By Ben Aris in Berlin
An increasingly confident Russian President Vladimir Putin slammed the collective West for trying to “maintain their elusive role as hegemons,” and said the countries of the Global South are racing to “strengthen their sovereignty” in hisplenary address at the St Petersburg International Economic Forum (SPIEF) on June 7.
'We can see that a real race has begun between countries seeking to strengthen their sovereignty, which is taking place at three key levels related to government activities, values and culture, and the economy,' Putin said at the opening of his address at Russia’s annual showcase investment forum.
'Notably, the countries that used to be the leaders of global development are now trying to do their best to preserve their elusive hegemony by hook or by crook,' he added.
Putin largely avoided mentioning the war in Ukraine during his speech, focusing more on domestic issues, but did briefly praise Russian businesses for backing the country’s armed forces.
“Many domestic entrepreneurs support the soldiers and veterans of the special military operation, their families and those who are close to our heroes,” he said. “They send their products to units, buy items and equipment, as well as help hospitals. Such a high understanding of their social mission, responsibility and patriotism in its most direct and best form is very valuable and deserves great respect.”
Putin added that the modernisation of the army, which was launched in 2012, as bne IntelliNews reported at the time in a cover piece on rekindling the Cold War, should continue to be a high priority.
'Russia has shown a high level of readiness and receptivity to technological transformation. We see how our financial sector, e-commerce, transportation services and the public administration system have already changed,' he said.
'Similar processes are starting to unfold in the Armed Forces, where we also need a high pace of technological upgrade,' the president emphasised, describing this issue as being of the utmost importance for the country.
The war has been a boon for many, as Russia’spoorest regions have been the biggest winners from the massive investment into the military industrial complex after Putin put the whole economy on a war footing. The resulting labour shortage has driven up nominal wages far faster than the uncomfortably high inflation rates, resulting in strong growth in real incomes that has gone someway to undoing Russia’s legendary income inequality. Poverty has fallen to 9.3% of the population as a result (although it remains at over 30% for large families), one of the lowest levels in Europe, and flush consumers have sparked a consumer boom.
Economics
Standing at the lecture in front of gather representatives of the Global South, Putin looked very confident, as the war in Ukraine is increasingly going Russia’s way and the extreme sanctions imposed immediately after Russia’s invasion two years ago have largely failed to hobble the country’s economy.
Putin had a lot to boast about when it comes to the economic progress Russia has made during the war. Earlier he set his cabinet the task of becoming thefourth largest economy in the world by 2025, but according to the World Bank, which recently revised its figures, Russia had already achieved that result in 2021 and has widened the gap with Japan, previously in fourth place, since then.
Putin highlighted that China is now the world’s number one economy in PPP terms, leaving the US, the world’s number two, “in its dust.” India is the world’s third biggest economy, according to the latest World Bank ranking, meaning there are now three BRICS nations in the top five economies in the world and they are all growing faster than any of the developed world’s countries.
'The countries of South Asia and Africa are making their presence more and more felt as they boast high birth rates and a still low urbanisation level, as well as quick, catch-up economic growth,' he stressed.
After putting in an unexpectedly strong 3.6% of GDP growth last year, the Ministry of Economy and the World Bank have both recently upgraded their outlooks for this year to a similar level of growth. The targeted levels of 2.8-3% GDP growth are absolutely achievable in Russia, with even higher growth possible, Deputy Prime Minister Alexander Novak said at SPIEF.
'About the second significant structural change. This is the achievement of a new quality and content of economic growth in Russia, a change in the sectoral structure due to an active economic policy. At the end of last year, as you know, Russia's GDP growth was 3.6%, and for the first quarter of this year – already 5.4%. This means that our rates exceed the global average. It is particularly important that such dynamics is primarily determined by non-resource industries,' Putin said.
In 2023, 45.5% of Russia’s GDP growth came from not raw material extraction, but basic industries – manufacturing, construction, logistics, communications, agriculture, electricity, housing and communal services, and 61.6% by supporting industries – trade, hotels, restaurants, financial and other services, according to Putin.
Russia is enjoying something of a military Keynesianism economic boom, driven by manufacturing that has kept Russia'sproduction manufacturing index at a robust 54.4 in May, well above the 50 no-change benchmark, and fuelled the strongest job creation in 26 years, according to S&P Global.
While talking about economics Putin took a swipe at the US, highlighting its $1 trillion trade deficit that is possible due to the dominance of the dollar in the global trade system: “Using the monopoly position of the dollar, the United States consumes a trillion dollars a year more than it produces.”
“This is what neocolonialism is about today,” Putin said. 'Using the monopoly position of the dollar, the United States consumes a trillion dollars a year more than it produces. They seem to be pumping out these resources from other countries,' the head of state stressed.
Putin also played on the widespread resentment amongst the Global South countries of the hoarding of vaccines by the US and EU during the global pandemic, and their printing of “huge amounts of money, [with which they] began buying goods around the world,” which caused food inflation to jump.
'What did they do next? They distributed these pieces of paper within the country. And then they began to buy food products on the world food market. Like vacuum cleaners they swept everything to themselves. And for the first time in many years, they became not importers, but became buyers, importers of food products. And immediately food inflation has jumped all over the world,' the Russian president noted.
BRICS
Putin has promoted the BRICS as a growing counterweight to the West and argued that his multipolar world is “already here.” While SPIEF used to be filled with representatives fromthe world’s leading Western multinationals, they were absent this year, while the event was packed with delegations from countries in Africa, South America and Asia.
Delegates were shown a dramatic presentation tracing the history of European colonisation, focusing on the exploitation and enslavement of indigenous peoples and drawing parallels to modern-day relations between Western countries and the Global South that will have especial appeal for the African delegates, where resentment of the colonial period still runs high.
Putin has made a big bet with his decision to definitively break off the West and bank on the fast growth in theGlobal South Century. He cast Russia as a force fighting against the “neo-imperialist” intentions of the West played on the growing integration between the BRICS+ countries that have sat on the sidelines when it comes to enforcing sanctions on Russia. Putin cited experts that predict the Global South would “start determining the global economic picture as early as in the middle of the century.”
“Along the BRICS line, we’re working on developing an independent payment system not subject to political pressure, abuse and external sanctions interference,” Putin said. “BRICS has a large potential for attracting new members.”
The next BRICS+ summit will be held this autumn in Russia and dozens of countries are expected to be added to the group. BRICS has plenty of room for new members, Putin said, and Russia is more than happy to offer support to these countries.
Putin recalled that in 2024, Saudi Arabia, Iran, the United Arab Emirates (UAE), Egypt and Ethiopia have already been integrated into the BRICS family, and owing to this, the group’s share in global GDP has grown to 36%.
'BRICS has enormous potential for new members to join, and of course, we welcome and will support this aspiration of the interested partners to develop contact with BRICS on different continents,' the Russian leader said.
About 30 appeals from different countries proposing various forms of cooperation are now being considered by the BRICS, Russian Foreign Minister Sergey Lavrov told Channel One on the sidelines of SPIEF.
'About 30 appeals from a variety of countries – large, small and medium-sized – that propose to establish different forms of cooperation are now under consideration,' he said.
One of the issues that the members are still debating is the mechanism for adding new members. Countries like Russia and China are in favour of shooing in would-be members, whereas countries like India want a more formal process similar to the EU accession procedures. Lavrov said that a new intermediary category of “partner countries” is being discussed.
'The particulars of this category need to be outlined, in terms of criteria, and in terms of countries that can apply for it,' Lavrov said.
Trade
Sanctions were supposed to limit Russia’s export revenues, especially money earned from the export of oil and raw materials, but Russia’s exports have continued largely unaffected, even if the roster of clients has changed dramatically. Despite Western sanctions Russia remains a key participant in global trade, Putin told the SPIEF audience.
'Despite all the obstacles and illegitimate sanctions, Russia remains one of key participants in world trade and is proactively developing logistics and geography of cooperation,' Putin said.
Benjamin Hilgenstock, senior economist at KSE, says that Russia’s trade has settled into a new pattern after two years of war, with exports running at around $100bn a year against imports of around $75bn.
Russia’s oil export revenues remain high as energy sanctions fail to offset rising global prices. Improved external dynamics are helping to stabilise the ruble and support the budget, according to the May edition of the KSE Institute’s chart book.
The outlook for exports for this year is $479bn (+$1bn) in 2024, $486bn (+$4bn) in 2025 and $490bn in 2026, which is 11% lower than exports in 2021. The outlook for imports in 2024 is $383bn (-$2bn), $395bn for 2025 and $404bn (-$5bn) for 2026, which is 6% higher than imports in 2021, according to the CBR’s May issue of itsmacroeconomic survey.
Russia is on course to run a current account surplus this year of around $120bn, up from $51bn in 2023 and back to the pre-war record levels set in 2021.
Technology, taxes and stocks
Putin’s speech was largely aimed at the Russian population, wherepatriotism is at an all-time high. Most Russians were against the war when it started, but since then have bought the Kremlin’s propaganda line that Russia is facing an existential challenge and is being attacked by Nato and so don’t want to lose the war now it’s begun.
As part of his efforts to pay for the war, Putin has launched the first major tax reform in two decades ofprogressive taxes that will create a more equitable tax regime that will also encourage companies to invest.
'The mechanism of the investment tax deduction is currently effective in regions. It enables companies investing in development to reduce the income tax. The credit is pegged to projects of technological sovereignty and structural adaptation of the economy since this year. It provides an opportunity to manage quality of investments and incentivise capital expenditures for priority areas. I request the government to make it so that the credit can be applied not merely within the framework of a single company but a group of companies, and also provide for additional resources for the financing mechanism of the tax credit replenishing,' the president said.
A key part of Putin’s long-term plan is to revive Russia’s R&D into technology and close the gap with the West. He will have his work cut out for him on this score. As bne IntelliNews reported, Russia has missed out on two revolutions in the development of precision tools following the collapse of the Soviet Union, making it extremely difficult to catch up. Technology sanctions on Russia should have been extremely effective, but thanks to the friendly countries facilitating imports, Russia’s import of technology in 2023 was only 2% less than pre-war in 2023 in monetary terms and Russia has been able to access all the technology it needs to run its war.
Investment into education and technology are a key part of Putin’sNational Projects 2.1 programme to develop the economy that is being developed in parallel to the military investment and modernisation programme outlined in Putin’s recent guns and butter speech.
'We plan to join the top ten global leaders by the volume of scientific research and development over six years. Internal costs for these goals should grow to at least 2% of GDP,' the Russian leader said.
A number of new national projects will be launched to this end in the technological sovereignty sphere in such key areas as production and automation aids, new materials, chemistry, looking-forward space services and energy technologies, Putin added.
A new theme that has emerged recently is the Kremlin is increasingly focusing on developing the domestic capital markets to mobilise Russian’s savings and create an expanded source of investment capital. In the closely watched economic session with Russia’s macroeconomic elite, CBR governor Elvia Nabiullina said that developing Russian retail investment into stocks was one of the four elements necessary for ensuring stability. As bne IntelliNews reported, Russian retail equity investment took off in the two years before the war in Ukraine broke out and the Russian stock market indices have recovered to their pre-war level in May as regular Russians continue to invest into Russian shares.
'I ask the government, together with the Bank of Russia, to propose additional measures to encourage companies to go public with their securities. In particular, we need to think about compensating the costs of IPOs for small technology companies,' he said during his speech at SPIEF.
Putin said that today there are around 30mn retail investors in Russia and last year their total assets increased 1.5-fold, reaching more than RUB9 trillion ($100bn). At the same time, the demand for placement of shares of Russian companies has continuously surpassed supply throughout this period, according to Putin. He went on to add an ambitious target of doubling the capitalisation of the domestic market by the end of this decade.
'The goal has already been set: by the end of this decade, the capitalisation of the Russian stock market should approximately double and amount to two-thirds of gross domestic product,' Putin said.
40 years Biden-Putin
In an interview with the ABC channel, US President Joe Biden claimed he has known Putin for more than 40 years.
40 years ago Biden was a senator from Delaware and Putin was still working for the KGB. While Biden travelled to the USSR several times as a Senator, he never met Putin who was still in his 30s and shortly afterwards was transferred to an East German posting in Dresden.
Biden and Putin have not spoken since their last phone call on February 14, 2022, two weeks before the war in Ukraine started. They have only met once in person in 2021 at a summit in Switzerland to discuss reintroducing Cold War-era arms controls.
Biden should be the one to explain his claim about his relationship with Putin going back 40 years, Kremlin Spokesman Dmitry Peskov told TASS in a tongue-in-cheek comment.
'You should ask Biden,' the spokesman said when asked whether the US leader was mixing up his facts or if he did indeed meet Putin so long ago.
Biden has made several disparaging remarks about Putin recently as he attempts to sell a resolute-man image ahead of this November’s elections, but Putin dismissed these comments and “does not find it necessary to respond to them,” he said in an interview with international journalists at SPIEF.
When asked if the Russian leader was aware of Biden’s latest comments about him, Peskov said: 'Yes, we had the opportunity to tell him about that. Every time, we ask ourselves what exactly President Biden means. The aggressive vocabulary that the US president uses against our head of state does not make him look good. Putin has not and will not respond to that,' the Kremlin spokesman stressed. 'We are very sorry that vocabulary like this is used in global politics at such a high level and that these kinds of remarks are made against a president,' he added.
