Alexei Navalny: The poison to Putin’s Russia?

Alexei Navalny, an anti-corruption campaigner, has long been the most prominent face of Russian opposition to President Vladimir Putin. He has in excess of 6 million YouTube subscribers and more than 2 million Twitter followers. Navalny uses these platforms to highlight alleged corruption in Russia, organise political demonstrations and promote his campaigns. On the 2nd of February 2021 he was convicted and sentenced to two years and eight months in a labour camp for violating terms of a 2014 suspended sentence for fraud, despite the European Court of Human Rights ruling against this decision. This came after Navalny collapsed on a flight back in September 2020 after being poisoned with a Novichok agent, which has links to Russian intelligence. Whilst the Kremlin has denied involvement, many see both actions as a power play by Putin to cling to presidential power. Global powers across the globe, including the US and the EU, have addressed this issue and are calling for an immediate justification of the imprisonment. With an already slowing economy, the exacerbation of political tensions could act to further undermine Putin’s Russia.

 

Since 2014, Russia has been experiencing a weakening of its economy due to two primary reasons. The first is the fall in the price of oil in 2014, which caused 90,100 million USD worth of loss in the country’s GDP over the course of the year, according to the Overseas Development Institute (ODI). The second is the result of international political and economic sanctions imposed on Russia following the annexation of Crimea and the Russian military intervention in Ukraine. The IMF’s executive directors have urged Russia to work to ‘accelerate potential growth, address institutional weaknesses and governance issues, strengthen the financial sector and boost investment and productivity.’ Russian actions however have failed to align with this advice. The situation with Navalny has led to further sanctions by the EU in the past week, mainly in the form of trade tariffs. Thus, the Navalny incident has exacerbated an already worsening relationship between Russia and the EU, potentially even leading to a complete break-up of trade relations. The Kremlin is clearly preparing for, with Kremlin spokesman Dmitry Peskov recently stating that ‘Moscow should be prepared to replace any of its vital infrastructure with necessary elements to counter the difficulties that Russia would face if faced with foreign sanctions.’

 

Whilst Russian rhetoric from the foreign minister Sergei Lavrov suggests the country has no fear in ‘severing ties’ with the EU, the impacts this divorce could have may be detrimental to Russia’s declining economy. Russia has experienced a decline in disposable income, the highest in 20 years, which is a by-product of falling oil prices in light of the pandemic. Thus, the country’s relationship with the EU remains central to Russia’s economic recovery. Russia is also heavily reliant on the EU as an exporter of energy, according to the European Commission, with imports from Russia totalling 12 billion EUR in 2019. European markets therefore provide a sense of security to energy producers in Russia, which make up 32.4% of GDP. Severing ties with the EU could thus be dangerous considering Russia’s economic reliance on the bloc.

 

However, Russian investor sentiment remains positive even in the midst of Putin’s public battle with Nvalany and the EU.  The Moscow Exchange (MOEX) increased 138 points or 4.20% since the beginning of 2021, based on trading on a contract for difference (CFD) that tracks this benchmark index from Russia. This is likely to be a long-term trend, with the stock market of Russia expected to return 9.1% a year for the coming years after a rebound from the pandemic. Moreover, Putin’s approval rating has failed to drop significantly since the incident and remains around the 60% mark, unchanged from July 2020 and certainly not as low as in 1999 before he was inaugurated. Thus, it seems his bid to cling to power by exiling Navalny has not come at much domestic political cost or created much financial market disruption.

 

In conclusion, many have suggested that Russia’s political activities including the imprisonment and treatment of opposition leader Alexei Navalny will nudge the country toward a period of economic hardship. Trading blocs, such as the EU, are responding by imposing trading sanctions on Russia. Nonetheless, the Russian markets appear to promise growth and prosperity to investors, as the economy has been on an upward trend since the beginning of this year and Putin’s power base remains unaffected. Whilst the Navalny incident has come at little political cost, the economic cost to the actual population, already crippled by COVID-19 may be revealed in the near future.

 

By Tarun Odedra

Sector Head: Jared Gibson

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