Beyond oil: the international integration of the Russian economy between macroeconomic constraints and sectoral dynamics

ABSTRACT

This study provides new insights into the internal dynamics and international integration of non-rentier sectors in Russia. Our approach consists in analysing the evolution of two non-rentier industries (agri-food and software), focusing on three groups of variables characterising their institutional environment, namely the macroeconomic context, public policies, and private strategies pursued by the main players. Based on the analysis of quantitative and qualitative data coming from field surveys and statistical databases, we introduce distinct forms of international integration that shed light on the players’ strategies in adapting to changes in macroeconomic variables. The following paradox emerged: although the macroeconomic constraints stemming from rent should have hindered the development of non-rentier sectors in a scheme characteristic of the classical ‘Dutch disease’ framework, we have observed that these two industries have been able to continue to develop, each following its own path. Our analysis shows that the mix of constraints and opportunities faced by these industries has shaped their partial autonomy vis-à-vis the rent-based ‘accumulation regime’ characteristic of the country.

KEYWORDS:

• Russian international integration
• non-rentier sectors
• agri-food industry
• software industry
• meso-economic level analysis

Acknowledgments

The authors thank an anonymous reviewer for comments and suggestions that improved this article. The authors are also very grateful to the interviewees as well as to Miriam Rosen who translated an early version of this paper. There is no special funding associated with this paper.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. For the sake of simplicity, we have chosen to limit our analysis to the 2000s and 2010s.

2. The French term régulation used here does not refer to politico-legal ‘regulation’ in the English sense but rather, a process of ‘regularisation’ or ‘readjustment’. ‘Régulation is the study of transformation of social relations that creates new economic and noneconomic forms, organised in structures and reproducing a determining structure, the mode of production’ (Boyer & Saillard, 2001, p. 343). To avoid confusion, we have left régulation in French.

3. The non-oil deficit was 10% to 11% of GDP for certain years https://www.reuters.com/article/us-imf-russia/imf-warns-of-economic-overheating-risks-in-russia-idUSBRE83417020120405 (accessed 30 March 2020). The general budget encompasses the federal, regional, and local budgets and social protection funds.

4. The original Stabilisation Fund was subsequently divided into the Reserve Fund and the National Welfare Fund.

5. Sberbank, Vneshekonombank, Rosneft, Gazprom, Sibneft, and more recently, Bashneft.

6. While being theoretically exposed to foreign competitors, actors in these sectors can lobby to obtain several forms of protection from the government.

7. In the poultry industry, this phenomenon came to be known as ‘Bush’s legs’, referring to the arrival of US chicken quarters on the Russian market in the early 1990s. See for example, Ian Traynor, ‘Bush’s legs walk all over Russians, The Guardian, 9 March 2002 https://www.theguardian.com/world/2002/mar/09/russia.iantraynor (accessed 30 March 2020).

8. On 17 August 1998, the Russian government announced that the rouble would be devalued by a third. In the days that followed, the rouble dropped an additional third on currency markets. When currency trading was suspended in late August, the rouble was worth only about a third of its value in the previous month.

9. For instance, Alexander Samusev, who was the general director of Severnaya Neft, sold it to Rosneft in 2002 to found a multi-activity company named SET-Holding. This holding bought former collective farms in Oryol Region in 2004 to develop the agricultural business. More recently, Vladimir Yevtushenkov, majority owner and chairman of the company Sistema, purchased in 2009 oil and gas companies and founded the Bashneft. In 2014, Sistema acquired STEPPE Agroholding. At present, STEPPE Agroholding, jointly with the Louis-Dreyfus family, controls the company RZ Agro, one of the major producers of grain and oil crops in Southern Russia. Through these acquisitions, Sistema controls more than 400,000 hectares of agricultural land.

10. Drawing on a study carried out in the Oryol region (southwest of Moscow), Grouiez (2014) has shown that the two largest agroholdings benefited from 95% of the farm subsidies granted by the region in 2008.

11. A tariff rate quota is a trade tariff that combines two policy instruments used to protect domestic production by restricting imports: import quotas and tariffs. The quotas set a quantitative threshold for a designated time period for imports of a protected domestic product. Over that threshold, tariffs applied to imports are higher than standard import tariffs. Sometimes, going over that threshold imports can merely be forbidden making the tariff rate quota an import quota policy instrument.

12. Another example of post-Soviet agricultural development that is counter-intuitive when considering neo-classical predictions is given by the cotton industry in Uzbekistan (Lombardozzi, 2019).

13. In Ukraine and Belarus, the presence of the same skills has also permitted the development of dynamic software industries countrywide.

14. A substantial part of this adaptation was accomplished on the basis of illegal copying, as in China more recently.

15. Today’s leading Russian software and internet companies all date from the second part of the 1990s. At its creation in 1993, the Yandex search engine was meant to help find patents. It was transformed into a standalone company in 2000. Mail.ru was originally a St. Petersburg company, founded in 1998 as a software producer for web servers. Eugene Kaspersky founded his own anti-virus company, Kaspersky Lab, in 1997.

16. In July 2014, the Ministry of Communications and Mass Media recognised the absence of statistical monitoring for the sector in these terms: ‘At the moment in Russia there is [sic] no official uniform statistical indicators for the IT industry, so from [the] viewpoint of formal statistics such [an] industry is non-existent’ (Russoft, 2016, p. 26, our corrections of the English text). For the changing Rosstat classifications of the information industries, see Abdrakhmanova et al. (2016).

17. Mail.ru, Kaspersky, Yandex, ElcomSoft, and Group-IB, among others.

18. Based on the calculations of Russoft (2019), we estimated the total value added of IT services at 480 billion roubles in 2018 (0.6% of GDP).

19. Khrennikov I., Sazonov A., ‘A Russian Software Billionaire Takes on SAP and Oracle’, Bloomberg, 15 June 2017. https://www.bloomberg.com/news/articles/2017-06-15/a-russian-software-billionaire-takes-on-sap-and-oracle (accessed 30 March 2020).

20. The case of Vkontakte can provide an illustration of this trend: Vkontakte is the Russian equivalent of Facebook. Pavel Durov, founder of the company, sold his shares following a conflict with the government. The authorities accused him of permitting the creation of an anti-Putin group on his social network. See Nadine Fleischad, ‘12 things you need to know about Russia’s tech scene’, Tech in Asia, 3 November 2015. https://www.rvc.ru/en/press-service/massmedia/rvc/73029/(accessed 30 March 2020).

21. In 2019, the draft law on ‘significant internet resources’ aimed at codifying Russian legal entity or citizen of the Russian Federation as the main owner of such resources, while limiting the share of foreign participation in the Russian legal entity to 20%. The government expressed support for the bill under the condition of raising the limit to 50% minus 1 stake. The draft law particularly targeted major internet companies, Yandex and Mail.ru. However, it was abandoned after Yandex announced a new scheme of corporate governance. Interfax, 18 October 2019, https://www.interfax.ru/business/680969 (accessed 11 May 2020); Interfax, 22 November 2019, https://www.interfax.ru/russia/685179 (accessed 11 May 2020).

22. ‘Russia’s Mail.ru Buys Remaining Stake in VKontakte for $1.47 Billion’, The Wall Street Journal, 16 September 2014.

23. Дуров продал свою долю во ‘В контакте’ из-за конфликта с ФСБ. https://www.forbes.ru/news/255173-durov-obyasnil-prodazhu-doli-vo-vkontakte-konfliktom-s-fsb (accessed 5 October 2020).

24. Technoserv is the biggest Russian systems integrator with an extensive list of clients across telecommunications, manufacturing, oil and gas, transport, banking, and government sectors. The company has a rich history of cooperation with government agencies such as the Federal Tax Service, Federal Migrations Service, Federal State Statistics Service, among others. The government sector and state-owned companies constitute a substantial part of the company’s revenues – 37.1% in 2017 and 53.7% in 2016. The company’s subsidiaries are also present in Armenia, Azerbaijan, Belarus, Kazakhstan, and Uzbekistan. References: www.tadviser.ru/index.php/Статья:Госконтракты_группы_компаний_Техносерв (accessed 13 May 2020) and https://technoserv.com/en/about/customers/ (accessed 13 May 2020).

25. https://www.reuters.com/article/us-usa-cyber-kaspersky/trump-signs-into-law-u-s-government-ban-on-kaspersky-lab-software-idUSKBN1E62V4 (accessed 30 March 2020).

26. https://www.themoscowtimes.com/2020/01/03/will-russia-enforce-new-internet-laws-i2020-a68802 (accessed 30 March 2020). Other examples of these strategies can be found in Lépinay and Biagioli (2019).

27. The new scheme implied the creation of a Public Interest Fund, which coordinates the consolidation of 10% or more of shares of Yandex and transfer of substantial intellectual property and personal data of users, and retains the right to veto the appointment of the CEO of Yandex or suspend him from duties. The Fund is located in Kaliningrad and its board of directors comprises representatives of five Russian state universities, three independent directors, and three top managers of Yandex: https://www.vedomosti.ru//media//articles//2019//11//18//816535-yandeks (accessed 13 May 2020).

28. Since spring 2017, an investigation has been underway in the United States on the potential security risks posed by the American administration’s contracts with Kaspersky, the Russian company specialising in information security. This enquiry was motivated by the alleged ties between Kaspersky’s management and the Kremlin in a climate of distrust further exacerbated by suspicions of Russian interference in the 2016 US presidential campaign.