Russian Economy Stagnates Amid Claims of Growing Global Influence

Executive Summary:

Pro-Kremlin analysts increasingly insist that Moscow is becoming a leader in the next phase of global technological advancement and is moving toward the economy of the future. Some official statistics indicate otherwise. Russian production and technological development still depend heavily on foreign-made machine tools as well as Western software and technical know-how, which continue to be imported despite sanctions. The growth of Russia’s military expenditures and mobilization of the economy onto a war footing have laid the groundwork for years of stagnation and degradation in the domestic economy.

Russian analysts are increasingly voicing ambitious plans that envision Moscow as a world leader in developing and producing new technology. In May, a report was circulated that the Russian economy in 2024 was on pace to grow faster than the economies of most Eurozone countries, in particular France and Germany (TASS, May 2). Discussions about changes in the techno-economic structure of the Russian economy were prevalent even before Moscow’s full-scale invasion of Ukraine and were used to justify the war. Pro-Kremlin experts and propagandists argue that technological breakthroughs lead to the rise of new players on the world stage and are often accompanied by world wars, as seen in the past (YouTube, December 2, 2021). Based on this logic, the Kremlin does not view its war against Ukraine as imperial aggression but rather as an inevitable phase in the shifts inherent in developing new technology and creating an economy of the future. Yet, while official discourse and Kremlin propaganda touts a strong economic recovery, other indicators reflect ongoing stagnation, especially in the production of new technologies (see EDM, February 12, April 3, 29, May 30).

Russian officials and propagandists have used the idea of entering a new phase of technological development to rationalize the war against Ukraine, create a vision of a desirable future, and define the goals for Russia’s development. At the ATOMEXPO-2024 international forum in March, Yekaterina Solntseva, director for digitalization at Rosatom, spoke about the state-run entity’s plans to develop more artificial intelligence (AI) capabilities. Viktor Besplanov, deputy general director for digital platforms at the KAMAZ Innovation Center, boasted of the active creation of “digital enterprises.” Andrey Bezrukov, former intelligence officer and now member of the Russian Council for Foreign and Defense Policy, suggested investing more in military AI and quantum cryptography. He also declared that the need to fight for survival could turn Russia into a leader in the next phase of technological advancement (Dzen.ru, March 28). Earlier, Valentin Makarov, president of the Russoft association of Russian information technology companies, claimed that Russia’s primary task now is to ensure its technological sovereignty and to export its expertise to global markets (Ura.news, March 5).

At first glance, it might seem that Russia is capable of such a technological leap. In early June, Kremlin propaganda celebrated “explosive” industrial growth and the reported increase Russian of industrial exports abroad (Vz.ru, June 17). Prime Minister Mikhail Mishustin has claimed that machine-building is the leading branch of Russian industry along with the production of microchips and other electronic components (RIA Novosti, June 11).

Russia’s economic prospects, in reality, are far from promising. Independent experts, analyzing data from the Russian Ministry of Trade and Industry, note that the country’s non-resource exports in 2023 fell by 23 percent as compared to 2022. In total, Russian exports fell from $592.5 billion to $425.1 billion. Igor Lipsits, co-founder of the Higher School of Economics in Moscow, points out that Russian economic growth is achieved only through increased military production, to the detriment of the stagnating civilian sector. This trend, he predicts, will lead to higher inflation, shortages of consumer goods, and the inevitability of government price controls, all reminiscent of the​​ Soviet era (VoA– Russian service, February 16).

Even high-ranking Russian officials admit that production in the country still depends on Western equipment. In February, Nikolai Patrushev, then-secretary of the Russian Security Council, complained about the lack of interest from Russian companies in purchasing domestically produced equipment. According to Patrushev, “Russian companies continue to focus on purchasing ready-made foreign goods, using the mechanism of parallel import” (The Moscow Times, February 6).

Independent journalists have found that Russia continues to purchase Western machine parts for weapons production and even Western software, bypassing sanctions in the process. Fictitious companies are created to give the impression that purchases are being made by neighboring countries, and technicians disable built-in GPS navigation systems for a sizable fee. Several Russian companies have even retained perpetual licenses for Western software (Istories.media, June 13). In the machine-building sector, Russian military analysts note that the country’s first “fully domestic” car was created using imported know-how and is of extremely low quality. One report complains, “The domestic automobile industry lags far behind and is making little effort to dig itself out of the hole. We do not know how to make our own ABS [anti-lock braking system], nor electronic safety systems, nor airbags, nor modern passenger diesel and gasoline engines, nor automatic transmissions” (Topwar.ru, June 17).

When it comes to commodity exports, analysts acknowledge that the main consumer of Russian fossil fuels, China, is simultaneously developing green energy and the production of electric vehicles. Meanwhile, oil and gas play smaller roles in the current Chinese electricity balance. According to Russian expert Tatyana Lanshina, China will not give up coal in the coming decades but will try to rely more on its own raw materials (Istories.media, June 20).

All this does not signal an immediate collapse of the Russian economy, however. Independent experts note that given current military expenditures, Moscow’s resources will last for quite some time (Istories.media, June 5). However, at this stage, any talk of steady industrial growth, much less global leadership in technological development, is doubtful at best. As experts note, the growth of Russia’s military expenditures and the mobilization of the economy to a war footing have laid the groundwork for years of stagnation and degradation in the Russian economy, and solving those problems becomes increasingly difficult with each passing year (Currenttime.tv, November 29, 2023).