THE BELL WEEKLY: Border troubles

The Bell

Hello! This week our top story is the armed incursion in the Belgorod region by anti-Kremlin Russian nationalist fighters. We then turn to Erdogan’s victory in the Turkish presidential election over the weekend and discuss what implications it might have for Russia. Finally, we look at the recent drop in share price for retail giant Magnit.

Pro-Ukraine Russian nationalists are becoming a problem for the Kremlin

Last week’s top story was an attack on the Belgorod region by anti-Kremlin Russian fighters backed by Ukraine. Russia’s Armed Forces spent a day-and-a-half repelling the raids in what was the most serious incursion into Russian territory since the war began. Unlike similar raids, this one could not be ignored — and it’s clear that Russian nationalist paramilitary groups were behind the attacks.

  • In the early morning of May 22, fighters from the “Russian Volunteer Corps” and “Freedom of Russia Legion” advanced into Russian territory. These paramilitary groups were founded by Russian nationalists and are made up of Russian citizens fighting on the side of Ukraine. The number of fighters involved in the attack is unknown, but it seems there were at least a hundred. They were well-equipped and received Ukrainian artillery support.
  • Western media (1, 2, 3) have reported on who serves in these two groups. In a nutshell, these are Russian far-right nationalists fighting for Ukraine. There is little doubt that they are not independent, but receive arms, operational support and training from the Ukrainian military. Ukrainian officials deny this, however.
  • The attackers spent a day-and-a-half on Russian territory. The Russian authorities did not announce an end to their “counterterrorist operation” until Tuesday evening. According to Novaya Gazeta Europe, more than 4,000 soldiers and 60 pieces of military equipment were deployed. Russia’s Defense Ministry claimed that “70 Ukrainian terrorists were killed,” while the anti-Kremlin fighters themselves claim they lost just two people. Meanwhile, Russia lost two soldiers and one civilian was killed.
  • Russian soldiers repelling the attack were led by Colonel General Alexander Lapin, the former chief of the Central Military District who found himself in the thick of the first big PR squabble between Yevgeny Prigozhin, Ramzan Kadyrov and the Defense Ministry back in the fall. That spat ended with Lapin’s resignation, but in early 2023 he was appointed to head the headquarters of Russia’s ground forces. Now, Lapin has returned to public view – immediately after the announcement of a successful “counterterrorist operation,” an unusually high-quality video appeared on Telegram in which Lapin yells “For the Motherland!” as he led troops in the Belgorod region.
  • Apart from Lapin’s performance, Russia once again lost the information war. For eight hours, the authorities failed to recognize the nationalists’ incursion and continued to release conflicting information. As a result, the success of the raids was exaggerated — Russian media reported that the paramilitaries made it as far as the small town of Graivoron. In reality, they only entered two small border villages.
  • However, the official reaction was more restrained than after a raid that took place in March. Back then, President Vladimir Putin commented on the incident the same day, saying that neo-Nazi terrorists had deliberately fired on civilians. Yet this time he made no mention of the attack. The Kremlin’s initial response was limited to Putin’s spokesperson Dmitry Peskov saying that Putin would discuss the issue at Friday’s meeting of the Security Council. As usual, that meeting was held entirely behind closed doors and the top item on the agenda was “measures of social guarantees for participants in the special military operation.”
  • However, Russian propaganda could not keep quiet. The news round-up on Vesti Nedeli – the flagship news program of the Rossiya TV channel — made the attack on Belgorod its top story. TV presenter and propagandist Dmitry Kiselev called the raid “a brazen provocation by Ukrainian Nazis” and the reporting was dominated by the suffering of civilians. This resembled a similar report about the March incursion, but there was one big difference: back then, Kiselev did not mention the raiders were Russian nationalists — this time he did. The names Russian Volunteer Corps or Freedom of Russia Legion were not spoken, but the TV presenter did say that “there is no doubt the secret services of Ukraine and the West were preparing an allegedly independent incident involving saboteurs of Russian origin.” He also mentioned the raiders were “multinational” and included two “defectors” from Russia. However, official Ukrainian statements that these were “underground detachments of Russian partisans” were dismissed as lies.

Why the world should care

From a military perspective, the incursion into Russian territory poses no serious threat. Their goal appears to divert Russian forces away from the frontline in Ukraine and into border regions. From a domestic PR point of view, however, these raids are becoming a big problem. It’s no coincidence that Putin — who is always careful that his name is distanced from any bad news — has ceased to comment on them.

Erdogan won Turkey’s presidential election. What does this mean for the future of Russo-Turkish relations?

It was close, but Turkey’s incumbent president Recep Erdogan secured 52% of the vote in the second round of presidential elections over the weekend. Moscow, which openly supported Erdogan, made no secret of its satisfaction with the outcome. We have written in detail about why the Kremlin supports Erdogan and how Putin’s regime has close financial and economic ties with him. Before the second round vote, we spoke with renowned Turkish-born economist and sociologist Timur Kuran about what an Erdogan victory could mean for Turkey and what Russia might learn from it.

Here is an extract from the interview — about the similarities and differences between Russia and Turkey. You can read the whole interview here.

Where does Erdogan's popularity come from?

Just as Russia has a history of being a major imperial power, Turkey has had long periods of global prominence. And, like Putin, Erdogan has kindled hopes among some people that Turkey will again become a major power: a power akin to the Ottoman Empire at its peak in the 16th century. Some Turks believe, in fact, that he's taking Turkey in that direction. His allies in the media constantly produce programs that make it seem that Turkey is returning to days of glory. Erdogan-friendly media say that the rest of the world looks up to Turkey, that it’s advancing scientifically and that its exports and economy are growing.

Some of the people who believe stories of Turkey’s advances are completely convinced that Erdogan and his family are highly corrupt. They still support him because it makes them feel good when he stands up to foreign leaders and when he challenges the United States or other foreign powers.

Many of Trump’s supporters in the United States disapprove of Trump’s lifestyle. They also know he is highly corrupt. But he gives them hope and dignity. They believe that, unlike most other Democratic or Republican leaders, he puts America's interests above foreign interests.

Putin seems to be using the same playbook as Trump and Erdogan. In any society, large numbers of people who are suffering economically and have lost social status don't feel good about themselves. Doing things that make them feel good (in Putin’s case, trying to rebuild the Russian Empire) is a winning strategy.

What can the opposition do about this?

The best counter-strategy is to show voters that the leader is not improving the country's international standing, that he is actually doing harm. Russia does not become stronger if neutral countries join NATO.

Turkey’s economy suffers in the long term when you destroy its premier public university. Being highly dependent for energy on Russia — a large and nuclear-armed maritime neighbor — is inconsistent with the narrative of Turkey becoming a great power. Kilicdaroglu reminding voters of Turkey’s dependence on Russia undercuts Erdogan’s narrative that he is making Turkey great again.

The Russian opposition is demoralized and its leaders are in jail. Many in Russia are either afraid to speak out against the war or else they support the Kremlin. And we don't know how many people support Putin and the war because opinion polls are not a very reliable way to measure support in an autocratic regime. What can be done to break this spiral of silence?

One thing that can be done is to obtain more accurate information on domestic opposition to the war and about the sense that Russia is failing. There is a need for reliable information on whether people understand Russia’s economic failures and its international standing.

You're not going to get reliable answers from polls that ask people what they themselves think or prefer. The respondents will mistrust pollsters, fearing that they are government agents trying to identify pockets of dissent. If they answer truthfully, their answers may come back to haunt them.

For more reliable answers, one can ask them about what they believe their neighbors think. In this case, people are much more likely to answer truthfully because they don't have to take responsibility.

There is also a list experiment, which gives respondents a series of experiences or statements. Respondents are asked to say how many pertain to them. The experiment is divided into two groups: a control and a treatment group whose list contains a sensitive question. Since the respondents are asked to give a number without saying which of the items in the list pertain to them, the difference between the average numbers of the control and treatment groups gives the proportion of people who share the sensitive view. In this context, the sensitive view might be that Russia’s war with Ukraine was a mistake.

It appears that even among those Russians who oppose the war in Ukraine, there is often condemnation and criticism. For example, those who have left the country may condemn those who remain because they continue to pay taxes. Which strategy is more effective for an opposition: emphasizing polarization or adopting a more moderate approach?

I don't think that stigmatizing people who are living in Russia and dealing with the government is a viable strategy. Nor do I think it's a fair strategy because Russian citizens trying to feed their families may have no alternative to working for the government. For self-survival, they may have to do things that they don't like. They may not have the luxury of leaving Russia. If they were able to get out, there might not be a suitable job abroad. People may have elderly parents. There are many reasons why people may not be able to leave. To stigmatize Russians who have no choice but to live under Putin will drive them into Putin's camp.

I think one has to draw some lines and to give the Russian people examples of the sorts of behaviors that they should not undertake when they have a choice. They should choose not to support the government in ways that are avoidable. But it is not wrong to remain employed at a government-owned bank or to even to serve in the military if they are trapped. To form a broad-based coalition, one has to avoid stigmatizing potential allies. And one must understand where they're coming from. One must reach out even to people currently supporting Putin. Some of them may be amenable to changing camps.

Why are the shares of stock market darling Magnit heading for junk?

One of Russia’s top two retailers, Magnit, has always been one of the most popular stocks among investors in Russia. But this week, it was relegated from the top tier of the Moscow Exchange securities — entering in its third tier — after violating exchange rules. Investors suspect the company of deliberately reducing its own value in order to buy out foreign investors, who account for almost 50% of the retail giant’s shareholders.

  • Magnit was established in the late 1990s and experienced incredible growth in the 2000s. By the 2010s, the retail chain was the top asset on the Russian market and was popular among foreign investors. In 2012, Magnit temporarily overtook Carrefour — the world’s second-largest retail chain — in terms of capitalization. At its peak in 2014, the company was valued at $30 billion. However, in the mid-2010s Magnit faced a management crisis, and its founder, the iconic self-made Russian entrepreneur Sergei Galitsky, sold the company. The new owner was state-owned VTB bank, which invited well-known businessman Alexander Vinokurov to join the company as a partner. Vinokurov, among other things, is the son-in-law of Russian Foreign Minister Sergei Lavrov. You can read more on that story here.
  • The war has had no impact on Russia’s leading retailers, particularly in the low-cost sector. Magnit’s biggest rival, the X5 Retail Group, had excellent results in 2022. A source close to Magnit told The Bell that the company’s annual report would be at least as good. But it is impossible to know for sure — not only has Magnit yet to publish its annual report, in the summer 2022 it was unable to hold a meeting of shareholders to elect its board of directors.
  • This is a flagrant violation of corporate governance and market transparency. This week, the Moscow Stock Exchange responded by relegating Magnit’s shares from the first tier to the third. Shares in the company fell 5%, and that’s no surprise — the charters of most funds prohibit any operations involving third-tier companies. If the violations persist, then the company will be removed from the Moscow Exchange altogether. At that point, another swathe of funds will dispose of their shares and the former blue-chip investment will move into the category of speculative securities.
  • In some sense, the violations that devalued Magnit are directly linked to the war in Ukraine. The fact is that Magnit has a very large free float — 67%. Moreover, almost 50% of the company’s shares are held by investors from “unfriendly” countries who have been unable to participate in trading since Feb. 2022. Under Russian law, non-residents are not barred from voting at shareholder meetings. However, in practice, they cannot give any instructions due to the collapse in relations between the West and Russia, as well as the fear of breaching sanctions.
  • Meanwhile, there is an alternative explanation (which has gained traction among investors). A financial market source who has long followed Magnit told The Bell that the real reason for the company’s violations might have nothing to do with restrictions on foreign shareholders, but rather with company policy. Less transparency around Magnit depresses its share value, and the lower the company’s market value, the cheaper it is to buy out foreign investors. The Bell’s source described this strategy as “close to foul play” — among Magnit’s shareholders, there are 70,000 Russian citizens.

Why the world should care

During times of war and sanctions, it’s no surprise that a publicly-traded Russian company would seek to squeeze out foreign investors for the benefit of its Russian shareholders. But in the case of Magnit — a stock market darling and rival to global giants — shares might now be reduced to junk. Perhaps it will be a symbol of the transformation of Russian business.


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