Research & Insights #13

Financial Transactions. Russia’s national payment system, Mir accounts for about 25% of all card transactions in the country today. Released in 2015 by the Bank of Russia and the National Payment Card System, this cashless solution was introduced in a market historically dominated by US international payment systems, Visa and Mastercard. The creation of a national payment system was prompted by US restrictions imposed on several Russian banks following the Ukrainian crisis. Its use is now mandatory for pensioners, civil servants, public sector employees and anyone receiving state payments such as social welfare. It is estimated that in 2020, the share of cashless payments in total retail sales exceeded 70% in the country. Russia’s disconnection from Western payment systems may be painful, but the country can manage such sanctions at the national level by switching entirely to Mir, said Vicktor Dostov, Chairman of the Association of Electronic Money and Money Transfer Market Participants.

Artificial Intelligence. Vladimir Putin gave a speech at AI Journey 2021 during which he reaffirmed the importance of artificial intelligence. He considers that access to data is essential for Russia to be competitive in this field and that two principles must be respected in this regard. First, it is essential to establish an effective mechanism for anonymization and storage of data that is clear and understandable to the public. Second, the state must guarantee access to databases for all players in the sector, in order to promote competition and avoid the establishment of a data monopoly. If the authorities understand the importance of new technologies, they are also aware of the anxiety they can create among the general public. A recent example is the presentation of Meta by Mark Zuckerberg. It is interesting to note that support of these new technologies is usually accompanied by the promotion of conservative values in Russia. Paradoxical though it may seem, to be leaders in artificial intelligence, what is needed is a humane environment, like in a family where parents pass on important moral values to their children and, of course, at school, Vladimir Putin said.

Militarisation of Space. On November 15, Russia fired a missile at one of its defective satellites called Tselina-D, in orbit since 1982. This exercise was primarily military since obsolete satellites eventually return naturally to the atmosphere where they are destroyed. With this type of demonstration, the Russians showed their ability to destroy a satellite from Earth, which is strategic at a time when the communication systems we use daily depend on satellites. Previously, such tests in space have been conducted by the United States, China and India, said the Russian Ministry of Defence. Russian officials are also seeking to encourage other powers to finally begin negotiations on a space treaty at the Conference on Disarmament. For now, space is essentially framed by political commitments and the few existing rules are difficult to enforce. Not surprisingly, the North Atlantic Council has condemned the recent test as “irresponsible behaviour” that undermines the rules-based international order.

Nord Stream 2. The US imposed new “symbolic sanctions” on a ship (Transadria) involved in the construction of the Nord Stream 2 gas pipeline. The Biden administration is looking to exert more pressure on Russia without antagonizing Germany. These new sanctions against Nord Stream 2 are the latest in a series of US measures that have significantly slowed the construction and operation of the pipeline. On November 16, it was revealed that certification of the pipeline would be postponed for several months after the German regulator asked the Swiss-based Nord Stream 2 consortium to create a subsidiary under German law. According to Russian Foreign Minister Sergei Lavrov, Western countries “led by the Americans” are imposing politically motivated unilateral restrictions on everything, “for any reason or no reason.” 

Research & Insights #12

Artificial Intelligence. Russia’s leading technology companies adopted a Code of Ethics in the field of artificial intelligence (AI) in Moscow on October 26. It establishes general ethical principles and standards of conduct to guide those involved in activities using AI for civilian purposes. Since 2019, and the adoption of the National Development Strategy, AI has been one of the main priorities of the Russian state, which aims to catch up technologically and financially. Unlike China or the United States, where AI is presented as a Promethean technology, in Russia it seems to be seen more as a way to ensure the country’s sovereignty. To remain in the top five AI powers in the world, the country is banking on its human capital. Indeed, mathematics and programming are key to mastering this domain. Russia is also one of the few countries, thanks to its relative isolation, to have developed its own platforms with complete ecosystems, like Yandex or Mail.ru.

Russiagate. U.S. Attorney John Durham is making progress in his investigation into the origins of the FBI’s probe into Russian interference in the 2016 presidential campaign. He has charged Igor Danchenko with five counts of lying to the FBI. Danchenko was the primary source of the infamous “Steele dossier” containing false allegations of conspiracy and cooperation between Trump’s presidential campaign and the Russian government. The document defined the narrative of the media and Democrats during the Trump presidency. It was also “critical evidence” that the FBI submitted to the federal oversight court in late 2016 to obtain a warrant to monitor a Trump campaign aide. As Pulitzer Prize-winning journalist Glenn Greenwald recently pointed out, there has been more contrition about media lies for the Iraq War than there has been for “Russiagate” and the “Steele dossier.” This latest development should further polarize Americans about their trust in the media. Currently, 68% of Democrats versus 11% of Republicans say they have a great deal or fair amount of trust in the media. This difference is frightening.

Labor Market. Labor shortages in low-skilled jobs continue to be a concern for Russian authorities. The closure of borders caused by the COVID-19 pandemic has exacerbated this dynamic by leaving many people without work to return to their home countries. As a reminder, in 2017 the Russian Central Bank for the first time included labor shortage in the list of inflation risks. In 2018, the Ministry of Economic Development in turn admitted that there was “an increasingly evident shortage of labor resources.” In Russia, about half of the economic immigrants come from Central Asia. They usually work in difficult, low-paying jobs in key sectors of the country, such as agriculture, transport and logistics or construction. In 2020, the number of migrants in Russia was about 6 million, compared to about 11 million in normal times. Moscow is trying to ease these tensions on the labor market by facilitating access to work visas for the sectors concerned.

Natural Gas. Russia has indeed increased its gas supplies to Europe via Poland, Belarus and Ukraine, thus bringing down wholesale prices. It must be said that Europe is still worried about having insufficient stocks before the winter. In accordance with President Vladimir Putin’s order, Gazprom started pumping gas to Germany again late on Monday 8 November. Gas stocks were hit by a prolonged winter in 2020 and not sufficiently filled since. Added to this is a reduced supply of renewable energy, such as wind power, due to weather conditions. According to Moscow, the EU has in recent years favored gas purchases on the spot market, subject to price fluctuations, rather than signing long-term contracts with Gazprom. Many commentators accuse Moscow of deliberately pressuring prices in order to speed up the commissioning of the controversial Nord Stream 2 pipeline, which is ready for use but awaiting the green light from the German regulator.

Research & Insight #11

Nord Stream. On 27 October Vladimir Putin ordered Russian gas giant Gazprom to increase gas deliveries to the European Union as soon as Russian reservoirs are filled. He instructed that Gazprom begin “gradual and planned work to increase the volumes of gas in [Gazprom’s] underground reservoirs in Europe” as soon as Russian reservoirs are filled again by November 8. One third of the gas used in Europe comes from Russia. According to Moscow, in recent years the European Union has favored purchasing on the spot market, which is subject to price fluctuation, instead of signing long-term contracts with Gazprom. While Russia says it wants to deliver more gas, it also wants to return to the practice of multi-year agreements. In this respect, Vladimir Putin said on 21 October: “What we are observing now on the energy markets is a manifestation of the very capitalism that does not work“. “As soon as difficulties arise, everyone asks for government intervention,” he said.

Climate Change. The next COP26 summit will be held in Glasgow in early November. Discussions will focus on the speed of the energy transition, i.e., the transition from an economy based on fossil fuels (oil, gas, coal) to green energy (wind, solar, biomass, hydro). Despite the opposition of countries like Australia, it now seems clear that the end of coal use is an explicit objective, to be achieved by 2050. On the other hand, we are witnessing a “comeback” of nuclear energy, recently promoted by Paris and even Tokyo. Nuclear energy is increasingly seen as a way to avoid greenhouse gas emissions, while waiting for more renewable energy to be used. The French president announced in early October the investment of one billion euros in small, state-of-the-art power plants, while the United Kingdom, Russia, India and China also have plans to build or reactivate nuclear power plants.

Covid-19. A series of hygiene restrictions came into effect in Moscow on Thursday, October 28, in order to contain the Covid-19 epidemic that has recently accelerated in Russia. Services considered “non-essential” such as restaurants, clothing stores and gyms will remain closed until November 7. Only places selling medicine, food and basic necessities have been allowed to open, according to the mayor of Moscow. President Vladimir Putin has declared a national holiday from October 30 to November 7, in the hope of slowing down the movement of people and therefore the virus. The vaccination campaign remains laborious because of the mistrust and the wait-and-see attitude of the Russians. The total death toll has now reached more than 233,000 people, making Russia the most bereaved country in Europe. A third of the population is fully immunized, according to the specialized website Gogov. Despite the negative media coverage of Russia’s handling of the crisis, the country has fewer deaths per million people than France, the United Kingdom or the United States.

GDP. The International Monetary Fund (IMF) has improved its forecast for Russia’s GDP growth in 2021 to 4.7% from 4.4% in July, according to the October report. The organization’s experts predict a 4.9% drop in Russia’s unemployment rate in 2021, from 5.8% in 2020. The Russian economy is larger and more resilient than many people think. Analysts like to point out that Russia’s US$1.5 trillion GDP is comparable to Italy’s. It is worth noting that this amount is calculated based on market exchange rates. If purchasing power parity is considered, the figure rises to US$4.1 trillion, making Russia the second largest economy in Europe and the sixth largest in the world. This explains why, despite having a defence budget in dollars that is more than ten times smaller than that of the United States, the country is able to compete in some areas with the most advanced weapons.