Page 29 - bne IntelliNews monthly magazine September 2024

bne September 2024 Cover Story I 29
The war in Ukraine is creating
a new middle class in Russia. Soaring incomes, plenty of jobs for anyone that wants them and huge amounts of government investment into some of Russia’s poorest regions where most of the defence industry
has its factories have done more
to undo Russia’s legendary income inequality than all of the government’s programmes over the last three decades of independence.
A report commissioned by Defence Minister Andrei Belousov by the Centre for Macroeconomic Analysis and Short- Term Forecasting (CMASF) has identified rapid changes to the make-up of Russia’s society during the last two years, since Russia’s invasion of Ukraine.
Russia's labour market is experiencing what analysts describe as an unusual trend: living standards are rising across all social groups, albeit unevenly, The Bell, citing the study, reports. Ironically, the war has been good for Russia and sanctions and a showdown with the US have made it stronger.
The findings tally with other studies that highlight Russia’s poorest regions have been the biggest winners from
the war. During the Cold War many of Russia’s defence factories were moved to smaller towns deep in the hinterland for national security reasons. These same towns were the worst victims of the
end of the arms race with the Western world in 1991, when the Soviet Union collapsed, and their factories idled and wages stopped. But now floods of state spending have been channelled to Russia's interior and the factories are working three shifts 24/7. Military recruitment has created a chronic labour shortage that has also sent wages spiking.
Despite high inflation that touched
9% in July, nominal wages have been rising even faster, according to the Central Bank of Russia’s (CBR) latest macroeconomic survey, leading to record-high real disposable incomes that have risen by 9.6% in July – beating the record set in 2013 – and are fuelling a consumption boom.
Behind the change, Putinomics has been stood on its head: for the last two decades the Kremlin has effectively
run an austerity budget, curtailing investment, hoarding cash to build up
a $600bn war chest and paying down its external debt to a level that is a fraction of that of any other major economy in the world.
CMASF found a significant reduction in poverty, as detailed in bne IntelliNews latest despair index survey, with the share of people living below the poverty line falling from 13.5% in 2016 to 8.5% in 2023 – significantly less than almost all EU countries.
At the same time, the proportion of individuals earning over RUB100,000 ($1,100) per month, the average wage for a Siberian bus driver, has doubled from 5.7% in 2021 to 10% in 2023.
This correspondent asked a friend, a resident in Moscow, who says he opposes the war in Ukraine, why he doesn’t leave.
“I don’t know where to go if I did,” he replied. “We thought about Berlin, Paris or Amsterdam, but what stops me is we don’t want to take a step down from the quality of life living in Moscow at the moment.”
Life in Russia’s far-flung regions is very different, but for the poorest segments of the population, the war has become
a social elevator. A contract with the Ministry of Defence offers a monthly salary starting at RUB200,000 ($2,200) for ordinary soldiers, along with a one-time payment that can reach nearly RUB2mn, enough to buy a nice car, depending on the region.
“By mid-2024, 4-5% of Russians reported having no financial difficulties at all, allowing
them to afford any expenses, including property purchases”
By mid-2024, 4-5% of Russians reported having no financial difficulties at all, allowing them to afford any expenses, including property purchases – a notable increase from just 1-2% in 2017, says CMASF.
Big money in poor regions
Moscow has become a party town since the war started. The area around Patriarchy Prudi, the fashionable square in the heart of the capital, has always been home to some of Moscow’s most exclusive restaurants, and is buzzing at the weekend with bars and artisanal eateries.
Muscovites are enjoying the long summer days, sipping cocktails and strolling by the pond in the warm weather, where the opening scene of Mikhail Bulgakov’s classic novel The Master and Margarita is set.
Recently the recruitment rate has begun to slow and Bloomberg reports that regional authorities are only filling two thirds of their quotas. So to boost the numbers, in July Russian Presi- dent Vladimir Putin ordered a hefty increase to federal sign-up bonuses of RUB400,000.
By August the regions had followed suit, but once again the bulk of the payments are being made in the very poorest regions, which is also where most of the volunteers come from, a study of rising retail banking deposits showed – banks in the poorest regions were seeing the fastest growth in deposit accounts as soldiers send their pay home.
Desperate to keep the flow of soldiers into Russia’s Donbas meatgrinder steady, 47 Russian regions increased payments for concluding a contract
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