Economic sovereignty: An agenda for Militant Russia

Abstract

This paper argues that Russia has embarked on a difficult path to economic sovereignty and heightened security to withstand rising antagonism from the West that culminated with the application of punitive sanctions against Russia's positioning on Ukraine. With the aim of lessening economic dependence on trade with the EU, its major trade partner for decades, Russia tries to work out a patriotic model of growth based on two vectors: import and trade partner substitution. The pursuit of self-sufficiency in foodstuffs adds an important pillar to security concerns as reflected earlier in the 2010 Doctrine on Food Security. But import substitution will be costly and difficult to manage. Fiscal balances and exchange rates will need to adjust to the new challenges. Finding new partners eastwards is also complicated. Trade with China, in hydrocarbons or other commodities, requires massive infrastructural work that neither the government nor private investors can afford in a situation of financial stringency. Investment from China is slow to materialize as the economic slowdown also impinges on China's projects. Nonetheless important deals on gas and infrastructure have been agreed and are pursued despite difficulties. A favourable institutional framework aimed at attracting investors to the Far East is in place. It will be up to the local administrations to make the best of it and venture capital to run the risk. The outlook is long-term, but both Russia and China have learnt from history to be patient.