Previous Quarterly Editions
Expropriation Risk: 65 63 67 68 Political Violence Risk: 40 38 36 40 Terrorism Risk: 59 57 55 52 Exchange Transfer and Trade Sanction Risk: 62 62 64 63 Sovereign Default Risk: 38 38 40 38
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Official figures show that the ‘people’s vote’, held over five days at the end of June 2020 to approve changes to the constitution, produced an overall result of 78% in favour and only 21% against. Turnout for the consultation, which involved both on-line and in-person voting, jumped from 58% to 68% on the final day of voting and the package of constitutional amendments came into force on July 4 2020. The changes enable Vladimir Putin to run for the presidency again in 2024 and 2030, potentially extending his time in office until 2036. Although President Putin has repeatedly said that he has no plans to stand for another term, the vote is being used as a signal to any Russian elite members who may be thinking of positioning themselves for a post-Putin era to say that a succession, and discussion of it, are now off the agenda until the 2030s. The voting showed patterns similar to trends seen in recent years, showing that areas under tighter political control produced very high numbers of ‘yes’ votes, while support was significantly lower in Siberia and the Far East. Regions with a low turnout correlated strongly with a higher number of 'no' votes. The 'no' vote was strong in many central and suburban Moscow districts, where more than 40% voted against the amendments.- The ‘no’ vote might have been stronger, especially in many central and suburban districts of Moscow, if the anti-corruption campaigner Alexey Navalny had not urged people to stay away from the polls. .The Kremlin must now factor the result into its planning for regional elections in September 2020 and then elections for the State Duma in 2021. The fundamental lesson may be that in a constitutional vote held in circumstances heavily weighted in the authorities' favour, 16 million Russians voted 'no' and many more did not vote at all; A similar lack of backing for the Kremlin would be much more visible in the Duma elections. The main source of political uncertainty at present is the duration of the COVID-19 crisis. The Kremlin has managed to deflect blame from itself so far however a deepening health crisis could make this unsustainable. State figures show that new COVID-19 daily infections dipped below 7,000 in late June 2020 in a gradual but consistent trend, having last been above 10,000 in mid-May 2020, and the figures for the capital were the lowest since early April 2020. Even so, Moscow city officials have been proceeding cautiously on lockdown relaxation. The economic impact of the COVID-19 pandemic will be increasingly felt in the coming months as levels of unemployment and general hardship rise despite multiple government assistance packages. Low-interest loan schemes to stop employers laying off staff have not been broad enough in scope to halt rising unemployment numbers, which are likely to have been underestimated. Rising unemployment and a decline in real wages will reduce disposable incomes, a key political metric for the Kremlin, while an increase in non-performing loans will affect the banking sector as the concentration of assets in the 20 largest banks means financial contagion risks remain high. Research by the central bank shows that more than half of the workforce has outstanding bank loans. The housing market may also experience a slump. Assuming COVID-19-related restrictions are fully lifted by September 2020, the government expects the economy to contract by 6% this year. Contraction in the informal economy, estimated to employ one-fifth of the workforce, will affect vulnerable and often highly indebted segments of the population.
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Metals producer Norilsk Nickel is disputing a government calculation of damages from an environmental accident in the Arctic city of Norilsk at the end of May 1010, when some 20,000 tonnes of diesel oil spilled into rivers from a power station operated by one of its subsidiaries. A company official suggested that its fuel reservoir burst because the frozen ground melted, blaming the impact of climate change on permafrost, however government officials including President Putin were quick to criticise the company. Putin’s involvement suggested that the Kremlin might take the opportunity to oust Vladimir Potanin, the company's head and one of the few relatively independent oligarchs. In July 2020, Norilsk Nickel disputed state regulator Rosprirodnadzor’s ruling that it should pay "voluntary" costs of two billion US dollars towards cleaning up the spill. This would be equivalent to one-third of its profits last year and more than ten times the amount it was expecting. The Kremlin is particularly annoyed because the spill may delay its plans to reduce environmental regulations as part of efforts to stimulate post-COVID-19 growth.
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Several days of growing protest marches in Khabarovsk, in the far east of the country, reached a peak in mid-July 2020 with reports of 50,000 participants. The demonstrators were demanding the release of regional governor Sergey Furgal, currently held on murder charges that are widely believed to be politically motivated, and that Moscow stop interfering in the region. Local officials urging the crowds to disperse in the interest of COVID-19 safety were met with derision. Furgal angered Moscow by defeating the Kremlin’s candidate for governor in 2018. The sustained protests in Khabarovsk and other regional cities in his support left the Kremlin hesitant about how to proceed. The numbers and hostile mood made it risky to send in riot squads from outside the region, but the Kremlin will be forced to act if the protests, which specifically blame President Putin, look as though they might spread to other Russian regions.
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There have been no significant terrorist incidents in a major Russian city since the 2017 suicide bombing of an underground train in St Petersburg. In late 2019, a gunman fired shots at Federal Security Service (FSB) headquarters in central Moscow, leaving one FSB officer dead and five people injured, but he did not have links to Islamist or other radical groups.
In its third reduction of the year, in June 2020 the central bank cut its benchmark interest rate by a full 1% to a record low of 4.5%. It has indicated its willingness to go lower but concern about inflation means that further cuts are likely to be more gradual. One consequence will be a wave of credit refinancing by borrowers to reduce monthly repayments. Washington’s sanctions relating to the occupation of Crimea are unlikely to change soon regardless of the outcome of the US elections in November 2020.
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The central bank’s foreign reserves were approaching 570 billion US dollars at the end of June 2020, down only slightly from the start of the pandemic in March 2020. The return of oil prices to around 40 US dollars per barrel also brings Russia close to the level of 42 US dollars at which revenue starts accruing again in the National Wealth Fund. With a debt-to-GDP still under 20%, albeit only just, debt is not a major problem for Russia in the medium term.
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