Russian Economy 2014 – 2016, the Years of Sanctions Warfare,” the study concluded: “Russia has emerged stronger than ever after these three years of economic defense. It has now achieved the unprecedented role of a quadruple superpower: industrial superpower, agricultural superpower, military superpower and geopolitical superpower. Russia now has the world’s most self-sufficient and diversified economy… .”
Aleksei Pankin, a political commentator with Rossiya Segodnya (Russia Today), the state-owned international media conglomerate, embraced the study in a RIA Novosti article.
Russia, he claimed, had overcome its dependence on oil. “Of crucial importance is that Russia got off the oil needle. The share of hydrocarbons and other raw materials in the GDP fell from 22% in 2000 to 10% in 2015. Their contribution to the fulfillment of the budget does not exceed 17%. ... [I]ndustrial production has not suffered, increasing by 5.3% in May of this year,” he wrote.
While the Russian economy fared better in 2017 than in preceding two years, it has suffered significantly overall during the last three years.
The sanctions and low oil prices have actually impeded Russia’s emergence as an “industrial superpower,” let alone a “quadruple superpower.” Russia has focused on the non-oil sectors because of sanctions, but it has not become the country with “the most diversified economy.” It also remains heavily dependent on the oil and gas industry.
According to the World Bank, the sanctions and the decline in oil prices “drove Russia’s economy into a deep recession.” In November 2014, Russian Finance Minister Anton Siluanov said that the sanctions cost the country's economy $40 billion (2% of GDP), while lower oil prices cost it $90-100 billion (4% to 5% of GDP).
Russian economists suggested the sanctions would decrease the GDP by 2.4% by 2017, and Putin admitted in 2016 that the sanctions were “severely harming Russia.” And the lack of economic diversification has been a major culprit here.
Some estimates suggest the oil and gas industry accounts for up to 70% of Russia’s GDP and up to 50% of the Russian government’s budget revenue.
Alexei Kudrin, a former finance minister, stated in 2016 that Russia is “too dependent on oil,” highlighting the need for economic diversification.
While non-energy exports have been growing under sanctions, Russia’s overall exports remain largely undiversified. Moreover, the weak ruble, not major innovations, has helped boost non-oil exports.
And while increased military expenditures have boosted industrial production, most other areas of production have stagnated. Furthermore, calculated on a monthly basis, industrial production rose by only 1.2% in 2017, recovering from a 2.3% decline in April and falsely making the May growth rate of 5.3% look like manna from heaven.
The claim that Russia is an “industrial superpower” is clearly false when one considers global GDP rankings, Deloitte’s 2016 Global Manufacturing Competitive Index, and manufacturing value added (MVA) indicators.
According to the World Bank, Russia’s economy accounts for only 1.8% of the global GDP. In 2016, Russia slid in manufacturing competitiveness to 32nd place, from 20th in 2010. And Russia’s MVA in 2014 was lower compared to many other countries, indicating that it could not have overtaken others to become “an industrial superpower” while in a recession.
In 2017, Russia’s economy has indeed started performing better, as it has emerged from the recession. However, the number of people in poverty remains high, after increasing by 3.1 million in 2015, and the projected GDP growth rate of 1.3-1.4% for 2017-2019 appears insignificant.
Moreover, the impact of sanctions, sluggish economic diversification, and corruption will continue to “subdue” growth prospects.