​Ten months after he took an X-ray of the Russian economy in the context of Western sanctions for HotNews.ro, analyst and entrepreneur Dmytro Potapenko spoke to us again about the situation on the ground.

Dmytro Potapenko is a well-known economist, the author of several books on the Russian economy.

In an interview with HotNews.ro last March, the expert drew attention to the fact that the Western world tends to consider the Russian Federation as a unitary state, while there are very large differences from one region to another.

“Russia does not mean its cities. Russia means many states in one state. There is the state “Moscow”, the “state” Petersburg, and there are regions up to the Urals and beyond. We do not have “monostructures”. In this context, the analyst believes, there are people who will not feel the consequences of the war/sanctions in any way, and others who will.

Despite the fact that some of the economist’s statements are clearly subjective, in context they provide an interesting view of the situation in the Russian Federation at the moment.

Now Dmytro Potapenko says that the economy of the Russian Federation is a “big machine” that will not break even in the next seven years, and a large part of Russian society continues to be inert and indifferent to the actions of his country in Ukraine. These signs do not portend a quick end to the war, even in the face of tough Western sanctions.

The interview was conducted online.

To begin with, I would like you to tell me if you are still in Russia. Did you have any intentions or reasons to leave during this time?

Dmytro Potapenko: Yes, I am in Russia now. I left the country when the mobilization was announced (no – we are talking about the “partial” mobilization of reservists, which Putin indicated in September 2022).

Although my age is probably not the best for mobilization, I felt like a “target” in this regard. This danger has not disappeared, to a certain extent it was and will be.

At the same time, it is impossible to take a small but stable holding belonging to me out of the country. You cannot take two parents who are 77 years old, a 70-year-old mother-in-law and three minor children. I can go, but I can’t leave all these people without a livelihood.

How much has your business suffered over the past year?

There were no significant changes. We are a company that manages finances and assets of large holding companies in the fields of energy, metallurgy and finance. Someone asked for more, someone for less, but the volume of operations for us has not fundamentally changed.

“The economy of the Russian Federation is based more on the so-called state enterprises, and not on private business”

Dmytro Potapenko. PHOTO: Personal archive

As an economist, can you tell which categories of entrepreneurs and from which spheres of activity were forced to stop their activities in the Russian Federation?

First of all, we are talking about small and medium enterprises. If the supply of petroleum products fell by less than 25%, we can also talk about the closure of parts of the business, mainly in retail.

For the most part, we are talking about foreign companies that for some reason, political or economic, left the Russian Federation. We are talking about up to a thousand companies that left the Russian market.

Did it have any effect on GDP? I think the lower demand for petroleum products had a bigger impact. Because the economy of the Russian Federation is based more on so-called state-owned enterprises, and not on private business.

To what extent did the forecasts regarding the economic situation in the Russian Federation, given at the beginning of the year after February 24 (when Western sanctions were also introduced), come true?

I was not among the group of experts who said there was going to be a collapse. Many of the economic experts you listen to belong to the classical school of economics and operate only on numbers and statistics, never participating in the real world of business.

I have been working in this field for more than 30 years and started when business was not legal, that is, back in the days of the Soviet Union.

Accordingly, knowing my colleagues on the ground, I understood from that time that this shock caused by sanctions, or rather war, would be overcome. Because, unlike officials, whose monthly salary comes on a certain day in the calendar, everyone else has nowhere to get money from, they have to earn it through their activities.

Yes, total mobilization, which caused the departure of up to 500,000 people (no – from the Russian Federation), was the wrong decision. I predicted that the economy would shrink by about 4%, but now the numbers are between 3.6% and 4.2%.

(no – public data from the European Council indicate a decrease in Russia’s GDP in 2022 from 3.4% to 4.5%).

“Neither Russian nor European officials are telling the truth”

Can real numbers really be calculated? And in general, does the Russian Federation still have a market economy, taking into account all international sanctions?

The Russian ruble has never been a currency that the rest of the world has had to deal with. I saw people who were genuinely surprised that “something is happening to the ruble now.” I also want to express my surprise at their surprise.

The ruble is the national currency of the economy, which ranks only 11th in the world.

Will international sanctions have any effect? I would say this: after the sixth package, these sanctions are a “package of packages”. The reason is very simple: European officials build their policies, just like the Russians. Russians say that everything is fine in the economy, Europeans say that something is changing in Russia. Neither one nor the other is telling the truth.

For example, the trade balance that will be released in February shows a large profit. And this is due to the fact that the entire rise in energy prices covered the crash I mentioned above.

The Russian authorities have repeatedly stated that the withdrawal of some brands from the market will create unprecedented opportunities for domestic entrepreneurs. Did this actually happen?

This should not even have happened. Brand departure is brand departure, not what the propaganda says. Don’t confuse a logo drawn by a little girl for $100 with what a “brand” means.

A brand is not just a name, it is a complex system. Opportunities will emerge when people have the purchasing power. The main problem of the Russian economy now is low purchasing power. But it has been decreasing for the last 10 years, and not only now.

It is necessary to understand why it does not work well: people did not live well and did not start (no – to live well).

About the atmosphere in Russian society: has the attitude of people to the war and the economic situation in the country changed?

It makes no sense to talk about our society as a homogeneous mass. There is a layer of officials and people who feed on them – war is convenient for them. And it will be convenient for a long time.

In the case of the majority of the population – if it is not something that concerns them personally, they “freeze” the topic and refuse to make any decisions. That is, he does not support (not war), but he is not against either.

In fact, nothing has changed, only these almost 500,000 people left, maybe up to a million. The situation in society has worsened from the point of view that there are no people left here who are against the war.

Regarding security: these days there was talk of the shelling of the city of Makiivka, where at least 89 Russian soldiers died, and there were also shelling of strongholds on the territory of the Russian Federation. Do people feel the danger of a possible attack on his country? How is it perceived in society?

Not at all. Most people will not be able to participate in these discussions. People have been used to living separately from the state since the USSR, now in Russia.

Under these conditions, how to influence Russia to give up this war? Are there economic or political mechanisms for this?

Economic – no. 2023 will be more difficult than 2022. The Russian Federation system is very large. That some cars disappear – they weren’t even supposed to. It won’t stop the war.

The war can be stopped only by the supply of weapons.

European countries have not made a fundamental plan, have not changed their energy paradigm and are still dependent on gas and oil. They say they have given up Russian gas but still buy it through Turkey, China and India. The gas just stays the same.

Unfortunately, Norway cannot cover the needs of the European Union. Russian gas is still in the European Union, only with a different “mark”. Nuclear energy must be developed, but no project has appeared in these 10 months.

To what extent are there still possibilities of equipping the Russian army?

This war is an artillery and tank war. Ukraine can win due to the fact that it is more mobile, that is, it uses other methods of fighting. The Russian army lacks mobility.

Complaints about the lack of shells and outdated tanks were, are and will be. In the summer of last year, the foundations of two tank factories were laid.

Monthly foreign aid to Ukraine amounts to 5 billion euros, and in 10 months the European Union transferred 200 billion euros to Russia for oil products. You can’t do anything about it.

Unfortunately, this whole mechanism consists in numbers. And this “big machine” (the economy of the Russian Federation – no) will not break down in a year or two and not in five or seven years.

• Read also: Moscow economist’s view on sanctions against Russia: “Why is the West losing the fight against this regime? Because we live in a feudal system.”