Previous Quarterly Editions
Expropriation Risk: 57 57 57 57 Political Violence Risk: 59 59 58 59 Terrorism Risk: 55 55 52 50 Exchange Transfer and Trade Sanction Risk: 64 64 55 64 Sovereign Default Risk: 47 47 47 47
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when his current six-year term ends. In June 2020, the authorities held a five-day nationwide referendum concerning a host of constitutional amendments, including lifting the presidential two-term restriction. The referendum produced 78% in favour.
The changes enable Putin to run for the presidency again in 2024 and 2030, potentially extending his time in office until 2036. Although he has said he has no plans to stand again, this constitutional amendment can be seen as a signal to any Russian elite members who may be thinking of positioning themselves for a post-Putin era that a succession, and discussion of it, are off the agenda until the 2030s.
However, the smooth adoption of the elections bill does not necessarily foreshadow a quiet year for Putin’s administration. In January-February 2021, many Russian cities and towns witnessed mass protests supporting opposition activist Alexey Navalny and more generally against widespread corruption and the ruling regime. Although the protests petered out by mid-February 2021, and as new protests that were first called off by Navalny’s supporters after his imprisonment have since resulted in a single day of marches on April 21 2021, the so-called non-systemic opposition has pledged to continue resistance in the run up to the State Duma elections (September 2021).
Russia’s political climate will remain volatile throughout 2021 amid COVID-19- which the authorities try to downplay but whose fallout for ordinary Russians and the broader economy, already characterised by rampant inequality, will be felt for a long time. The main source of political uncertainty remains COVID-19’s duration. The Kremlin has been largely successful in deflecting blame from itself so far. However, a deepening health crisis could make this unsustainable. State figures show that new COVID-19 daily infections in March 2021 were at their May 2020 levels of 9,000-10,000, down from a peak of nearly 30,000 at the end of December 2020 but still higher than in June-September 2020. As of May 6 2021, the number of daily infections dipped below 7,650. However, this number may rise again with the Indian COVID-19 variant’s spread.
COVID-19’s economic impact will be increasingly felt in 2021 as the pandemic grinds on and levels of unemployment and general hardship rise, despite multiple government assistance packages. Low-interest loan schemes to stop employers laying off staff have been too narrow to halt rising unemployment (which is probably higher than estimates suggest). Unemployment and real wages decline will further reduce disposable incomes, a key Kremlin political metric, while an increase in nonperforming loans will affect the banking sector as the concentration of assets in the 20 largest banks means financial contagion risks remain high.
Central bank research suggests that over half of the workforce has outstanding bank loans. The housing market may also experience a slump, especially if the government terminates or reduces the state-sponsored mortgage programme after July 2021. The government expects economic recovery to reach 3.3% of GDP growth in 2021, in line with International Monetary Fund and rating agencies’ expectations. However, any recovery is likely to be uneven. Contraction in the informal economy, estimated to employ one-fifth of workers, has been hitting vulnerable and often highly indebted segments of the population hard.
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In March 2021, metals producer Norilsk Nickel (34.6% owned by billionaire chief executive officer Vladimir Potanin’s Interros Group and 27.8% owned by fellow oligarch Oleg Deripaska’s UC Rusal) paid a record fine of nearly USD2bn to the Russian budget, compensation for large-scale environmental damages in May 2020 in the Arctic city of Norilsk, where the company’s production base is located. Previous expectations of the outcome of Norilsk Nickel’s environmental predicament varied wildly from a mild rebuke, given how crucial the company is to the city’s economy, to the demise of Potanin’s business empire. Yet, although his company was still fined, Potanin is still thought to have become Russia’s leading billionaire by wealth.
Unlike high-profile oligarchs whose likelihood of losing their business is in direct correlation to eventual political ambitions, holders of smaller fortunes are more vulnerable to external pressure in Russia. This appears to be the case of Boris Shpigel, a former senator and founder of one of the oldest Russian pharmaceutical companies, Biotek. He was arrested in March 2021 together with his wife for allegedly bribing the governor of Penza Oblast, who was also detained in a sting operation, in exchange for state contracts. Shpigel has been claiming that he became the victim of unscrupulous state security officials, who he alleges had approached him with an offer of protection if he turned over control of his family business.
A new protest movement emerged in January 2021, after the release of an investigation by Alexey Navalny’s Anticorruption Foundation which alleged that a luxurious palace had been secretly constructed for President Putin in southern Russia by wealthy friends. Earlier in January 2021, Navalny was arrested on his return to Moscow from Germany, where he had been recovering following his August 2020 Novichok poisoning.
His suspended prison term was replaced with real imprisonment in early February 2021. Nationwide participation in the first protest of January 23 reportedly ranged from 100,000-300,000 people. However, the protest wave began to ebb as authorities cracked down. In early February 2021, Navalny’s aides announced a temporary suspension of protest marches until mid-2021. In the context of a rapid deterioration in Navalny’s health, protests were called for April 21 2021, but they drew fewer participants than earlier in the year and faced an even tougher crackdown.
With the next parliamentary elections in September 2021, and with Navalny in prison and claiming to be subjected to torture, political violence risk continues to be elevated. The situation is further compounded by the COVID-19 pandemic, which has been regaining strength in Russia recently. The deteriorating socio-economic situation, such as money shortages and reduced food purchases, will constrain the government’s ability to end protests.
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There have been no significant terrorist incidents in a major Russian city since 2017, when a suicide bomber attacked an underground train in St. Petersburg. Nonetheless, law enforcement regularly report on arrests of presumed terrorist group members and prevented terrorist attacks, most recently in April 2021, when an individual allegedly belonging to Islamic State unsuccessfully attempted to attack an energy asset in Tver Oblast.
In early March 2021, the new US Biden administration announced the first round of new sanctions for the 2020 poisoning of Navalny. The sanctions mechanism used implies the mandatory imposition of a second round of sanctions, starting in June 2021, which immediately led to the weakening of the ruble and further upward pressure on consumer prices. Possible sanctions against Russian sovereign debt have since led to the exodus of many non-resident investors and constitute a serious source of risk for the stability of the ruble’s exchange rate.
The central bank’s foreign reserves stood at USD577.7bn at end-March 2021, almost unchanged from the start of COVID-19 in March 2020 (USD577.8bn). In March 2021, the Urals crude grade traded on average for USD63.6/barrel, 2.2 times higher than a year earlier. Anything above USD43.3/barrel (in 2021 prices) goes straight into the National Wealth Fund, providing Russia with an additional cushion against potential macroeconomic shocks in the future.
Although Russia’s sovereign debt rose by a record 40% in 2020, it still accounts for only 17.8% of GDP, according to results of an Accounting Chamber audit. Therefore, debt is not a major problem for Russia in the medium term.
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