Green Shoots

The Scenario

Green Shoots

The Myth

People’s desire for a new beginning and a better quality of life for them and their children drives them to vote in a new government. Ushering in an era of change and liberalization, Russian style. Oil prices are volatile throughout this scenario

Timeline

Period of 2010 - 2015

The recession drags on in Russia. Unlike other emerging markets, the recession had a significant effect on the Russian economy. And like in most of the northern hemisphere the recession drags on in Russia despite early signs of a rapid recovery. The Russian economy lags far beyond the other BICs (Brazil, India, China) in terms of growth, largely due to relatively low and volatile oil prices $60-$80.

Despite unparalleled energy resources, power outages and heating shortages have been chronic problems in Russia for years due to crumbling infrastructure arising from a combination of chronic underinvestment in infrastructure, mismanagement by political appointees, and diversion of resources by corruption. These problems have the greatest impact in the winter when temperatures in much of Russia are well below 0 C. In February 2012, one month before the presidential election, heat and electricity shortages occur in a number of cities in western Russia. In particular, a number lower income apartment blocks occupied primarily by pensioners and young families are affected. Numerous schools and a hospital also experience outages. Although hundreds of people are moved to temporary accommodations in schools, churches and military facilities, thousands of people die of hypothermia and cold-related complications such as pneumonia. In one city a large number of people, primarily elderly people and children, are hospitalized with respiratory infections. Some of them subsequently die in the hospital, due at least in part to chronic shortage of resources and to overcrowding with flu patients. Although the story is initially not given significant coverage by the mainstream media, it is discussed by news websites and blogs, which give rise to exaggerated rumors and conspiracy theories. The mainstream media eventually begins to cover and downplay the story, even showing a characteristic on-site appearance of Putin on TV "solving the problem", however the late coverage is seen as a cover-up. Public sentiment places responsibility for the scandal squarely on the shoulders of Vladimir Putin and Dimitry Medvedev at the height of the election campaign.

In March 2012, Medvedev loses the presidential election by 1% to Gary Kasparov’s protégé, Sergey Korolev, from the Liberal Democratic party of Russia, who successfully capitalizes on the scandal to erode the credibility of Medvedev and Putin, accusing them of failing to address the needs of ordinary Russian people and instead lining their pockets and those of their oligarch cronies. After the election Putin is still prime minister, however the new president appoints a replacement. After a few politically dramatic months the Duma finally approves of the reformer's nominee for prime minister.

The new government immediately negotiates a commitment of support from the Russian armed forces. Though historically the armed forces have been politically neutral and subservient to the political leadership the new leaders seek the support as a hedge against the entrenched power of Putin and his FSB connections. The new leaders also leverage their new influence over the media to expose shortcomings and abuses during the Putin-Medvedev years and thus to solidify their base of public support. However they do not embark on a nationwide witch-hunt, which they fear might discredit and destabilize their own government. Aside from the selective removal of a few staunch Putin supporters from key government posts, much of the political apparatus initially remains unchanged.

Soon after the new reformers have settled into government, they deploy billions of rubles from the federal stabilization fund (i.e. reserves built up from oil and gas exports) to initiate major projects to improve infrastructure, education, technology, and healthcare. These infrastructure projects are intended to boost refining and smelting capacity, improve transportation and technology, and to raise health and education standards, but the effects of these investments will not be felt for years.

In 2013 Russia joins the WTO. Although the process of joining was started even before Putin’s time it was delayed a number of times, most notably in 2009 when the Medvedev-Putin administration decided to revise Russia’s WTO application to a joint application with Belorussia and Kazakhstan . The new government uses the WTO entry as an opportunity to break with the past and to publicly re-brand Russia as “open for business”. They also make attempts to increase dialogue and cooperation with NATO and China. However some assertive policies, such as Russia’s stance in the arctic and the Caucasus, and its support for regimes such as Iran and North Korea, are maintained.

The new government breaks Putin’s hold over the media by dissolving the media conglomerate run by Putin’s colleague. Although there is an initial scramble by investors to purchase the separate TV channels and newspapers at very low prices and some there are a number of hostile take-overs, by 2016 there is a relatively independent media similar to that of the mid 1990’s.

Period of 2015 - 2020

In 2016 a second financial crisis occurs, this time arising from a property and stock market bubble in Asia. Though not nearly as severe as the 2008 crisis, oil prices drop to $70. Russia manages the recession well due to the government’s rapid response; interest rates are lowered, corporate tax breaks are passed, and funds are again deployed from the stabilization fund to initiate additional infrastructure projects.

The new government also continues its policy of economic liberalization. Though it still maintains limits on foreign ownership of Russian companies in energy, mining and telecom and media sectors (which are still seen as being too strategically important for the Russian economy), those limits are relaxed, and limits on foreign ownership in other sectors are eliminated. The government also reduces its stake in numerous state corporations through sales and IPO’s. These changes are positively received by global business community and, in particular, the oil majors take a renewed interest in investing in the Russian energy sector. A number of scandals come to light in 2017 regarding the use of the proceeds and the prices set for the sales, however, they do not involve the top leadership. After a few resignations and firings of the technocrats involved the scandals fade away.

Russia’s demographic problem has continued to worsen and life expectancy continues to slowly decrease. Generous government subsidies and family tax breaks are successful in raising the birth rate, however, the population continues its slow decline in large part due to a relative lack of immigration. AIDS has also become growing problem for Russia. The number of persons infected with HIV rises to over half a million due to poor monitoring and almost none existent prevention measures.

In 2018, there is another presidential election. Political opponents on the left attack the incumbents, saying that the low wages and high inequities in Russian society show that the reformers are elitists who are too close to foreign business and out of touch with ordinary Russians. The United Russia party is still strong and attacks the government for weakening Russia and selling out to foreign interests. However in the increasingly globalized world their ideas do not resonate as they once did. The reformers are able to win a second term on the strength of sensible economic policies, stable economic growth and a positive Russian image around the globe. After the election, the government immediately implements policies directed at attracting foreign technologies to Russia (e.g. providing tax breaks and other incentives for high tech joint ventures). In particular there is a focus on chemicals, plastics and polymers, specialty metals, and agricultural biotech, which enable Russia to add value to its oil and gas, mineral, and agricultural.

Another focus for the government is the improvement of bilateral links with China. In 2020 China commits to major pipeline project in East Siberia. New cooperative satellite and nuclear power development agreements are signed, wherein both sides pledge to work together on the launch of several new communication satellites and the construction of 12 nuclear power plants in China.

Despite continued global demand for Russian oil and gas, prices remain stubbornly low ( < $100). Despite a lack of international consensus on global reductions in CO2 emissions, there is a general move to reduce dependence on fossil fuels due for reasons of energy security and economic stability (prices have been particularly volatile since the second Iraq war). Despite growing demand from emerging economies, there has been a fundamental downward pressure on oil and gas prices driven by alternative energy technologies, improvements in energy efficiency, diversification of energy supplies and effective policy initiatives in the U.S., EU and China.

The government initiates a program of modernization of the military, involving an end to conscription, a major headcount reduction, higher salaries, a major reduction in the nuclear arsenal, and upgrades in equipment. This move finalizes a shift in Russia’s strategic focus to issues arising only within Russia and its immediate neighbors. Russia appears to no longer be very concerned with projecting power around the globe, but rather focuses its influence along its borders and over its energy links with other regions. In particular, Russia is increasingly active in the arctic which is now readily accessible to shipping 6 months a year.

Despite the modernization of the armed forces, Russia is exposed to a novel and unprecedented security threat. After years of record breaking floods and droughts, and rising disease throughout Asia and Africa (causing millions of deaths) Russia reluctantly accepts 2 million refugees (this is the official number, it is estimated that at least an additional 4 million refugees are undocumented and have entered Russia illegally). Several million more are also believed to have entered the “stans” of the former USSR. Most refugees are from Bangladesh, Pakistan, and Afghanistan. Many more refugees have gone to the EU, US, Canada and Australia, and the systems of those countries are reeling under the strain on their organizational resources.

The refugees present significant challenges for Russia. Considering that the total population of the Siberian and Far Eastern Federal Districts (i.e. the eastern 66% of Russian territory) is only 20 million, the addition of a few million refugees represents a massive inflow of people. Fortunately, Russian agriculture has benefited from climate change with longer growing seasons and an increase in the amount of cultivable land. The government is therefore able to provide basic food supplies to the refugees. Unfortunately not much else is provided for them. International aid organizations are able to provide some assistance, however, their resources are stretched thin due to the global nature of the problem.

The burden is also felt by some regions more heavily than others. Together with chronic unequal wealth distribution, the situation leaves many regions of Russia dramatically poorer than Moscow and St. Petersburg. This leads to unrest in several remote regions, forcing Moscow to increase the military presence in affected areas.

Russia’s foreign policy becomes more consistent and pragmatic. They are not longer opposed to everything presented by the US and EU simply for the sake of opposition. Due to the severe refugee crisis, they have called upon Western government for aid and cooperation in providing assistance to Russia. Politics become more internally focused and there is less interference into other sovereign states’ politics. More than ever, Russia looks to develop real solutions to the refugee crisis and works with foreign government in order to resolve the various issues it faces.