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Spilt Milk: The Unintended Consequences of Russian Sanctions

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In the United States the Office of Economic Sanctions Policy and Implementation (SPI) holds responsibility for the development and implementation of international sanctions. A key factor in the development of effective international sanction policy and support is the cooperation of various internal organizations.

The SPI focuses on providing guidance to the Department of Treasury and Commerce and continuously works with Congress for the purpose of drafting legislation in order to achieve policy goals in foreign areas. Many of the developed sanction policies focus on placing the largest amount of harm on a targeted state, while simultaneously minimizing the amount of economic harm to the United States and/or neighboring states. Economic sanctions are also enforced in a manner where a threatened state will be rewarded for good behavior through the removal of certain aspects over time. Effective enforcement of international sanctions also relies on joint cooperation of the Office of Foreign Assets Control Department of the Treasury, Bureau of Industry and Security Department of Commerce, and the President’s Export Control Reform Initiative. But as we shall see, these carefully laid rules have not worked well in the Russian case.

Economic sanctions involve several financial initiatives, such as annual appropriation bills. Over the years, sanctions have become a very popular first-action initiative in foreign policy maneuvers. This so called post-Cold War movement has created an increasing number of sanction impositions on foreign nations. Between 1993 and 1997 alone there were 61 U.S. laws and executive orders enacted against 35 countries. According to the Institute for International Economic Sanctions, U.S. sanction enforcement cost the United States between 15 and 19 billion USD in 1995 alone.   Just such sanctions have been imposed on Russia today due to the recent activities occurring in Ukraine. While initially effective, the potential for major economic turmoil to neighboring countries is very real due to the important role that Russia plays in the regional economic system and beyond.

How much sanction imposition is too much? Imposing economic sanctions on nations that are heavily involved in trade, import, and export could have serious ramifications to surrounding areas, resulting in more harm to not only the neighboring countries but the global system as well. Affected states or nations could in turn punish sanction-supporting entities by cutting off valuable supplies, resulting in a downward economic spiral. Economic sanctions by the U.S. and the EU onto the Russian government have resulted in this kind of collateral damage and intentional retaliatory actions. For example, a smaller but no less relevant consequence has been Europe facing one of its largest dairy farmer economic crises in the last decade. In the case of the Swedish farmer who needs the cost of milk to remain at roughly 3.6 and 3.7 krona in order to survive, the current milk cost is at 2.65 krona, creating a true crisis for Sweden. This could lead to the bankruptcy of a large portion of the 4,200 private dairy farmers that currently exist there. Such negative effects, even though seemingly insignificant, can and will spill into various other industries and create a negative cascade effect on the everyday lives of ordinary citizens across many countries.

The impact of economic sanctions on Russia has had a very far reach. Eastern and Central Europe is feeling the same struggle in dairy farming economics seen in Sweden. Massive quantities, 500 to 1,500 tons of dairy products that typically went to Russia, now need a new home due to the inability to export products there. Germany lost 12,600 tons of cheese, equivalent to 1.26 million dollars, due to sanctions against Russia. For those who hold a close economic relationship with Russian trade, such as the Baltic States, sanction enforcement can have long-term ramifications leading to great economic stress and internal turmoil. Current global policy does not offer side support to offset the harm being done to nations peripherally connected to target nations under sanction enforcement.

The continuous enforcement of economic sanctions on Russia will lead to not only short-term ramifications, but long-term economic strains on the Russian economy for years to come. Russia is suffering from inflation, foreign capital is continuing to flow out of Russia, and its 2 trillion dollar economy is beginning to stall. The bans imposed by the U.S. and EU on transactions with Russian companies such as VTB Group, OAO Novatek, OAO Rosneft and OAO Gazprombank have created a great deal of financial stress on the people of Russia, not just Russian oligarchs. According to a report from Bloomberg Business, construction volume has fallen by 8.1 percent, while retail sales have dropped over 8.2 percent. As previously mentioned, there is a great risk that sanction enforcement could lead to harmful economic spill-over to neighboring nations. Therefore, the U.S. has tried to ensure that existing contracts between states would be honored in order to limit the potential for additional foreign economic strain in the short-term.

The most crucial long-term ramification from sanctions on Russia, however, is the negative impact it will have on disconnecting Russia from the global economy. Over the last several years the integration of the Russian economy brought 140 million new Russian players onto the global market, creating a financial boom that began to finally create a legitimate Russian middle class. Now that economic integration has been threatened, the potential of seeing that middle class disintegrate beyond recovery is very real. It is ironic that the United States, the leader in pushing Russia into the global economy and wanting consolidated democracy to take root there, has single-handedly also created a counter-force that could risk those priorities. It is a clear example of when short-term national security concerns trump and compromise long-term ones.

Nevertheless, the U.S. is not short on allies when considering further sanction extensions. Russia’s inability to create and hold a cease-fire in Eastern Ukraine is said to be undermining international diplomacy. It is clear both the U.S. and EU consider that failure to be purposeful.   Allies and adversaries do not have to be government entities alone, however. The general public can play an equally important role. According to a poll done by American news corporation CNN, 59% of people approve of economic sanctions imposed on Russia. While public support is crucial for international policy enforcement at first, long-term economic spill-over due to strict sanctions can cause a shift in approval ratings over time. Import and export trade limitations with Russia will continue to have a negative impact on Europe and the United States. The longer this plays out, the more likely international support may wane.

While the overall impact of sanction enforcement on Russia could lead to more international instability and disruption, it seems to be having minimal impact on Vladimir Putin and his agenda at home. While economic sanctions have been a nuisance on the Russian government, it is the people of Russia that seem to be paying the largest price. Traditionally, this is exactly when those imposing the sanctions hope for internal pressures to enact change within the target nation. But in Russia the opposite has actually occurred: able to effectively and compellingly show the decline in everyday standards of living coinciding perfectly with the imposition of foreign sanctions, Putin has actually seen his home approval rating recover and increase to levels never before seen. In this case, it seems something as small as spilt milk has a diplomatic and geopolitical ripple effect far more significant than the U. S. and EU ever thought possible.

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St. Petersburg International Economic Forum 2018

Kester Kenn Klomegah

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The St. Petersburg International Economic Forum 2018, one of the annual international platforms that brings together political, industry and business leaders to discuss the most pressing issues affecting global economics, development and finance, will take place on May 24 to 26 in St. Petersburg.

Ahead of the forum, the official website of the President of the Russian Federation has published his welcome greetings to participants, organisers and guests. In his greetings, Putin expressed his confidence that ideas and initiatives to be developed during the forum would facilitate the recovery and growth of the world economy.

“By harnessing the wealth of scientific and technological potential which is rapidly expanding in digital and other areas today, we can improve quality of life and boost stable and harmonious development in all nations and across the world as a whole,” he stressed in his message.

“And it is crucial that we strive towards increasing mutual trust, promoting wide-ranging integration processes, realising large-scale and promising projects. Russia is always open to this kind of partnership and cooperation,” Putin said.

According to RosCongress, the event organiser, about 15,000 guests from more than 140 countries expected to participate in the forum. France, China, India and Japan as guests of the forum will have their own exhibition pavilions on site, which will house a presentation area and a business space for delegations and representatives to interact with business partners from other countries.

Delegations from Germany, Switzerland, Sweden, Greece, Italy, India, Saudi Arabia, Qatar, Israel, Vietnam, USA, Canada, African countries and others will participate in various business events. BRICS member states (Brazil, India, China and South Africa) have been prominently represented there.

For foreign participants, including Africans, the forum is very useful for networking and discussing business strategies, and serves as an important study platform for deepening knowledge about the economy and possible ways of transacting business in Russia.

Series of official speeches and panel discussions will undoubtedly dominate the three-day event. The special sessions on business and investment opportunities will include the “Russia – Africa Business Dialogue” that has generated increasing interests among Russian and African businesses, international companies, African governments and institutions.

According to Anton Kobyakov, Adviser to the President of the Russian Federation and Executive Secretary of the SPIEF Organising Committee, the upcoming forum will hold two special celebrations marking the occasions related to the continent: Africa Day and the 55th anniversary of the African Union.

“Economic cooperation between Russia and Africa has been developing rapidly during recent years. We have seen a positive dynamic in trade with Ethiopia, Cameroon, Angola, Sudan, Zimbabwe and other countries”, says Kobyakov. “I strongly believe that Russian-African cooperation at SPIEF, Russia’s largest forum will stimulate trade and economic ties, as well as investment activity.”

Kobyakov further disclosed that during the event, experts will share best practices and discuss new opportunities for implementing joint projects in the BRICS countries. Sergey Katyrin, the President of the Chamber of Commerce and Industry of the Russian Federation, will moderate the session.

“The paramount task for BRICS is to continue strengthening efforts aimed at solving international issues in the spirit of unity, mutual understanding and trust. The prospects for cooperation and joint efforts of the BRICS member states will be discussed at the SPIEF 2018. I am confident that this will give momentum to further development of a fruitful dialogue on key world issues,” Kobyakov says.

Over the past few years, Russian authorities have made relentless efforts toward raising Russia’s political influence and economic cooperation in some African countries. Thus, discussions at the forthcoming forum will undoubtedly focus on reviewing the past and the present as well as proposing practical and the most effective ways to facilitate investment activities and that might include promising areas such as infrastructure, energy and many other sectors in Africa.

On her part, Alexandra Arkhangelskaya, a Senior Researcher at the Institute of African Studies and a Senior Lecturer at the Moscow High School of Economics said in an interview with me that Russia and Africa needed each other – “Russia is a vast market not only for African minerals, but for various other goods and products produced by African countries.”

Currently, the signs for Russian-African relations are impressive – declarations of intentions have been made, important bilateral agreements signed – now it remains to be seen how these intentions and agreements will be implemented in practice, she pointed out in the interview.

The revival of Russia-African relations have be enhanced in all fields. Obstacles to the broadening of Russian-Africa relations have be addressed more vigorously. These include, in particular, the lack of knowledge or information in Russia about the situation in Africa, and vice versa, suggested Arkhangelskaya.

“What seems to irk the Russians, in particular, is that very few initiatives go beyond the symbolism, pomp and circumstance of high level opening moves. It is also still not clear how South Africa sees Russia’s willingness (and intention) to step up its role in Africa, especially with China becoming more visible and assertive on the continent,” said Professor Gerrit Olivier from the Department of Political Science, University of Pretoria, in South Africa.

Today, Russian influence in Africa, despite efforts towards resuscitation, remains marginal. Given its global status, Russia has to be more active in Africa, as Western Europe, the European Union, America and China are, but Russia is partially absent and playing a negligible role, according to the views of the retired  diplomat who served previously as South African Ambassador to the Russian Federation.

“Russia, of course, is not satisfied with this state of affairs. At present diplomacy dominates its approach: plethora of agreements entered into with South Africa and various other states in Africa, official visits from Moscow proliferate apace, but the outcomes remain hardly discernible,” he said.

“The Kremlin has revived its interest on the African continent and it will be realistic to expect that the spade work it is putting in now will at some stage show more tangible results,” Professor Olivier wrote in an email query from Pretoria, South Africa.

Last June 2017, the African representatives including heads of state, deputy president, ministers or their deputies, entrepreneurs and diplomats came to the St. Petersburg forum from Angola, Algeria, Burundi, Egypt, Gabon, Guinea, Morocco, Mozambique, Namibia, South Africa and Zimbabwe.

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Social protection for Filipino workers in the Russian Federation

Kester Kenn Klomegah

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Foreign Minister Sergey Lavrov with Philippines’ Secretary of Foreign Affairs Alan Peter Cayetano

The Philippines and Russia get closer to signing an agreement that would protect Filipino workers in the Russian Federation. As the number of migrant Filipino workers increases, Moscow and Manila are busy negotiating a bilateral labour agreement that could allow thousands more overseas workers into various sectors of the Russian economy.

On May 15, formal discussions were held by Foreign Minister Sergey Lavrov with Philippines’ Secretary of Foreign Affairs Alan Peter Cayetano in Moscow.

Sergey Lavrov noted: “We are interested in ensuring that Filipino workers, who work in the Russian Federation, are socially protected. Many of them were here through private companies, often without the necessary licenses.”

“All this does not provide social protection for Filipino citizens working in the Russian Federation. With the conclusion of the agreement, the beginning of preparation of which we have agreed today, we will solve these issues. We have such agreements with a number of other countries, including ASEAN member States,” he promisingly added.

Earlier, a Regional Migration Specialist at the International Labour Organisation (ILO)’s Regional Office for Asia-Pacific in Bangkok (Thailand), explained in an interview with me that a comprehensive labour agreement between Russia and the Philippines could be positive, if it established procedures and standards for the recruitment, employment and subsequent return of migrant workers.

According to the Philippines Overseas Employment Administration (POEA), Russia officially registered nearly 15, 000. Consequently, such an agreement (could) guarantee the labour rights of migrant workers and eliminate or limit recruitment costs. It will further provide Filipino workers with access to emerging labour market there.

The Federal Migration Service (FMS) office in Moscow has also explained that “official” Filipino workers are entering the country on tourist or business visas, assisted by middlemen and local licensed agencies that often act as migrants’ direct employers and channel them straight into labour market.

The Philippine government has been negotiating for better regulations and working conditions for its citizens for the past several years with little or no conclusive results.

In March 2012, for instance, the then Philippine Secretary of Foreign Affairs, Albert Del Rosario held an official discussion in Moscow with Minister Sergey Lavrov on the possibility of sealing a bilateral labour agreement.

Besides, a string of events and conferences over the years have highlighted renewed interests in developing the market of overseas Filipino workers, who are believed to be one of many solutions to Russia’s human resource needs.

Many experts believe that economic modernisation in Russia depends heavily on skilled foreign labour, limited to certain specific sectors like domestic work, finance, and construction.

The fact that Russia willingly entered into the negotiations implies not only that it has an urgent need for the services of foreign workers but also that it is fully aware of the benefits of such an agreement.

Experts have pointed to the Philippine government’s success in deploying its workforce abroad, in many foreign countries. About 10 percent of The Philippines’ population of 90 million people works abroad, with regular remittances accounting for up to 25 percent of the country’s gross domestic product (GDP).

Some estimates put the total contribution to the Philippine economy by specialists working abroad at $50 billion last year.

The Philippine Overseas Labour Office in Rome (Italy), explained to me that the Philippine government has an official policy of deploying Filipino workers only to countries that guarantee protection and promotion of their rights, welfare and interests.

Under a recently enacted law, the Philippine government banned its nationals from seeking employment in countries that do not guarantee the rights and welfare of foreign workers, or whose local labour and social legislation does not cover migrant workers.

Quite recent, the Philippines government and the Kuwaiti government signed an agreement on the recruitment, use and protection of Filipino workers after a diplomatic row over abuse and inhuman treatment of working Filipinos.

It therefore implies that The Philippines and Russian authorities have to work on effective ways to establish and improve the bilateral legal framework for mutual benefit for both countries. *This special report from Kester Kenn Klomegah, an independent researcher and policy consultant, in Moscow.

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The Russian strategy towards North Africa

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As John Mearsheimer quote “The ideal situation for any state is to experience sharp economic growth while its rivals’ economies grow slowly or hardly at all”. Russia paves the way to tighten its economic and military cooperation’s with Egypt as one of the main North African allies so far.

Russian keen interest in Africa, particularly North Africa, began in the 18th century, with benefits and incentives in the Mediterranean bowl as part of an expansion strategy that was based on economic, political and military estimation.

Africa changed between east and west in terms of alliances which helped form its, economic, cultural, political and militarily balance. Like now, after changes in the status of relationships among alliances, and after structures of the region shifted with a picture that is different to the previous one that had seen over the era of the alliances of the former Soviet Union during the Cold War, Russia is back again after the removal of the Americans. This time, Russia came to the region with the notion of regional rivalry, after a long time, which could make it a key actor until the US resets its position. Russia has put all its power and influence on playing a role in which it would take back its position in North Africa towards enlarging and deepening the economic and investment cooperation as well mutual relations that back to the 1960s.

Due to this, Russia has taken many steps that show its mutual incentive and awareness in North Africa with the main interest in Egypt. This came after the decline of Egyptian-American relations, so Russia and Egypt signed many political agreements, including one of the important agreement which is modernized Egyptian air defense system. This step is advised a Russian warning to the Americans that it is on its way to subjoin one of its significant allies in the region, which used to experienced strategic and military cooperation depend on mutual interests. American vessels used to be the first one when crossing the Suez Canal and could use its air zone in interchange for annual military aid equivalent to $1.3 billion in 2013, which America froze in protest upon the displace of the first democratic regime in Egypt that came after the January 25th Revolution and the coup d’état against legitimacy.

The objective of Russian return to the region is not incomparably limited to economic arbitrations; there are mainly arms contracts, security exchange in fighting terrorism and upgrading trade process. Other than Egypt, there are also other promising destinations which began with diplomatic visits, such as Morocco and Algeria. The significant aspect of returning of Russia to North Africa at this time is the lack of any ideological agenda in the new agreements and cooperation plans.

Currently, Russia embarks to Egypt; the foremost step reaches several targets. Basically, Egypt is seen as geo-strategic access and convenient gateway through Africa, and sub-Saharan Africa where the natural resources wealth of uranium, gold, oil and maritime exist. These natural resources might be a rational reason for future dispute between Russia and America, especially after US withdrawal from North Africa, but only after having strengthened its presence in sub-Saharan Africa and safeguards Maritime roads for Gulf oil through the region.

As long as the two superpowers competing, North Africa is the free land of future investment that requires an agreement between the Russia and America, especially as other powers, such as China, are present and access Africa from its center. China was involved and engaged in exploring and manufacturing Sudan’s oil, before the division of the state of South Sudan in 2011. Today China is growing its activities after most oil fields became part of South Sudan. In addition to the new state, China has other markets in central Africa and the east. It only collaborates and participates in economic and trade sectors and infrastructure construction in Sudan.

The Russian president Putin embark to Cairo last Monday after a concise and unpublished visit to a Russian military air base in Syria. The air base has offered the main ledge for the air campaign Russia has undertaken since September 2015 under the backing of Syrian President Basher Assad.

Egypt’s constantly close ties with Russia get back to the 1950s and 1960s when Egypt became a close Russian ally at the height of the cold war. Therefore, Egypt changed sides in the 1970s under the late President Anwar Sadat, who replaced Moscow with Washington as his country’s chief economic and military backer following the signing of a U.S.-fund peace treaty with Israel in 1979. Egypt has since become an important successor of American. aid. Under el-Sisi, Egypt has been able to sustain close relations with both Russia and the United States.

In term of Military Cooperation, Sisi and Putin also tackled about Syria and mutual rejection of U.S. President Donald Trump’s decision to recognize Jerusalem as the capital of Israel, a move that has sparked protests across the region and from European capitals as well. The high-level Russian visit comes after the U.S. government in August decided to deny Egypt $95.7 million in aid and to delay another $195 million because of its full failure to make progress on human rights and democratic norms.

Russia started a military operation to back and support Syrian President Bashar al-Assad in September 2015, and there are clues Moscow is keen to enlarge its military existence in the region.

To sum, Russia chose Egypt for its geopolitical and strategically partner combining three continents. Therefore, let’s see how Russia could maintain its presence in the region showing off its ability to promote economic interests, especially with African partners. So will Africa be for Russia alone?

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