Alexandra Prokopenko on the Long-Term Economic Impact of Russia’s Invasion of 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 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.
Prokopenko opened by stating, “The war has become existential for the Russian economy.” She went on to explain 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, mainly as it related to the country’s unexpected 3% GDP growth projection for October 2023. The prediction has come as a surprise to many, considering the intense sanctions regime placed on Russia by the United States, the European Union, and the United Kingdom, among others. Prokopenko explained that Russia still experienced a massive loss in GDP, but its focus on a wartime economy created growth due to the Russian government’s prioritization of financing the war over social welfare and the national economy.
The Kremlin justifies its war-centered economic strategy with multiple means. First, the Russian government predicts that energy prices will rise to higher levels than are currently displayed. Prokopenko suggested that this prediction is unlikely and that, instead, Russia will probably experience high inflation and a potential devaluation of the ruble.
Prokopenko also highlighted another significant economic concern created by the expansion of the Russian military-industrial sector. Its 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 the mass emigration of skilled Russians, particularly in the IT sector, to other countries to avoid being drafted into Russian military service. 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.
Discussing Russian President Vladimir Putin’s long-term war strategy, Prokopenko commented that she plans to wait for potential electoral changes in Europe and the United States in 2024. 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 possibility that they might lose both interest and the political will to continue supporting aid for Ukraine. Prokopenko correctly predicted this fatigue in the United States, where we witnessed a long-lasting struggle in the U.S. Congress over legislation to authorize military aid to Ukraine.
Another economic issue Prokopenko discussed is other governments’ lack of faith in the Russian capital, which makes it difficult for the Russian government to work around sanctions with import substitutions. “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.
Russia’s war in Ukraine has led to its increased economic dependence on China, with trade between the two countries increasing to over $200 billion this year. However, Russia still desires to diversify its options, particularly its energy market exports that now primarily go through China and India.
Chinese businesses also continue to expand in Russia despite political tensions. Prokopenko argued that these tensions occur because the Russians “behave very arrogantly” towards their Asian counterparts while viewing Western markets as more similarly aligned to Russia. For example, she explained that the Russian government was frustrated with Chinese tourists because they would come to Russia and “wait in the lines at tourist attractions” but then spend their money at secure Chinese-run businesses, “preventing the Russian economy from receiving a single penny.”
Finally, Prokopenko suggested that Western countries should open themselves up to Russians who want to leave Russia and support an outflow of capital from Russia. Attendees asked Prokopenko a series of questions about Russia’s use of Central Asian migrant workers. Prokopenko explained that Russia was facing a shortage of about 300,000 people and that those positions were 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 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.”
