Russian Imports Rebound as Economy Looks Set for Growth

After struggling through much of 2022 under heavy international sanctions, the Russian economy has rebounded in recent months, as importers found new avenues of trade to bring consumer goods and other products into the country.

An International Monetary Fund report issued this week said the Russian economy would likely grow by 0.3% in 2023, rather than shrinking by 2.3% as it had previously projected.

The United States and its allies reacted to Russia’s invasion of Ukraine in February 2022 with a harsh regime of sanctions and export controls that many expected to collapse the Russian economy. In addition, many international businesses sharply reduced their sales to Russia, while others ceased doing business in the country entirely.

New research suggests that alternate supply routes and the ability to substitute goods made in Russia-friendly countries, like China, for Western-made alternatives have brought Russian imports back to prewar levels.

Experts noted that the need to “transship” Western products through friendly third countries has driven up the prices Russians pay for many goods. Additionally, in many cases, Russians are being forced to settle for some lower-quality substitutes, especially in the consumer electronics space.

However, the possibility that widespread shortages within Russia will force the Kremlin to give up on its invasion of Ukraine in the near term looks increasingly remote.

Main goal of sanctions

Western sanctions on Russia were aimed primarily at the Russian military and were meant to make it difficult for the Kremlin to access the supplies and equipment, particularly advanced technology like microprocessors, necessary for the war effort in Ukraine.

“The Russian sanctions are not comprehensive,” Jeffrey J. Schott, a senior fellow at the Peterson Institute for International Economics, told VOA. “They are designed to impair Russia’s military capability and make it difficult for the Russian regime to continue its military effort, both because of lack of resources over time, and because of growing civilian discontent.”

Russia has been allowed to continue selling many of its main export goods into the global market, including oil, gas, coal, fertilizers, uranium and food, providing cash to fund imports.

In addition to export controls on specific products, the U.S. and its allies levied significant sanctions on the Russian financial sector. This had the effect of complicating many trade-related transactions for products that were not, themselves, subject to sanctions.

Experts said that much of the rebound in trade volume has been the result of merchants finding viable workarounds that allow them to finance the flow of non-sanctioned goods.

Rebounding imports

A recent report from the Silverado Policy Accelerator, a Washington nonprofit, found that while Russian imports plummeted in the months immediately after the invasion, the dollar value of imports had rebounded to near pre-war levels by September.

In the 12 months beginning in October 2021, exports to Russia from the European Union fell by $4.6 billion, or 52%. The U.S. and the United Kingdom, which had far less trade with Russia to begin with, nevertheless cut their exports to the country by 85% and 89%, respectively.

According to Silverado, the difference was made up by a number of countries that dramatically increased their exports to Russia, including China, Belarus, Turkey, Kazakhstan, Kyrgyzstan, Armenia and Uzbekistan.

Additionally, the report found, “Exports from many other countries rebounded from their spring 2022 lows, and some post-Soviet states increased their trans-shipments of goods produced by multinational firms that no longer export the goods directly to Russia.”

For example, the report documents that after Apple and Samsung, two of the world’s largest makers of smartphones, stopped delivering their products to Russia, orders for their products eventually surged in Armenia and Kazakhstan, with the phones being shipped on to Russia.

‘Leakage’ expected

Experts said that while Russian imports of consumer goods may be approaching prewar levels, the blockade on military goods and advanced technology is still working reasonably well, if not perfectly.

Schott, of the Peterson Institute, said that sanctions are not “waterproof” and that all sanctions regimes experience some “leakage.”

“The longer sanctions are in place, the more time there is to try to figure out and negotiate workarounds — that happens everywhere,” he said. “If there’s enough economic incentive, people will take risks to profit from sanctions evasion.”

However, when it comes to military and high-tech gear, Schott said, “I’m not sure the leakage is comparable to what has happened in previous cases that have existed over time. I haven’t seen evidence of extensive violation of the sanctions.”

Measuring effectiveness

Bryan Early, a professor of political science at the State University of New York at Albany, told VOA that even if some sanctioned products are making it through to Russia, the sanctions appear to have been broadly effective in that they have made it more difficult and expensive for Russia to acquire what it needs to continue to prosecute the war.

“Sanctions are never going to be perfect,” he said. “Your baseline is not, ‘Do they disrupt everything?’ It’s, ‘If the sanctions weren’t in place, how easily would these transactions be taking place? And how much more cheaply would they be taking place? And how much more reliable would those trade networks actually be?’”

Early referred to U.S. intelligence reports from last year that said Russia had been scavenging microchips from household appliances for use in military equipment.

“If one of the ways that the Russian government is getting around the multilateral sanctions on semiconductors is by importing additional washing machines through third parties, like Georgia, to use in their military products, yes, that’s a sign that sanctions are being evaded,” he said.

“But it’s also a sign that the sanctions are working very, very well, if the world’s second-largest largest military is importing semiconductors from washing machines through small regional neighbors,” he said.

New sanctions

On Wednesday, in a sign of some sanctions “leakage,” the U.S. Treasury Department barred trade with 22 individuals and companies that it accused of helping Russia’s military evade sanctions. The move was part of an ongoing effort “to methodically and intensively target sanctions evasion efforts around the globe, close down key backfilling channels, expose facilitators and enablers, and limit Russia’s access to revenue needed to wage its brutal war in Ukraine,” the department said in a press release.

Among others, the sanctions targeted Russian arms dealer Igor Zimenkov and his son, Jonatan Zimenkov, as well as several entities the department characterized as “front companies” that do business with the Zimenkovs.

“Russia’s desperate attempts to utilize proxies to circumvent U.S. sanctions demonstrate that sanctions have made it much harder and costlier for Russia’s military-industrial complex to resupply Putin’s war machine,” said Deputy Secretary of the Treasury Wally Adeyemo.

In a statement issued on Wednesday, Secretary of State Antony Blinken said, “It has become increasingly difficult for Russia’s military-industrial complex to resupply the Kremlin’s war machine, forcing it to rely on nefarious suppliers, such as Iran and the DPRK [Democratic People’s Republic of Korea]. By trying to use proxies to circumvent U.S. sanctions, Russia demonstrates that our sanctions are having impact. Our work will continue.”

Source: Voice of America

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