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Livio Di Matteo: Russia’s chronically weak economy may be its undoing

Commentary

As the Russian military continues its assault on Ukraine, casual observers no doubt view the ultimate outcome as inevitable given the reputation of Russia as a formidable military and world power.

Along with its nuclear arsenal, the Russian military machine is a behemoth compared to that of Ukraine, with 850,000 active-duty troops to Ukraine’s 200,000 and 772 fighter aircraft to Ukraine’s 69. Not to mention over 12,000 tanks to Ukraine’s 2,596. Indeed, the Global Firepower Index places the power of the Russian military second out of 140 ranked countries, with only the United States ahead of it and China right behind in third place.

Maintaining a massive military machine is ultimately an economic undertaking. In U.S. dollars, Russia is the fourth biggest spender in the world after the United States, China, and India, and just ahead of the United Kingdom. That an army marches on its stomach is a quote long attributed to Napoleon. In the modern world, that includes massive quantities of supplies and materials as well as the energy needed to power movement. All of this takes money. While Russia is a big spender with the military as its priority, it remains that the resources to pay for all this military infrastructure are not as abundant as one may think.

Of course, Russia is a large country with abundant natural resources and a skilled and relatively well-educated population that has made enormous economic strides over the last few decades. Yet, the legacy of decades of Communist rule as well as the growth of corruption in its economy during its transition after the fall of the Berlin Wall has hampered its full economic potential. While President Putin may have dreams of a Greater Russia that rivals the empire of the Tsars, in achieving this goal he is hampered by the same forces that held them back—a perennially weak economy that raises the opportunity cost of investing in military infrastructure. Every dollar spent on the military is a dollar less for productive investment geared to improving the lives of ordinary Russians and their consumption standards.

Nowhere is the weakness of the Russian economy more apparent than when simple comparisons using national output are made. Russia spends 4 percent of its GDP on its military, a higher share than the United States at 3.5 percent. It is also a much larger share than the rest of the G7, which ranges from 1 percent for Japan to 2.5 percent for the UK. However, it is applying that much larger share to a much smaller economy. According to the IMF World Economic Outlook Database, Russia’s economy is just over 1.6 trillion USD, whereas the United States has a 22 trillion USD economy. Even Canada, with a population less than a quarter that of Russia has a GDP that, at over 2 trillion USD, is 25 percent greater than Russia.

Source: IMF World Economic Outlook Database
Graphic credit: Janice Nelson

The difference is just as stark when GDP per capita is examined. Whereas per capita GDP in USD is just over $11,000 for Russia, for Canada it is nearly $53,000. For the U.S. it is $69,000. Even the country with the lowest per capita GDP in the G7—Italy—comes in nearly three times higher than Russia at $35,000. It remains that Russia’s economy may generate massive natural resource wealth from its exports, but on a per capita basis, it has an income on par with China. Even former East European satellites of the former Soviet Union have often done better, as is the case with Poland which comes in at $17,000. And while Russia has created numerous billionaires and wealthy oligarchs, a low average per capita income in the face of such extremes also means that income inequality is high. Russia’s military might is at the expense of the economic welfare of the average Russian. This makes the toll that Western economic sanctions are taking more devastating—especially when the flight of foreign companies in the wake of the invasion of Ukraine threatens to reverse decades of economic progress.

The Russia of Vladimir Putin, like the former Soviet Union and the empire of the Tsars before it, is marked by a set of constant themes. They are all regimes characterized by the exercise of autocracy, the use of a secret police security apparatus to monitor dissent, and an expansionist foreign policy. To these themes can be added another: a chronically weak economy that fails to meet the material needs of the average Russian on par with the rest of the developed world. In the end, this economic failure provided the seeds of the 1917 Russian Revolution that ended the rule of the Tsars and the productivity lag that sealed the end of the Soviet Union. As Putin continues his quest to make Russia great again, he is likely to meet a similar fate.

Amal Attar-Guzman: Putin is isolated, but he still has friends in the Middle East

Commentary

While the international community is focusing on the Russian invasion of Ukraine, we must not forget the other geopolitical chess pieces on the global chessboard.

In my previous analysis of Russia’s invasion of Ukraine, I mentioned potential geopolitical impacts in terms of China and Taiwan and Latin America, but the Middle East is also being impacted by the situation in Ukraine. As the U.S. shifted its foreign policy to focus more on China, Russia stepped up in recent years to fill that regional gap: from economic alliances with Middle Eastern oil producers to increasing its ties with strongmen leaders in Libya and Syria, with Bashar Al-Assad supporting Putin’s actions. This reality should not be forgotten.

Now, while the West has strategic ties in the Arabian Peninsula and Israel, Saudi Arabia, a major player in the region, has a crucial alliance with Russia through the Organization of the Petroleum Exporting Countries (OPEC)—now known as OPEC+ with Russia’s inclusion in the intergovernmental organization in 2016.

Despite global outrage about Russia’s invasion of Ukraine, Saudi Arabia reaffirmed its commitment to its OPEC+ agreement with Russia. This will be a major challenge that the Biden Administration will need to deal with moving forward.

Further, the situation in Ukraine has been impacting the Middle East in terms of food supply chains, with Russia and Ukraine being the top five wheat producers and exporters for the region. If this is not resolved, food insecurity will surely skyrocket and cause even more problems than the region is already facing.

Another area of the world that hasn’t really been mentioned but is extremely important is Central Asia—Afghanistan especially.

In the summer of 2021, we watched the fall of Kabul while the Canadian federal election kicked off. This was a sore point for Canadians, considering our military involvement and humanitarian aid contribution.

But as we shift focus six months later, it’s important to not let our attention wane while a new crisis unfolds. If we do, we will be missing signs of geopolitical moves that can be greater challenges later on.

Amid the crisis in Afghanistan, while Canada and its allies closed diplomatic offices and started the evacuation process, Russia had its diplomatic missions open and functioning. Russian Ambassador Dmitry Zhirnov met a Taliban representative within 48 hours of Afghanistan’s takeover. Russia has been deepening its diplomatic relations with the Taliban since then and in its aftermath. This is crucial considering Afghanistan’s impact on Central Asia, where Russia has security interests in the region, especially military interests and ties with Uzbekistan, Tajikistan, Kazakhstan, Turkmenistan, and Kyrgyzstan.

China has also been incrementally increasing ties with the Taliban. The country’s officials have met with Taliban officials to deepen economic ties between China and Afghanistan. China offered economic support and investment for Afghanistan’s reconstruction, further involving the Taliban in its Belt and Road Initiative (BRI), and the Taliban promised that Afghanistan will not harbour any militant bases.

This latter point is of importance for China given the Uyghur population in Xianjing, a province that borders Afghanistan, and China’s fear that Uyghur separatists would take advantage of the situation. In fact, since the Taliban’s control, they have been removing Uyghur militants from the Afghanistan-China border.

While it has been argued that Afghanistan under Taliban rule will not be a major place for BRI investment, the narrative surrounding investment is quite strong, especially as a jab against U.S. involvement in the country. Besides, BRI investment is not without its conditions. A couple of months after China-Taliban talks in late summer, China stated that it will invest billions of dollars in Afghanistan so long as the Taliban can guarantee the security of their workers and assets.

Some media outlets are reporting that Afghanistan’s security situation has improved and corruption has declined in the last six months, which means there is a greater chance China will continue to invest in Afghanistan.

These geopolitical moves should not be observed lightly. As the world is primarily focusing on what’s occurring in Ukraine, and rightly so, that doesn’t mean we should not be monitoring what’s going on in other areas around the world, especially where there are potential direct and indirect impacts from Russia’s invasion of Ukraine.

One indicator that can highlight potential geopolitical moves and shifts can be reflected and analyzed with the result of the United Nation’s General Assembly (UNGA) resolution “Aggression Against Ukraine.” Now, even though UNGA resolutions are not legally binding, hence not enforceable, the way a country votes or abstains speak to its foreign policy positions and objectives on a particular issue

This UNGA resolution passed with 141 countries overwhelmingly denouncing Russia’s invasion of Ukraine. Only five countries voted against the resolution: Russia itself, Belarus, North Korea, Eritrea, and Syria.

While China has been vocal against Russia’s actions, it’s not surprising that they abstained from the vote, especially with the resolution having language such as “reaffirms its commitment to sovereignty, unity, and territorial integrity…within…internationally recognized borders, extending to…territorial waters.” Such language does not serve well with its interests regarding Taiwan.

Interestingly enough, Afghanistan voted in favour of the UNGA resolution denouncing Russia’s invasion of Ukraine. This may be because the international community’s scrutiny of Russia will not suit their interests to be deemed as legitimate actors on the global stage, especially with their diplomats not being recognized by other states. As a result, it would not be surprising if Afghanistan moves its ties closer to China.

A similar assessment can be made with regard to Russia’s usual Latin American allies, with Cuba and Nicaragua abstaining, and Venezuela not participating in the vote. Despite showing their support one week ago, they decided to not engage whatsoever due to international pressures, while also attempting to maintain their ties with Russia.

Despite a few countries supporting Russia, Putin’s country is now becoming isolated. And while Russia is receiving the ire of most of the international community, with others trying to distance themselves from the situation, China has the potential to take advantage of the situation to further its objectives. While keeping a pulse on Ukraine is important, we should not forget the broader geopolitical environment at play. Doing so will only be to our own detriment and disadvantage.