Populist vacations

Hello! This week our main story is about why Russians have extra vacation days this May and who will pay for President Vladimir Putin’s ‘gift’ to the nation. We also look at a political crackdown that gathers pace with each passing day, and the story of Xsolla, a company offering payment services for online gamers, which was invented in the city of Perm and is now estimated to be worth $3 billion. 

As a result of the Russian holidays, we will not be issuing a newsletter next week. 

Russia goes on vacation — again

When the government ordered companies to send staff home on full pay amid the onset of the pandemic last year, many quipped that President Vladimir Putin had gone into someone else’s bar and announced: ‘the drinks are on the house!’. Now, the same gag is back. Putin revealed on April 23 that Russians will get an extended May holiday (from May Day through to the Victory Day celebrations — a total of ten consecutive days). The businesses that will have to pay for Putin’s generosity are less than thrilled.

• Russians already get more vacation than citizens of any other developed nation. For example, in 2019, Russians had 42 non-working days (state holidays and official annual leave allowance), plus regular weekends. That’s four times more than Americans. In particular, Russians enjoy a 10-day ‘New Year vacation at the start of January.
• Having said that, productivity differences mean that the economic impact of a non-working day in the U.S. is far higher than in Russia. The average Russian generates just $26.40 in an hour’s work, while his U.S. counterpart produces $71.80, according to OECD data from 2019.
• Economists surveyed by The Bell agreed that the extended May holidays will not have much impact on the Russian economy. But this isn’t exactly good news: it’s more a case of ‘so bad, it’s good’. For one thing, even without the extra holiday, the Russian economy usually grinds to a halt in early May: activity slows and many treat the gap between official holidays as de facto time off. For another, economic growth is almost non-existent. Over the last five years, the best annual figure has been 3 percent growth (and there have also been year-on-year contractions). Finally, unlike last year’s enforced holiday period, there is no national lockdown. This means the hospitality sector will be working flat out and can compensate for some of the losses elsewhere.
• It’s unclear exactly how holidays and GDP growth are connected. In Hong Kong, 2008 research showed one additional holiday every three months stimulated so much consumption that GDP rose 0.34 percent. However, the experience of Malaysia shows the “sudden announcement of public holidays” can damage the economy. 
• The Russian companies footing the bill for Putin’s ‘gift’ aren’t happy. The Bell spoke to about a dozen small and medium-sized businesses and they all said the biggest problem was that the new holidays were unexpected. It’s not just that companies will have to pay for staff who won’t be working —  but that staffing schedules need to be changed at the last minute, and financial planning will be thrown off (working days and holidays generate different revenue).
• Meanwhile, judging by a survey on SuperJob (an employment website), almost half of employers have decided to sabotage the long holiday and are asking staff to come into work. This approach is most common in banks, manufacturing and the service sector.
• Many business people believe these holidays are simply a disguise for a mini-lockdown (coronavirus infections are currently increasing in Moscow). Last May, and during the New Year holidays, infection rates dropped even though the hospitality and entertainment sectors remained open for business. And it’s hard to argue with this assumption: the formal request for Putin to extend the holiday came from health watchdog Rospotrebnadzor, the agency coordinating Russia’s pandemic response. Putin simply announced the decision.

Why the world should care

If you work with Russian colleagues, you’ll be used to the total shutdown in business activity that takes place after New Year. Now, you need to get used to the same thing happening at the start of May.

Russia’s political crackdown continues to gather pace

You may be getting tired of reading about Russia’s political crackdown, but it continues apace. Last week we wrote about how the authorities branded top independent media outlet Meduza a ‘foreign agent’, and the week before we described attacks on supporters of opposition leader Navalny. This week — yet again — the headlines were all about pressure on independent journalism, free speech and civil society.

Meduza in battle for survival

As a result of its ‘foreign agent’ designation, advertisers are deserting Meduza. To stop a financial disaster, Meduza asked readers Friday for donations. Since its founding, Meduza has relied on money from advertising: it never had a paywall or crowdfunding. Indeed, Meduza created the Russian market for ‘native advertising’ (quality texts written by professional journalists), which has since become standard media practice.  If you want to help Meduza, you can sign up here. The outlet said Saturday it had raised enough to survive the next few months, but its long-term future remains unclear. 

‘Foreign agent’ law broadened

Putin signed a law Friday that imposes fines for reposting material from ‘foreign agents’ without identifying them as such. These fines can be applied to other media organisations as well as social media users. The law also mandates fines for people who ‘impersonate’ journalists at political rallies (a possible threat to bloggers and foreign reporters who do not have formal media accreditation in Russia).

Restrictions on education

A new law on education was signed off by Putin last month, but the Ministry of Education only published details Saturday of how exactly it would be implemented. The Ministry made clear that no form of educational activity (including lectures, seminars, and round tables) can be undertaken by anyone designated a ‘foreign agent’. And people with less than two years of teaching experience cannot ‘educate’ in scientific or educational institutions (a category that includes libraries). In less formal settings — for example online lectures — things are less clear, according to lawyers. Education sector entrepreneurs guess that they will face more bureaucracy and higher costs. In the worst case scenario, the law will be used as a sword of Damocles, poised to strike anyone who angers the authorities.

Pressure on opposition protesters 

The anti-Kremlin rallies on April 21 were suspiciously peaceful. And it turns out the authorities have just changed tactics: instead of detaining protesters on the street in front of news cameras, they decided to postpone the arrests and turned up at the homes of participants afterwards. In the week after the rally, police visited up to 1,000 people, and hundreds were arrested. Psychologically, this is perhaps scarier than being detained at a protest (police officers came to the home of the author of this text twice on the day of the rally). It creates a feeling of total insecurity.

Such arrests are assisted by video surveillance systems currently working in full force in Moscow and the nearby city of Nizhny Novgorod. Human rights activists have recorded dozens of cases in which police have come to protestors’ homes on the basis of evidence gathered from CCTV footage.

Top lawyer arrested

Pre-trial detention for former journalist Ivan Safronov was extended this week for a fourth time. He has now spent more than six months in detention. Although he is accused of treason, the details of the case remain shrouded in secrecy. Safronov’s lawyer Ivan Pavlov, who also represents opposition leader Alexei Navalny and his supporters, was arrested Friday. Pavlov is a prominent lawyer who has defended dozens of Russians accused of treason. He was charged with disclosing information from an investigation. 

No more U.S. visas

The U.S. embassy announced this week that from May 15 it will only process diplomatic visas, and travel documents required in life-or-death situations. Tourist visas will no longer be issued inside Russia. The restrictions follow Russia’s decision to ban Russian citizens from working in the U.S. embassy, which meant the embassy had to shed 75 percent of its staff. U.S. tourist visas have not been available in Russia since March 2020, forcing Russians to travel to U.S. embassies in neighboring countries. Currently, Kazakhstan, Georgia, Armenia and Ukraine are the preferred destinations. Even so, in all of these countries it can take months to get a free slot to submit an application.

Why the world should care

These incidents are not directly related to one another, but they are all part of the same phenomenon. “The Russian authorities are heading towards totalitarianism,” said Meduza editor-in-chief Galina Timchenko in an interview this week. We are reluctant to agree, but the case against is getting weaker by the day. There’s another important aspect to this situation: as well as being pillars of a free society, media and education are also big business. They are becoming more and more dependent on the state.

The Russian from Perm who built a $3bln-company to process in-game payments

Xsolla is little-known in Russia — let alone abroad. Yet, the payment services company could be worth $3 billion, according to research from Goldman Sachs and Bank of America. Xsolla founder Alexander Agapitov gave an interview to The Bell founder Elizaveta Osetinskaya. It’s a fascinating story.

• Agapitov founded Xsolla 15 years ago in the city of Perm, 680 miles east of Moscow. Its servers allow companies to receive ‘in-game’ payments made by online gamers. In 2020, it recorded revenue of $67 million (75 percent year-on-year growth), and EBITDA was $33 million (up 50 percent). At present the company has offices in the U.S., Russia and South Korea.
• Agapitov grew up in a tiny village near Perm. His mother had a dangerous industrial job: “all her wealth management revolved around the need to wear a gas mask for years in order to retire early,” Agapitov said. His father was an alcoholic. Agapitov began studying at college, but soon dropped out. “I wanted to make money selling jeans,” he said.
• Eventually, he began developing payment systems and became interested in computer games. The result was Xsolla. When Agapitov was 25, he pitched up at the 2009 Game Developers Conference in San Francisco and landed his first big foreign clients. 
• Back then, he told foreigners their systems were over-priced. “Guys, your basic package costs $5. In Russia people pay $5 a month for internet access, and you’re trying to sell them a candy wrapper for the same money,” he recalled saying. Since then, Xsolla has expanded all over the globe. Now, only about 5 percent of Xsolla’s earnings come from Russia (their main markets are the U.S. and Germany), and their payment system is available in 200 countries.
• Agapitov decided to emigrate to Silicon Valley from Perm in late 2009 as a result of a deadly fire that ripped through a nightclub after fireworks were set off on-stage and caused the deaths of 156 people. “A colleague of mine died there. We simply didn’t have enough ventilators. Americans don’t die because of nonsense like that,” he said. The tragedy made such a big impact that he moved his family across the Atlantic within a matter of months.
• Agapitov admitted that he spends up to four hours a day playing online games. “PUBG, Dota – hardcore multiplayer games where you can replay, replay, replay. For me, it’s a way of communicating, like going out to play with the lads in the yard. I play every day,” he said. 

Why the world should care

Whatever the level of political repression, successful IT projects still emerge in Russia. But it’s sad when — like Agapitov and Xsolla — they have to go elsewhere to achieve their full potential.