The Future of Russia

_ Yuri Kofner, economist, MIWI Institute for Market Integration and Economic Policy. Munich – Graz, 14. January 2024. First publication in the Austrian FREILICH journal.

«Умом Россию не понять,

Аршином общим не измерить:

У ней особенная стать —

В Россию можно только верить».*

Understanding Russia, let alone predicting its future, is certainly no easy task. The Russian diplomat Fyodor Tyutchev, who worked in Germany, already expressed this fact in the 19th century with his famous poem: *”You will not grasp her with your mind or cover with a common label, for Russia is one of a kind — believe in her, if you are able…”[1] And Winston Churchill also famously described Russia as “riddle, wrapped in a mystery, inside an enigma”.[2]  Especially as opinions differ widely from side to side. According to the Springer press, Ukrainian tanks (of German manufacture) should have rolled onto Red Square long ago. On (pro-)Russian Telegram channels, on the other hand, the country appears to be a conservative paradise on earth.

Both are nonsense, of course. But what to do if you really want to look into Russia’s future? Will it break up in a civil war and Putin end up in a coup, as some transatlanticists are eager to believe? Or will it spearhead a new multipolar age? Anyone who claims to know the answer with certainty is a liar. What we can do, however, is to follow the advice of the infamous geostrategist George Friedman: “Keep it simple. It’s the ecomomy, stupid”! In other words, by looking at general trends and constraints.[3]

Foreign policy

Let’s start with the international environment. Firstly, the war in Ukraine is indeed a battle of fate, on the outcome of which all possible scenarios for Russia’s further development depend. If experts such as Austrian Colonel Reisner[4] and US Secretary of State Blinken[5] are to be believed, then the Ukrainian counter-offensive has failed, the Western will to finance it has dried up[6] and Russia will probably win the war of attrition. Secondly, the coming world order will indeed be multipolar. In 2050, the international West will only account for a third of global economic output.[7] Due to the sanctions, Russia was involuntarily thrown off the sinking ship of the Occident and is now riding on the bandwagon of the rising Orient. Thirdly, ongoing mass immigration, green deindustrialization and state-imposed wokeness will flush right-wing populist forces in the West into government responsibility, which will seek détente with Moscow. This constellation forms the starting point for our further outlook.

Capital: Resources

This should never be forgotten: Russia is the world’s treasure chest and therefore has the resource base (almost 70 trillion euros) for secure growth.[8] Western politicians believed they could stop the Kremlin by restricting its oil and gas exports, which account for 30 to 40 percent of Russian state revenues.[9]  However, Moscow managed to circumvent the energy embargo by building up a huge fleet of shadow tankers and diverting its hydrocarbon exports to Asia.[10]  While Germany’s energy transition is a suicide mission in terms of industrial policy, Russian state revenues from the oil and gas sector in 2022 and 2023 were a quarter and 4 per cent higher than in 2021. Russia, which has the world’s largest natural gas and seventh-largest oil reserves,[11] need not worry about Habeck’s decarbonization fantasies in the long term either: Although global demand for oil will only increase slightly,[12] global demand for gas will increase by more than a third by 2050, mainly thanks to developing countries, which will easily compensate for the decline in small Europe.[13] In addition, the country in the east is rich in minerals and well equipped for the economy of the future. Russia has the fourth largest uranium and rare earth metal deposits in the world,[14] global demand for which will increase two-, four- or even six-fold by 2050, depending on the scenario.[15]

Capital: Finance

The freezing of Russian currency reserves and assets abroad worth almost 350 billion euros[16] did not have the “desired” effect thanks to the crackdown by the Russian central bank. However, due to the extraterritorial banking sanctions, foreign investors withdrew capital worth 1.8 percent of GDP from the country in 2022. The decades before, foreign direct investment was still positive at 2.8 percent of GDP – before the Euromaidan in 2014 – and still 1.6 percent afterwards.[17]

To become less dependent on the Transatlantic financial architecture, Russia, firstly, set up its own payment system (SPFS) in 2014, in which over 500 banks in 18 countries now participate. In addition, Russian banks are now working more and more via the Chinese payment system (CIPS), which is three times as large.[18]  Secondly, Moscow is actively de-dollarizing its foreign trade: from 22 percent in roubles and other neutral currencies in 2022 to 60 percent by 2025, according to the official plan.[19]  Transactions with China are already almost dollar-free[20] and trade with India is increasingly conducted in Emirati dirhams.[21]  It also looks as if the BRICS states will stick to their ambition of a gold-based currency system.[22]

Productivity and technology

After the failed blitz in February-April 2022, Russia succeeded in changing gear to a war economy.[23] While NATO officials lament “half-empty” ammunition depots,[24] Moscow’s defense industry, in particular the arms conglomerate Rostech, was able to increase weapons production tenfold.[25]  This contributed to a third of the astonishing economic growth of 2023 (just under 3 percent of GDP).[26]  However, experts agree that the increased defence spending (6 to 7 percent of GDP) will only have a short-term impact, which may also lead to an overheating of the economy.[27] Much more important is the question of whether Russia can build up a broad innovative industry in the long term and catch up in the international technology race.[28]

Labor productivity, automation and asset renewal have grown too slowly over the past decade[29] and the impact of the Western ban on high-tech exports remains to be seen. While the Kremlin’s import substitution policy has largely failed – the share of high technologies in total imports rose from under two-thirds to over six-eighths between 2013 and 2021[30] – it has partially succeeded in diverting European high-tech imports via Turkey and Central Asia or replacing the West entirely with China as the main supplier. For example, while Moscow was unable to find alternative supplier countries for Western aviation instruments and data transceivers, it was able to more than triple imports of equipment for its own microchip production.[31]

The future is not only a battle between a uni- and multipolar world order, but also against hostile digital platforms and with the help of one’s own. In this electronic “clash of civilizations”, the language of application – in this case Russian – and the number of its carriers (380 million after all)[32] are decisive, whereby Russia, in contrast to Europe, has its own soft and hard digital infrastructure. Among them, for example: Vkontakte, Yandex, Telegram,[33] Sberbank, Kaspersky and the GLONASS satellite navigation system. It should also be remembered that Russia has not only maintained its competitive advantage in nuclear and space technologies from the Soviet era, but has also expanded it,[34] with the global market size of the space sector expected to overtake that of today’s oil and gas sector by 2050.[35]


The Russian Federation’s biggest problem is its problematic demography, especially in a way that will sound familiar to every German right-winger. Since the beginning of the Putin era, the country’s population has fallen slightly from 147 to 146.5 million people despite massive immigration.[36]  By 2045, it will have fallen further to 139 million people.[37]  Although Putin was initially able to increase the catastrophic birth rate from 1.2 to 1.8 with the help of pro-natal measures,[38] it fell again to 1.4 after 2016,[39] with the number and proportion of ethnic Russians, who are the mainstay of the multi-ethnic state, falling from 116 (80 percent) to 105.6 million citizens (72 percent).  By 2040, the proportion of Christians will fall slightly from 73.3 to 71.3 percent, while the proportion of Muslims will almost double from 10 to 17 percent.[40]

As in Germany, the “population collapse” and replacement migration will have serious consequences for the Russian social system, just as they already have for the Russian economy. At less than 3 percent, unemployment is almost as low as in the Soviet Union.[41] Over a third of Russian industry complains of a shortage of skilled workers. A record high.[42]  And the IT sector is officially short of 500,000 to 700,000 programmers. Although immigration exceeds emigration every year, quality remains more important than quantity. In 2022, over 670,000 mostly well-educated Russians left the country, including at least 100,000 IT specialists.[43]  Interestingly, almost half of them returned by September 2023.[44] Partly because the partial mobilization was over, partly because they were disappointed by the reality of life in Europe and partly because of incentives to return. For example, returning IT specialists can expect a favorable mortgage loan and an exemption from potential future mobilization.

In the long term, Russia must increase the birth rate and balance quantity with quality through education. The Russian education system has steadily improved its PISA results since the turn of the millennium and overtook Germany in reading and mathematics in 2022. It ranked 9th in both, but “only” remained in the top third in science.[45]

Political and economic system

It is unlikely that the return home of several hundred thousand mainly liberal Russians, moreover with some of whom disappointed with the West, will increase the protest potential. In any case, this has been at an all-time low since the start of the “special military operation”: the approval rating for President Putin has shot up from 61 to 85 percent since then, and that of the government and governors has also risen.[46]  The “liberal revolution in Russia has been cancelled for the time being”, as even Western intelligence services admit. However, although per capita GDP (according to purchasing power parity) and real income rose significantly between 2000 and 2013, they have virtually stagnated in the last decade, with an overall increase of just 4 percent.[47] It remains to be seen whether they will grow by a quarter by 2030, as predicted by the IMF, and thus whether the Putinist social contract will endure.[48] Interestingly, domestic surveys show that Russian citizens do see corruption as a problem, but not as extensive as before and nowhere near as bad as it is portrayed in the Western press.

After the humiliating lack of military progress in Ukraine, a coup by disgruntled hardline “siloviki” seemed much more likely. However, after Prigozhin’s failed march on Moscow and his subsequent plane crash, this scenario can also be put to rest. The Wagner force has been tightly integrated into the Ministry of Defense and is once again mainly active in Africa.[49]

Apart from the fact that he has his “siloviki” faction under control, Putin has been successful so far because he has been able to put together an A-team for economic policy. Both Sberbank CEO Hermann Gref (a Russo-German), Central Bank President Elvira Nabiullina and Prime Minister Mikhail Mishustin have been unanimously praised by the Western press for steering the Russian economy safely through all adversity.[50] In fact, with an approval rating of 72, Mishustin is by far the second most popular politician among Russians.

However, Putin, who is running for president again in 2024, has so far refrained from publicly building up a successor. One reason for this scepticism could be the experiences of his closest post-Soviet companions. Although the former long-serving Kazakh President Nursultan Nazarbayev carefully prepared a model for the transition of power in which he, as head of the National Security Council, would still have the final say, he was unceremoniously and unceremoniously sidelined by his successor Kassym-Jomart Tokayev in January 2022.[51]  The anti-government uprisings at the time were ended with symbolic assistance from units of the Russian-led CSTO alliance.[52] And during the ongoing protests in Belarus a year earlier, some members of President Alexander Lukashenka’s inner circle took conspicuously (too) long to publicly declare their loyalty to him.

But if Putin, who is already 71 years old, does not name a political heir in the foreseeable future, what could come instead? The political situation in the Russian Federation is comparable to that of the Roman Empire, where the question of succession to the throne was never really resolved. Although there is an internal struggle for power between the various factions, the so-called “bashni”, or “Kremlin towers”, the problem is that this competition is not systematized, ideologized and made accessible to a broader public, as is the case in the formal two-party system in the United States.

In addition, public perception is largely divided between a minority of economically and socially liberal “westernizers” (zapadniki) and a majority of ultra-conservative, almost Soviet-nostalgic statists (derzhawniki). Both are dogmatic and naive in their orientation. What is missing is a political and ideological force that adheres to Putin’s geopolitical and value-conservative line, but at the same time advocates a more dynamic market-oriented and competition-driven environment.

In fact, the Russian system to this day is still based on government capitalism, which relies on a handful of strategic state-affiliated conglomerates the profits of which, mainly resource rents, are redistributed to finance the military, research, the social sector, and everything else. This economic system may be stable, but it is also prone to a new “Brezhnev stagnation” or “institutional inertia” with tired growth rates of 1.5 percent a year, as a leading think tank close to the Russian deputy prime minister recently described it.[53]  As we all know, stagnation is decline. And “life punishes those who are late”, as Gorbachev once said.[54]

Instead, a gradual changeover from failed import substitution to a value-added and export-oriented policy based on a broader middle class is necessary.[55]  As the history of post-war West Germany or the Asian tiger economies of Korea and Taiwan has shown, this is the only way to modernize. Whether this takes place with a social “westernization”, as in the case of the Federal Republic of Germany, or without, as in the Far East, remains of secondary importance. It is “optional”, as the Russian philosopher Alexander Dugin recently claimed – as long as national sovereignty remains the supreme state doctrine.[56]  So far, however small and medium-sized enterprises in Russia only account for a fifth of economic output, while in rapidly deindustrializing Germany they still generate more than one in four euros.[57]


What will Russia’s future look like? Which of the trends and factors described above will prevail in the end? “Child poverty” or resource wealth? A hand-picked but effective crisis team or the lack of a free economic order? The conclusion of this prognosis is left to the responsible reader. As far as the author is concerned, I may end up sticking to the simple truth: “You will not grasp her with your mind or cover with a common label, for Russia is one of a kind — believe in her, if you are able…”.


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