Russian President Putin’s Annual Q&A: Key Takeaways For Investors, Part 1

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Op/Ed by Chris Devonshire-Ellis 

  • President Putin discusses the Russian economy, wages, commodity prices, eco waste management and online education.   

Russian President Vladimir Putin held his annual live Q&A session yesterday, with foreign journalists and Russian citizens all able to pose questions. The event, streamed across Russia, is extremely diverse and lasted for 4.5 hours. In this article I highlight issues raised during this event that impact upon investors into Russia and upon trade and relations with Asia. This is part one, parts two will follow next week as we sift through the discussions.

Russia’s Economic Performance 2020

“At this point in time, Russia’s GDP has fallen by 3.6%, which is less than in the leading European, EU countries, and less than in the United States. In some EU countries GDP has so far dropped by as much as 9% (I think this is the case in Great Britain).

We have industrial production down 3% now – mainly due to oil, because we have made the OPEC Plus deal and began to cut production, and this affected our overall performance. But there is also good news (better in some areas, worse in others, but we do have some improvements): yesterday, my colleagues from the Government reported to me that processing industries (manufacturing) showed 1.1% growth in November. This gives us reason to hope that this trend will continue, that we will move forward in this direction.

Over the past few years, our agricultural industry has posted good figures, and now, at the moment, it is somewhere around up 1.8% The Minister said agriculture might not even show a decline for the year, but an increase of up to 2%. I hope this will be the case.

Our banking sector is in a very satisfactory condition, with profits estimated at about 1.3 trillion rubles (US$173.32 billion) for the year.  This definitely testifies to the financial system’s stability.”

Russian Wages

“I ask the country’s citizens, try not to be angry with me because what I will say now might not correspond to how people feel in real life; nevertheless, I am going to cite an averaged figure, and it also needs to be taken into account. I hope real wages will grow by about 1.5 percent by the end of the year across Russia, although unfortunately, there will be a decline in real disposable incomes. Why is this happening? What does it mean? Where does this difference come from? This has to do with the declining incomes of individual entrepreneurs, and the resulting changes. Overall, real incomes, unfortunately, will fall by around 3 percent.

Unemployment rate in Russian was 4.7 percent at the beginning of 2020; now, as you know, it has grown to 6.3 percent. We will certainly talk about this later.

Everything we do to support the economy, to support the affected industries, is aimed at maintaining employment. We have [unemployment at] 6.3 percent now, but I hope that over the next year, we will be able to bring it down to the earlier figures.”

National Debt, Reliance On Oil & Gas

“Our national debt had been at its lowest at US$70 billion, in dollar terms. It shrank by another 10 billion since. (Ed: US national debt at October 2020 was US$27 trillion) We borrow less in foreign markets, while regularly servicing all our loan obligations. Our international reserves have grown. At the beginning of this year, they amounted to US$554.4 billion; now, as of December 4, they are already about US$587.7 billion. The same holds true for the National Wealth Fund. In ruble terms, it was 7.7 trillion, now it is almost 13.5 trillion (US$1.839 trillion). This is significant growth.

There is something I need to draw your attention to. What is an obviously positive part of our economic growth? As much as 70% of the Russian federal budget comes from non-oil and gas revenues now. (Ed: The indicates Russian GDP from the energy sector is about 30%. In the US it is 8%) This means, well, we are not entirely off the so-called oil and gas needle, but we are starting to get away from it. Even if someone still likes to think of Russia as a petrol station, they no longer have real grounds for that. Even though the dependence is still strong enough, and we have to bear this in mind.”

Commodity Prices

“Now about prices. It is true that some prices are growing for objective reasons, for example, because the cost of their component parts has increased due to changes in the exchange rate. This is inevitable. Some products are only assembled in Russia, and we are now paying more for a large share of component parts, which have become more expensive because the ruble has slumped a bit.

But when the price hike is not related to objective reasons, this provokes a painful reaction. This is what made me angry, frankly speaking. For example, although we had a record large harvest this year, the largest harvest in the past six years – it will be 131 million tonnes and possibly even 134 million tonnes this year, yet bread and pasta prices are growing. How is that? Why? This is the first thing I wanted to say.

Second, sugar. I was told in the past that we should do something about cane sugar so as to support our own producers. We did so, in a number of ways, but not because we wanted to create a shortage on the domestic market. The minister has told me that we produce enough sugar for domestic consumption. But how can it be enough if sugar prices have soared by 75 percent?

Or take sunflower oil: prices have grown by 17 percent. Is there a shortage of sunflower seeds? No. There is also plenty of that. Why did it happen then? Because prices have grown on the global market, and so our producers increased exports and started adjusting domestic prices to global ones, which is absolutely unacceptable.

This is why we had such a tough discussion. The Government has responded. The main thing now is not to go too far with disciplinary action. This should have been done before with market measures; we should have adjusted the import duty, and this would have solved the problem. These are well known instruments, but they should be used on time. I hope we will do this now.

Contracts have been signed or will be signed – I think they have already been signed – between producers and retail chains: producers will bring down their prices to a certain level, and the retail chains should do the same for basic foods.

Of course, prices need to be monitored, and we will certainly do this. I hope to see the required changes within days, or weeks at the most.”

Waste Management / Eco

“First, we must create a new industry, full-cycle production, when waste is not taken to landfills but recycled for use in other sectors. This is the first objective. Second, we must ensure proper waste sorting so that by 2030 waste can be separated into different groups for subsequent recycling.

Currently, one of the tasks for the organisers of all this work is to ensure that manufacturers and packaging companies carry more responsibility so that the burden of waste disposal could shift from customers to packaging producers.

Overall, this is a practice typical almost everywhere in the world, and we will adhere to this very practice. For example, in car manufacturing, we charge a recycling fee. It works in our country and in the rest of the world. The same needs to be done in these areas.

I assure you that the Government is dealing with this, as are regional authorities. And they will continue to work on this, no question about that. We allocate substantial resources for these efforts, and there is a solid plan. This money will not be reassigned to any other purpose, and this work will be completed according to plan.”

Russian Hacking, And The US Presidential Election

“Why did Russian hackers not help Trump get reelected? I believe that this is not so much a question as a provocation. Russian hackers did not help the incumbent president of the United States to get elected the first time around and did not interfere in the domestic affairs of that great power. This is nothing but speculation and an excuse to degrade relations between Russia and the United States. This is an excuse to not recognise the incumbent US president’s legitimacy for domestic US considerations. In this sense, Russia-US relations have become hostage to domestic politics in the United States.

I believe that, primarily, this is bad for the United States, but it is up to them, let them do as they please. We believe that the president-elect will figure out what is going on. He is a seasoned politician both in domestic and foreign affairs. We look forward to the new administration resolving at least some of the existing problems.

I do not think Mr. Trump will need to look for employment. Almost 50 percent of the people voted for him, if you count the number of registered voters, not electors. He relies on a fairly large base in the United States and, as far as I understand, is not going to leave his country’s political scene.”

Russian Education System & E-Learning

“There should be a distinction between online education in schools and online education in colleges and universities. We have 39,900 schools in the country and only 2 percent are teaching online while a small part are using a mixed format and a major part are operating as normal. As for universities, all of them were asked to consider switching to remote classes

Regarding schools, I have plenty of notes here on their preparedness and technical capability to administer online learning, and I will talk about this in more detail later when I answer the written questions. But, of course, there are problems. There are problems with hardware because many people don’t have computer equipment. There are also problems with internet access and even access to phones. These difficulties exist, especially in small towns.

What are we going to do? In 2021, all schools in the Russian Federation will be provided with access to high-speed internet. Some schools already have the internet, but in 2021, all schools must have it. This is the first thing.

As for higher education, we have allocated support for universities twice this year, in July and in the autumn, with financial resources to support remote activity. And they are supposed to expand their capabilities in online learning, as independent economic entities, with the government support I just mentioned. This support has been provided twice this year.

Now, on the quality of education. Of course, the online format will never replace a direct face-to-face interaction between students and teachers. At any rate, it will not happen for a long time. I think I do not need to go into detail as everybody understands what I mean. Nevertheless, an online format of education will be used; it exists and, of course, will be developed further both at schools and at universities.

You know, just yesterday I spoke to some colleagues of mine. What can we project for the future? For example, it is not always possible for an expert in a very specific area to be present in several places at once, at several schools. Besides, this expert may be busy with his or her own research. But he or she can teach online. And we should certainly use this opportunity.

The Sirius educational centre in Sochi, which is known around the country, is using it. Many other educational centres, universities and schools are using it as well. This will need to be done in the future as well. People want it, it has become a part of our life, and we need not be afraid of it.

However, these capabilities should not be overstated, either. Mass online education is not here for the rest of our lives, not forever.

Now, with regard to quality. I think that your real question – I believe you do have a sort of covert question – I said that e-learning will never replace in-person contact. Probably, the quality… In some respects, there is an upside where you can listen to internationally renowned scholars, but in some respects, the quality may suffer. Therefore, a mixed system would be best. There is another aspect, a sensitive one. I am aware that it is important for the students who, in some cases, even go to court complaining that they paid for in-person training, and online classes cannot provide the same quality. I know what they mean and, to a certain extent, I share this view. But there is another side to the coin. If a teacher, a professor or an assistant professor delivers lectures for a certain number of hours, offline or online, he or she gives them anyway, why should they be paid less? You see, this is a big question.

If we look at the cost structure of a higher education institution, about 70 percent of it is wages. Therefore, higher education institutions have almost no “extra fat” that they could use to reduce online tuition fees. Otherwise, we would have to close some higher education institutions. Some experts believe there are too many of them, especially in the capital cities, so they need to merge. This question has long been raised by higher and secondary education specialists.

I am taking a very careful approach to this matter now: nothing should be overstated here, and you should not get ahead of yourself, either. However, if a university can afford to tweak its finances, then, probably, they can reduce tuition where training is provided mostly online. The state, as I have said, provided financial support twice this year. We are prepared to continue to do so in the future relying on the actual state of affairs in higher and secondary education.” Part Two can be found here 

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About Us

Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at russia@dezshira.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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