Hello! This week, our main story is comments from the founder of Yandex, in which he criticized Moscow’s invasion of Ukraine as “barbaric.” We also explore the decision by Russia’s Central Bank to call an extraordinary meeting to stop the ruble from plummeting below 100 against the dollar. Finaly, we look at a recent tax data leak that revealed the huge salaries of the bosses of state companies.
Volozh against the war
Arkady Volozh, co-founder of Russian tech giant Yandex, spoke out last week against “Russia’s barbaric invasion of Ukraine.” His statement came after 18 months of silence during the war, surprising Yandex, where Volozh is the de jure boss as part of a collective management group. Volozh is only the second major Russian businessman to speak publicly against the war. However, experts are sure that his business has little realistic influence in this situation.
Volozh issued his statement on Aug. 10. “Russia’s invasion of Ukraine is barbaric, and I am categorically against it. I am horrified about the fate of the people in Ukraine — many of them my personal friends and relatives — whose houses are being bombed every day. Although I moved to Israel in 2014, I have to take my share of responsibility for the country’s actions,” he wrote.
Volozh is only the second significant Russian businessman to condemn the war openly and unambiguously. The first was Oleg Tinkov, a banker and U.K. resident, who angrily spoke out against the war back in the spring of 2022 and subsequently, he claims, was forced to sell his bank at a huge discount to Kremlin loyalist Vladimir Potanin. Last summer, Tinkov said that he expected similar statements from two other businessmen — Volozh, and the founder of the Magnit supermarket chain Sergei Galitsky.
The Yandex founder is one of a small group of Russian businessmen who have been expected to take an anti-war position since the invasion in Feb. 2022. Partly because his opinion was obvious, and because Volozh is a rare example of a Russian billionaire who made his money without state help.
The immediate spark for Volozh’s statement was the scandal that blew up when journalists found a statement on his personal website where he describes himself as “an Israeli businessman born in Kazakhstan” and barely mentioned Russia. Two sources told The Bell that Volozh took the criticism hard. But they do not believe that his comments were an impulsive reaction: “In the past year there were dozens of times when Arkady wanted to speak out, but each time there was something that could be harmed by [his statement],” one of them explained to The Bell.
Volozh also has practical reasons for speaking against the war. Since 2022, he has been on the EU sanctions list. The businessman has also spent more than a year trying to broker a deal that would let him give up his controlling stake in the Russian part of Yandex, freeing him to develop a separate international business. That deal appears to be on the brink of collapse, and its final failure could be another reason for Volozh’s statement.
This does not mean that a deal over Yandex is dead in the water, nor that Volozh’s shares (he holds 45.3% of voting shares via his family trust) are worthless. Two sources familiar with the situation told The Bell that nationalizing Yandex is a big risk. While Volozh would lose his stake, so would several foreign shareholders. One source argued that nationalization could end all of Yandex’s international business. Yandex is very different from Danone: nationalizing factories is one thing, but nationalizing brains is very different.
So far, the Kremlin has not reacted to Volozh’s statement. State media mentioned it, emphasizing that the businessman “is currently supporting Russian engineers who have left the country.”
Could business halt the war?
Economists and analysts questioned by The Bell believe that in today’s Russia, businesses have little influence. “It’s hard to imagine that we’ll see businessmen on the barricades. As a rule, they tread very carefully and avoid any direct confrontation with the authorities,” said political scientist Vladimir Gelman, a professor at Helsinki University.
But there are recent examples of business influencing a political situation. This happened in Tunisia in 2013-15, recalled Andrei Yakovlev, an economist at Harvard University. In that case, the association of entrepreneurs was one of the “quartet of mediators” that managed to halt a political crisis in the country and later received the Nobel Peace Prize.
However, it is difficult to envision a similar outcome in Russia. The only way to change things is via collective action -– and in Russia that is impossible. The Yukos case in the early 2000s was a turning point. Its founder, Mikhail Khodorkovsky was jailed and shares in his company were handed to state-owned Rosneft. At that time, big business still had some negotiating power with the government, but failed to act collectively. Since then, at best, they have been the “junior partner” in the ruling coalition, Yakovlev concluded.
Why the world should care
It took Volozh 533 days from the invasion of Ukraine to issue his condemnation. However, unlike his colleagues on the Forbes Russia List, who either remain silent or utter platitudes about peace and diplomacy, the Yandex founder has spoken directly against the war.
The Bell is now listed as “a foreign agent” in Russia: our website is blocked, we can no longer raise money through advertising, and our business model is in ruins. Journalists in Russia face greater risks than ever before. Repressive new laws threaten up to 15 years in jail for objective reporting.
However, we are not about to give up. This newsletter is our newest project. It presents an in-depth analysis of the Russian economy, which has survived the first year of the war but is becoming ever more secretive. We will try and shed some light on what’s going on. Each edition will tackle a part of the big question: how long can the Russian economy endure under sanctions and when will the Kremlin run out of money for its war?
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Russian Central Bank takes emegency measures as the ruble plummets
Russia’s Central Bank, which is also responsible for national monetary policy, is trying to strengthen the falling ruble. Last week, it refused to invest in foreign currency as required by budget rules. But on Monday, as the dollar rate reached 100 rubles for the frst time since March 2022, the Central Bank had to call an extraordinary meeting to raise its key rate.
- The current version of the budget rules was flawed from the outset – it enshrines a mechanism for self-devaluation of the ruble. As soon as oil and gas revenues hit the specified mark, the Central Bank purchases foreign currency which devalues the ruble. Since the start of the year, Russia’s currency has fallen 24% against the dollar and became one of the three worst-performing currencies alongside the Turkish lira and the Argentine peso.
- Halting foreign currency purchases will reduce demand in August by just $400 billion, and by $7-9 billion by the end of the year. That could strengthen the ruble rate by just 2-3%, as Alexander Isakov, Bloomberg Russia’s head economist, calculated. “Clearly, these are not even half measures, but non measures, given the scale,” wrote Loko-invest’s chief analyst Dmitry Polevoy. Isakov believes this is quite a lot, due to the thinning of the Russian forex market.
- Despite the Central Bank’s decision, by the weekend the dollar rate came close to 100 rubles – the highest we’ve seen since late March 2022. To strengthen the ruble, signals from the government and interest rate decisions from the Central Bank will be far more significant, said the economists surveyed by The Bell. On Monday, as the dollar rate hit 100 rubles, the Central Bank called an extraordinary meeting to review the key rate. Analysts expect a hike of at least 1.5 percentage point from the current 8.5%.
Why the world should care
Wth the dollar at 100 rubles, the exchange rate is increasingly becoming a political issue, and the Kremlin is more likely to intervene in the economic policy making. On Monday, Vladimir Putin's advisor Maxim Oreshkin blamed the Central Bank for allowing the ruble to plummet in an article published by state news agency TASS.
Tax leaks expose the huge salaries of state company bosses
A leak of Russian tax data for 2020 enabled researchers to work out the incomes of the directors of two leading state companies – Rosneft boss Igor Sechin, and the head of one of Russia’s biggest banks, VTB’s Andrei Kostin. Both received salaries huge enough to cover the annual budget of a Russian city.
- In 2020, Igor Sechin was paid 3.32 billion rubles, or $46 billion at the exchange rate of the time, reported researchers among the staff of opposition figure Alexei Navalny. That’s equivalent to the budget for a city of 50,000 people.
- Moreover, Sechin’s income for 2020 was several times greater than the salaries paid to bosses of similar international oil companies that year. The bosses of Exxon, Shell and BP were paid $15.6 billion, $7 billion, and $2.4 billion respectively. The head of Chevron earned $29 billion.
- Navalny’s supporters found that Sechin’s tax details are hidden under a pseudonym (Terentiev, Sergei Andreyevich). This is common practice for officials, heads of state corporations and their families. The tax records also have pseudonyms for, among others, the son of deputy FSB chief Boris Korolev, and Sechin’s son Ivan.
- As well as Sechin, iStories found the records for VTB boss Andrei Kostin. In 2020, he was paid 11.4 billion rubles, or $158.73 billion. The tax data does not specify details of these payments, so it is unclear how much of Kostin’s money was his salary and how much came in dividends, bonuses, etc.
- Kostin was paid more than the directors of leading global banks. The head of JPMorgan Chase received $35 billion, the head of Bank of America got $24.5 billion.
Why the world should care
In Russia, heads of state companies receive far more than their counterparts at leading international companies in the same spheres. It’s hard to say how much of this money is earned, but one thing is clear -– Russia is one of Europe’s most corrupt countries.