Alexandra Prokopenko on the Long-Term Economic Impact of Russia’s War in Ukraine

By Sarah Baughn, MALD 2024 Candidate, The Fletcher School

On October 26, 2023, the Fletcher Russia and Eurasia Program invited Alexandra Prokopenko to give a talk titled “Russia’s Long War: Economic, Social, and Global Reverberations”. Prokopenko is a non-resident scholar at the Carnegie Russia Eurasia Center in Berlin, Germany and a visiting fellow at the Center for Order and Governance in Eastern Europe, Russia, and Central Asia at the German Council on Foreign Relations.

“The war has become existential for the Russian economy,” Prokopenko argued, explaining how the Russian economy was undergoing “structural shifts” due to the “great handcrafted structural shock” that was the Russia-Ukraine war.

Prokopenko discussed Russia’s current economic strategy, particularly as it relates to the country’s unexpected 3% GDP growth projection for October 2023. With consideration of the intense sanctions regime the United States, the European Union, and the United Kingdom among others have placed on Russia, that has come as a surprise to many observers. Prokopenko explained that there was still a massive loss in GDP for Russia, but its focus on a wartime economy created growth simply because the Russian government prioritized financing the war in Ukraine over financing social welfare and the national economy. 

The Russian government’s economic strategy centers around supporting the war in Ukraine, which the Kremlin justifies through multiple means. First, the Russian government predicts that energy prices will rise to higher levels than are currently displayed. Prokopenko stated that this prediction seems unlikely, and instead, Russia will probably experience high inflation and a potential devaluation of the ruble. 

Amid the war, another significant economic concern has emerged due to the expansion of the Russian military industrial sector. This growth has diverted manpower and resources from the civilian sector, leading to a notable brain drain across various industries within Russia. This brain drain is exacerbated by mass emigration of skilled Russians to other countries, particularly in the IT sector, which Prokopenko discussed along with the fact that many of these young professionals left to avoid being drafted into Russian military service. Of course, due to this large migration, the Russian government continues to consider putting forth legislation that will further limit the ability of able-bodied men to leave the country to dodge the draft.

Discussing Russian President Vladimir Putin’s long-term war strategy, Prokopenko commented that he plans to wait for potential electoral changes in Europe and the United States in 2024. Reflecting comments made in the past, Putin seems hopeful that the West will not be able to maintain the political will required to continue supporting Ukraine and the strict sanctions regime. European politicians are being challenged by Russian propaganda, and there remains a legitimate threat of them losing both interest and the political will to continue supporting aid for Ukraine. Prokopenko correctly predicted this fatigue within the United States, where we witnessed a long-lasting struggle within the U.S. Congress to approve legislation that would authorize military aid to Ukraine. 

Another economic issue Prokopenko discussed was the lack of faith in Russian capital by other governments. “You cannot build strong economic ties if you don’t know who owns what assets or how the economic systems within the country operate,” Prokopenko said, explaining the difficulties the Russian government faced while trying to create enough import substitutions that had been impacted by sanctions. Though Russia’s war in Ukraine has led to increased economic dependence on China, particularly with trade between the two countries increasing to over $200 billion this year, Russia still desires to diversify its options, particularly regarding its energy market exports that now primarily go through China and India.

Chinese businesses also continue to expand in Russia despite political tensions, which occur because the Russians “behave very arrogantly” towards their Asian counterparts, according to Prokopenko, while viewing Western markets as more similarly aligned to Russia. Giving an example on this point, Prokopenko explained that there was frustration from the Russian government regarding Chinese tourists, primarily because Chinese tourists would come to Russia and “wait in the lines at tourist attractions” but would then spend their money at secure Chinese-run businesses, “preventing the Russian economy from receiving a single penny.”

Prokopenko suggested that it might be best for Western countries to open themselves up to Russians who wanted to leave Russia and to support an outflow of capital from Russia. Attendees asked a series of questions about Russia’s use of migrant workers, particularly from Central Asia, in a variety of sectors. Prokopenko explained the necessity for these workers and that Russia was facing a shortage of about 300,000 people and that those positions could likely be filled by migrant workers.

One person asked, “People involved in the war effort are getting beneficiary payments from the Russian government, but they are not able to convert these payments into real capital, is this true?”

Prokopenko responded, “Compared to previous ways of life, these people are richer and buying more things. They can afford clothes, food, and government financed loans […] they certainly feel richer right now, though in say, five years, these people will cease to be able to buy these things. There will definitely be a decrease in life quality for these people, but it is not a problem of today.”