Russian Businesses Maintain Loyalty to Kremlin Despite War-Related Losses

Executive Summary:

• Russian businesses have experienced serious losses since the beginning of the war in Ukraine due to Western sanctions, but many continue to trust the Kremlin.
• Some companies viewed the sanctions and the isolation of Russia as an opportunity for growth in the domestic market, but these opportunities cannot make up the losses incurred by the enterprises’ loss of access to the global market.
• Personnel shortages due to the war in Ukraine and the mass exodus of young people to escape mobilization have created a multiplicity of issues for Russian businesses, including a lack of applicants and workers.

The beginning of the full-scale invasion of Ukraine was a serious blow to the Russian business sector. It did not, however, lead to a break in the private sector’s relations with the Kremlin. Associate researcher Andrey Yakovlev at the Business Center of Harvard University offers several reasons for such behavior. First, in his words, business representatives are no different than the rest of Russian society, and therefore are affected by propaganda and feel the psychological need to justify the war to preserve their worldview. Besides this, the Russian business community has long been accustomed to depending on the government, which was significantly deepened during the COVID-19 pandemic. The basic motivation of entrepreneurs in Russia has been to save businesses from sanctions that Russian businessmen consider unfair. Against this background, the actions of the West were viewed as malicious, which contributed to consolidation around the Kremlin (Istories.media, April 22).

Analysts note that the vacuum left behind after the withdrawal of Western enterprises and growing consumer demand have led to increased profits for small and medium-sized businesses in Russia since the beginning of the war. In 2023, the total value of sales of small and medium-sized companies grew in nominal terms by almost 20 percent, or by more than 11 percent in real terms. According to economists, sanctions have opened new opportunities for business growth through participation in the restructuring of supply chains and the replacement of companies that have left the Russian market. Another factor was the growth of domestic demand and, in particular,the rising incidence of Russians choosing to vacation domestically. Due to restrictions caused by the war in Ukraine, a significant portion of funds that Russians would previously spend abroad have been used within Russia (Re-Russia, April 25).

The results of a survey of entrepreneurs conducted by the journal “General Director” show that since the beginning of the war, general directors and business owners have been faced with a drop in revenue and demand, rising housing prices, problems with equipping products with equipment that was formerly imported, a shortage of personnel and working capital, etc. (Вusiness.ru, May 23, 2023). An even more serious test for Russian business, however, may be the redistribution of property in favor of the security forces. This not only includes the “nationalization” of companies that previously belonged to Western owners, but also Russian enterprises.

In the summer of 2023, the Prosecutor General’s Office of Russia filed about 20 lawsuits demanding that several companies be transferred to the state. In December 2023, Russian President Vladimir Putin transferred the Russian-owned Rolf Group, the country’s largest automotive dealer, under the temporary management of the Federal Property Management Agency. The Kremlin attributed this to “economic feasibility” and the presence of “various ownership schemes” for the company, which “required intervention.” On March 28, the Prosecutor General’s Office filed a claim with the Central District Court of Chelyabinsk to convert the shares of Russia’s largest pasta manufacturer, Makfa JSC, into state income (RBC.ru, March 29). Simultaneously, companies associated with people close to Putin are collecting assets in the chemical industry utilizing the same nationalization mechanism (Forbes.ru, December 25, 2023). Putin utters assurances that there is no talk of revising the results of Russia’s privatization drive in the 1990s yet. He also stated, however, that “the seizure of a business into state ownership is justified in cases where the actions or inactions of the owner harm the security of the state and national interests” (Meduza, April 25).

It has become easier for security officials to condemn businesses whose actions—or worse, lack thereof—may run counter to “government interests.” “Patriotic” media outlets have long been outraged by the fact that the “super-rich do not help the front” and “care only about preserving their wealth.” War correspondents and other “social activists” call for “coercive measures” to correct the situation and speed up nationalization (Svpressa.ru, January 25, 2023). Such calls are becoming amplified by the rising reach and number of pieces scrutinizing the behavior of Russia’s elite. Once the sole province of the opposition, articles on this topic are now regularly published on radical patriotic platforms.  For example, the far-right Tsargrad TV channel voiced its outrage over the fact  that the children of the Russian elite live in Dubai or Bali, citing anti-corruption investigations by the Anti-Corruption Foundation (Тsargrad.tv, April 23).

Still, another risk for Russian businesses may be a new wave of mobilization. The government is actively trying to replenish its army with conscripts, forcing them to sign contracts, and to attract new volunteers, the number of which remains small. The outlet “Vazniye istorii,” citing military experts, indicates that if the Russian Army continues to fight as it has in recent months, a mass mobilization will not be required. A mass mobilization could, however, happen should there be a major operation in a new direction, such as, for example, an attack on Kharkiv (Istories.media, April 22).

For the owners and employees of enterprises associated with the military-industrial complex, there is an added risk: the growing number of criminal cases for treason and the disclosure of state secrets. Over the past year, a total of 70 cases of “treason” and confidential cooperation with a foreign state were brought to trial, a record in post-Soviet Russia. Thirty-seven people have already been convicted. The accused are not only young people who wanted to join the armed forces of Ukraine, but also scientists completely loyal to the state. Following the Russian invasion of Ukraine, for example, several employees of the Institute of Theoretical and Applied Mechanics of the Siberian Branch of the Russian Academy of Sciences, as well as the head of the laboratory of quantum optical technologies of Novosibirsk State University, were accused of treason (Deutsche Welle, December 21, 2023).

Without exception, Russian enterprises have been unable to overcome the personnel shortage caused by the war, mobilization, and emigration that followed, primarily of young people. For the second year in a row, the number of resumes posted on the largest Russian recruiting agencies’ websites have been only a tenth of  the number of vacancies posted (Re-Russia, April 12). As experts note, the very structure of the Russian market—“low unemployment benefits, low minimum wages, and high redundancy costs”—makes it impossible to overcome this problem (Re-Russia, April 24).

This all does not mean that businesses will “revolt” against the Kremlin if faced with worsening problems.Russian entrepreneurs will try to save at least part of their revenues, displaying maximum loyalty to the government while simultaneously being “confined” to Russia and unable to return to Western markets. However, discontent is brewing within Russian society, increasingly sharpening the contradictions between the “old” financial elite and the security forces (siloviki) that are displacing them.