Chief Executive Leadership Institute Research Insights: “Business Retreats and Sanctions Are Crippling the Russian Economy”
Chief Executive Leadership Institute Releases CELI Research Insights: “Business Retreats and Sanctions Are Crippling the Russian Economy”
The Yale Chief Executive Leadership Institute is pleased to release CELI Research Insights, “Business Retreats and Sanctions Are Crippling the Russian Economy,” which can be found here on SSRN.
Click here to download the accompanying slide deck containing some key findings from our CELI Research Insights.
Click here to download the accompanying Foreign Policy op-ed, "Actually, the Russian Economy is Imploding," co-authored with Steven Tian.
Click here to download the accompanying Foreign Policy op-ed, "How to Take Down a Tyrant: Three Steps for Exerting Maximum Economic Pressure on Putin", co-authored with Steven Tian.
Five months into the Russian invasion of Ukraine, there remains a startling lack of understanding by many western policymakers and commentators of the economic dimensions of Putin’s invasion, and what it has meant for Russia’s economic positioning both domestically and globally.
A common narrative has emerged that this is a “war of economic attrition which is taking its toll on the west,” given the supposed “resilience” and even “prosperity” of the Russian economy.
These widely cited narratives are wrong. Far from being “ineffective” or “disappointing,” international sanctions and voluntary business retreats have exerted a crippling effect over Russia’s economy.
Our team of experts, using private Russian language and unconventional data sources including high frequency consumer data, cross-channel checks, releases from Russia’s international trade partners, and data mining of complex shipping data, as well as our proprietary dataset tracking the exits of over 1,000 companies, have released one of the first comprehensive economic analyses measuring Russian current economic activity five months into the invasion, and assessing Russia’s economic outlook.
From our analysis, it becomes clear: business retreats and sanctions are catastrophically crippling the Russian economy. We tackle a wide range of common misperceptions—and shed light on what is actually going on inside Russia, including:
—Russia’s strategic positioning as a commodities exporter has irrevocably deteriorated, as it now deals from a position of weakness with the loss of its erstwhile main markets, and faces steep challenges executing a “pivot to Asia” with non-fungible exports such as piped gas
—Despite some lingering leakiness, Russian imports have largely collapsed, and the country faces stark challenges securing crucial inputs, parts, and technology from hesitant trade partners, leading to widespread supply shortages within its domestic economy
—Despite Putin’s delusions of self-sufficiency and import substitution, Russian domestic production has come to a complete standstill with no capacity to replace lost businesses, products and talent; the hollowing out of Russia’s domestic innovation and production base has led to soaring prices and consumer angst
—As a result of the business retreat, Russia has lost companies representing ~40% of its GDP, reversing nearly all of three decades’ worth of foreign investment and buttressing unprecedented simultaneous capital and population flight in a mass exodus of Russia’s economic base
—Putin is resorting to patently unsustainable, dramatic fiscal and monetary intervention to smooth over these structural economic weaknesses, which has already sent his government budget into deficit for the first time in years and drained his foreign reserves even with high energy prices – and Kremlin finances are in much, much more dire straits than conventionally understood
—Russian domestic financial markets, as an indicator of both present conditions and future outlook, are the worst performing markets in the entire world this year despite strict capital controls, and have priced in sustained, persistent weakness within the economy with liquidity and credit contracting – in addition to Russia being substantively cut off from international financial markets, limiting its ability to tap into pools of capital needed for the revitalization of its crippled economy
Looking ahead, there is no path out of economic oblivion for Russia as long as the allied countries remain unified in maintaining and increasing sanctions pressure against Russia, and The Kyiv School of Economics and McFaul-Yermak Working Group have led the way in proposing additional sanctions measures.
Defeatist headlines arguing that Russia’s economy has bounced back are simply not factual. The facts are that, by any metric and on any level, the Russian economy is reeling, and now is not the time to step on the brakes.