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Bloomberg: The Russian economy survived the sanctions blow due to record investment

February 8, 2023
in Daily News
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The Russian economy performed many times better than many analysts predicted immediately after Russia's invasion of Ukraine, thanks to record public and private spending on investment. This is what helped the Russian economy relatively painlessly survive most of the sanctions and their consequences. Nevertheless, economists agree that the effect of spending is temporary and will most likely end in 2023, Bloomberg notes .

The mass exodus of foreign companies, as well as restrictions prohibiting cooperation with Russian companies, led to the need to increase domestic production, which caused a real boom in domestic investment. The agency notes that almost immediately after the invasion, Bloomberg experts predicted a 20% fall in investments for the year, but contrary to expectations, they grew by 6%. The companies invested in their own production, in domestic analogues of software, logistics solutions, and equipment.

The main sources of investment financing in 2022 were the internal funds of companies and entrepreneurs – they accounted for 56.3% of all investments, in second place – public investment (17.8%), in third – bank lending (11.4%). About 8.6% comes from other sources of financing, and 5.4% from other sources of lending. However, economists believe that in 2023 it is not necessary to count on further growth in investment. Bloomberg predicts a 5% decline in their volume for the year, which is considered a very bad indicator for an economy that is trying to get out of a recession.

Finam analyst Olga Belenkaya notes that declining revenues and continued pressure from sanctions will inevitably lead to a reduction in investment; however, it does not expect such a dramatic fall, as many predicted for 2022. At the same time, she is sure that the state, on the contrary, will increase investment in 2023, which should slightly compensate for the fall in the private sector.

“The Russian recession is unlike any of the previous ones. During a typical downturn, private investment suffers the most, while household consumption declines the least. But not at this time. We estimate that this anomaly will disappear in 2023 as high uncertainty and risks of doing business in Russia deter investment,” said Alexander Isakov, Russia economist at Bloomberg Economics.

The agency acknowledges that there is indeed a positive effect from investments. For example, the production of industrial batteries will be launched in the Pskov region in the near future, hydrogen peroxide will be produced in the Republic of Chuvashia, which should fully cover domestic demand, and the production of hydraulic equipment and pharmaceuticals will be launched in the Moscow region.

A significant part of new productions is launched thanks to state funding, but the quality of products raises questions, the agency notes. It recalls that even the Bank of Russia recognized this, which called this process "reverse industrialization" – when Russia will significantly overpay for the creation of goods of lower quality than those to which the economy is already accustomed.

Forecasts do not scare ordinary entrepreneurs: on the contrary, they are sure that now is a good opportunity to invest in the future, because, as the founder of the Mangazeya group of companies says, “difficult times will pass, but projects will remain.” The Economist has previously noted that the Russian business environment is returning to "the wild time of gangster capitalism." The journalists came to this conclusion, as the corruption component for the success of a business has grown significantly over the year, and connections have begun to play an even greater role than before.

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