Economy of Russia

With perhaps a million Russians, including many working-age men, having fled the country, with more than 300,000 dead or wounded in Ukraine, with more than a million men in the military, and a fertility rate of 1.5 — far below the so-called replacement rate of 2.1 — the country simply cannot meet its needs.

The head of the Central Bank is among those describing it as the country’s most serious problem, hardly surprising when unemployment is just 2.9% and the vacancy rate is 6.8%.

This scarcity is particularly pronounced in the manufacturing, construction, and transportation sectors. According to recruitment agencies and company management, the workforce deficit will worsen in 2024.

Beyond skilled professionals, Russia struggles to meet even basic labor demands, including those for military purposes. Increasingly, schoolchildren and students are being enlisted for war-related tasks. Just last week, a major investigation revealed how minors as young as 14 are involved in activities for the “Mayor’s Labor Unit” in Krasnoyarsk, weaving camouflage nets and preparing parcels for frontline needs.^[1]

Labour Minister Anton Kotyakov has said Russia needs to increase labour productivity in order to become more technologically self-sufficient. Labour productivity data for 2023 will not be published until late-2024, but the authorities' warnings about manpower shortages suggest there was no rebound in that figure last year.^[2]

“The growing need for qualified personnel is most noticeable in the regions, especially if you pay attention to the increase in the proposed salary. It is worth noting that in the regions the proposed salary for qualified personnel is growing faster than in Moscow,” noted Vladimir Dzhuma, director of the Center for Digital Transformation and Data Analysis of the All-Russian Research Institute of Labor.^[3]

Thriving in a system rife with corruption and little accountability, Soviet-trained bureaucrats have stifled the growth of small businesses in Russia, according to Albats. She noted that the majority of regulations existing in Russia today were issued not by the Duma or the President, but by various state agencies—between 1991 and 2001, Russian federal ministries imposed 1474 regulations on business, compared with 156 passed by the legislature. Albats contended that bureaucrats find it easier to control several large businesses than many small businesses, and have set up a regulatory framework to reflect that preference.^[5]

Earnings quality is close to the bottom of OECD countries, partly due to low labour productivity resulting from a low capital stock in the economy. More than 30% of workers face high job demands with few job resources to meet these demands...

Sanctions and other import barriers have hampered technology transfers from abroad. A poor business climate, in particular weak property rights, impedes innovation.^[6]

The business newspaper Kommersant reported that in the first two months of 2024, corporate bankruptcies had increased by more than a half compared with the same period last year—and experts predicted an increase in insolvencies in future.

Bartosz Sawicki, market analyst at Conotoxia Fintech, told Newsweek Russian firms are facing refinancing issues "as the effects of monetary tightening are starting to kick in."

Kommersant said that in January and February this year, 571 and 771 companies respectively, were declared bankrupt—57 percent and 61 percent more than in the same months in 2023, citing court records in the country's Unified Federal Register of Bankruptcy Information.^[8]

Apart from war-related sectors such as arms production, the Russian economy looks "far from rosy," Sawicki said.

"Although Russian companies are doing their utmost to dodge sanctions, international trade has become a significant issue for plenty of them," Sawicki wrote in an email.

"The private sector also feels the pressure of macroeconomic instabilities, which deepen as the economy is on the verge of overheating," he added.

It could get worse.

Russian President Vladimir Putin's regime is coming under tightening Western trade restrictions, including secondary sanctions against companies doing business with the country.

Putin has also pledged to give Russians billions of dollars in lifestyle upgrades weeks before they head to the ballot for the country's presidential election later this month.

While it's unclear where the extra budget for Putin's promises will come from, the Russian leader has proposed changes to the tax system that are designed to result in more taxes from high-income individuals and businesses — which could put even more pressure on private companies.^[9]