Weekly 29 August 2021

Pre-election populism

Hello! This week our top story is President Vladimir Putin’s promise of a one-off payment to soldiers and pensioners to boost support for the ruling United Russia party at upcoming elections. We also look at a spat between Wildberries — the ‘Russian Amazon’ — and payment systems Visa and Mastercard, as well as Russia’s new carbon emissions reduction strategy that allows for… an increase in carbon emissions.

Putin’s populist pre-election handouts to pensions & soldiers

Russian President Vladimir Putin last weekend said the government would make one-off financial payments to pensioners and soldiers. This comes less than a month before parliamentary elections — and as the authorities look to give people reasons to vote for the ruling United Russia party.

  • Putin unveiled the one-off 15,000 ruble ($205) payment to military personnel and 10,000 ruble ($137) payment to pensioners at a meeting with United Russia activists Sunday. His explanation for this step was that an annual 1,000 ruble increase in pensions was being negated by inflation.
  • The extra money for pensioners and soldiers will сost the state about 500 billion rubles.
  • For most pensioners, 10,000 rubles will be very welcome — the average old-age pension for those not in employment is 17,500 rubles a month. And, in effect, it will compensate for a fall in the real-term value of pensions in recent years. The fact is that, in real terms, pensions are now worth 2 percent less than their 2014 peak — and have started to fall again this year. Worse still, the pension-to-wage ratio is deteriorating. Military salaries were de facto frozen in 2019.
  • From an economic point of view, payments to pensioners and servicemen — like those to families with school-age children announced last month — could drive up inflation. But the Kremlin is calculating they will help increase the vote for United Russia in September parliamentary elections. Despite the support of Putin, United Russia’s fortunes have waned in recent years and one recent poll suggested its popularity was at a 13-year low.
  • With these handouts to pensions and soldiers, the Kremlin has managed to offer one-off financial bonuses to roughly half the electorate — and all the major social groups likely to vote for United Russia.

Why the world should care: The Kremlin is doing everything possible to insure itself against unpleasant electoral surprises. And September’s parliamentary vote is already one of the most tightly-controlled in post-Soviet Russia: protests are banned (because of the pandemic) and new laws on postal votes and polling stations offer more opportunities for vote rigging than ever before.

‘Russia’s Amazon’ battles Visa and Mastercard

Russia’s biggest online retailer Wildberries became embroiled last week in a public fight with international payment giants Visa and Mastercard after an announcement that customers will escape commission fees if they use Russian payment services. Visa and Mastercard believe Wildberries’ decision is a violation of consumer rights.

  • Wildberries announced changes to its payment terms earlier this month, instigating a 0-percent commission scheme to encourage customers to use Mir (a payment system created by Russia’s Central Bank), SberPay (run by state-owned banking giant Sberbank) or other local options. When using Visa or Mastercard, customers now have to pay a commission of 2-percent of the cost of the goods they are ordering.To justify their decision, Wildberries said that international payment systems offer far lower commission rates in other countries and claimed this was “obvious discrimination against Russian businesses”.
  • Purchase commissions for international payment systems in Russia are between 1.2 percent and 2 percent, while Mir offers 0.8 percent. The difference in price is mostly because Visa and Mastercard have to pay Russia’s National Payment Card System to process transactions (the result of a 2014 Russian law that was passed after Visa and Mastercard stopped servicing cards issued by banks that had their shareholders sanctioned by the U.S. government).
  • Visa and Mastercard believe that Wildberries’ new approach is in violation of consumer rights — and the companies have reportedly threatened to fine banks processing payments with the Wildberries 2-percent commission.
  • It’s not yet entirely clear why a player as big as Wildberries has decided to take on Visa and Mastercard. Wildberries’s Russian competitors (Ozon, AliExpress, Yandex) have made no official comment on the situation, but sources close to these companies told Forbes they were surprised by Wildberries’ behavior. “International systems don’t twist anyone’s arm. Everyone continues to work with them. Nobody in their right mind wants to quarrel with Visa and Mastercard,” one source told the newspaper. Some suspect that Wildberries’ decision might be a marketing ploy or a bid to get better terms from the payment services.
  • A massive internet marketplace, Wildberries is unofficially known as the ‘Russian Amazon’, and has underwritten its growth by catering to low-income consumers via offline collection points, free delivery, and rolling discounts. Wildberries founder Tatyana Bakalchuk is ranked by Forbes as Russia’s richest woman with a fortune estimated at $14 billion.

Why the world should care: A few years ago, no Russian e-commerce operation would have dared quarrel with Visa and Masterard. But now Wildberries — with an annual turnover of $6 billion — can clearly afford such a step as it searches for commercial and political advantage.

Russia’s CO2 reduction strategy envisions rising emissions through 2050

The Russian government is discussing a new strategy to reduce greenhouse gas emissions. It has yet to be made official, but journalists from several Russian publications including The Bell obtained a draft copy this week. The baseline scenario is that emissions will drop 25 percent through 2050. However, this reduction is supposed to come largely from the absorption of carbon dioxide by Russia’s forests. In almost all areas of the economy — metals, transport and agriculture — emissions will increase.

  • The strategy document has been developed by the Ministry of Economic Development. The baseline forecast is that emissions in Russia will fall to 1.19 billion tons by 2050 — a figure that includes carbon dioxide that will be absorbed by forests. How exactly the authorities intend to increase the absorbent capacities of the forests is far from clear, especially at a time when there is a growing problem with forest fires.
  • If you exclude the absorption power of woodland areas, however, the plan sees Russia’s emissions actually rising to 2.29 billion tons by 2050. Increases are expected in almost all parts of the economy — apart from the electric power and utilities sectors. In 2019, Russia’s CO2 emissions were 2.12 billion tons (or 1.58 billion tons if you include the gas absorbed by forests).
  • The Ministry of Economic Development estimates it will cost 1.5 percent of GDP to implement even this baseline scenario and the government is currently discussing how the money will be found. The investment is estimated at a total of $50 billion through 2050 — an average spend of $1.7 billion a year.

Why the world should care: This latest strategy document proves once again that the Russian authorities have little or no interest in actually reducing carbon dioxide emissions.