Ukrainian Prism: Putin’s Valdai Forum speech, growing dissatisfaction from Russian businesses over the economy, and Russia’s Ministry of Defence taking control of Wagner PMC’s African remnants

14 November 2024, 16:48

Every week, The Ukrainian Week/Tyzhden publishes an overview of the political, social and economic situation in Russia and Belarus in partnership with the Foreign Policy Council “Ukrainian Prism”. The Council’s Russian and Belarusian Studies Programme presents a new weekly #aggressoranalysis, in which Iaroslav Chornogor and Anton Oksentiuk analyse the latest news in Russian domestic and foreign policy.

This week’s highlights: Putin’s Valdai Forum speech, growing dissatisfaction from Russian businesses over the economy, and Russia’s Ministry of Defence taking control of Wagner PMC’s African remnants

Domestic policy takeaways:

  • Russian businesses are publicly voicing dissatisfaction with Russia’s economic situation for the first time. Last week, for the first time, we started seeing signs of public dissatisfaction among major Russian companies regarding the state of the country’s economy. This stems from the Russian central bank’s recent drastic move to combat soaring inflation by raising the key interest rate to an unprecedented 23%. Such a rate essentially makes business development unfeasible due to prohibitively high borrowing costs. Until recently, big business leaders refrained from commenting on the government’s economic measures, as the central bank’s decisions, led by Elvira Nabiullina, aligned with Putin’s policies.
    • However, last week, several top executives from Russia’s industrial sector publicly warned of a potential collapse in the machine-building industry. For instance, Andrei Gartung, CEO of the Chelyabinsk Forging and Pressing Plant, stated bluntly at a forum in Chelyabinsk that key sectors within the machine-building industry could face collapse. He pointed to high interest rates, which are directly linked to the central bank’s key rate, as the main reason. Gartung added that in this environment, no business can sustain itself, let alone compete with the defence sector. Other executives echoed similar concerns. Maria Ovechkina, head of financial resources at the Magnitogorsk Iron and Steel Works, Russia’s largest steel producer, stated that the company only has enough reserves for six more months and has already started scaling back on investments. This public criticism suggests that Russian businesses are indeed feeling the strain from the war and the government’s economic policies. While it’s highly unlikely this criticism will translate into political pressure on the regime, the government will be forced to recognise the mounting challenges facing its industrial sector.
  • Russian military-industrial production data show no growth. An analysis of Russia’s manufacturing sector suggests that the country’s weapons production may have reached its peak capacity. Citing data from the Federal State Statistics Service, the Jamestown Foundation reports that several defence-related sectors have shown no real growth in recent months. For instance, over the past nine months, Russian manufacturers produced only 37.2 million semiconductor devices and components, compared to 35.4 million in the same period in 2023 and 35.6 million in 2022—an increase insufficient to meet growing demands. A similar trend is seen in the production of chemical materials essential for explosives and gunpowder, which has shown no growth at all compared to 2022-2023 levels. Data from containerised cargo transportation also indicate that Russia is unable to further expand its production of defence industry goods. This suggests that if the scale of the war escalates, Moscow may be forced to rely more heavily on China, Iran, and North Korea for military supplies.

Foreign policy takeaways:

  • Putin’s speech at the Valdai Forum and its impact on Russia’s “negotiation rhetoric.”Last week, Putin attended the annual Valdai Forum, an event that has traditionally served as a platform for the Russian leader to publicly outline the Kremlin’s current foreign policy direction for the coming period. This year’s forum and speech attracted even more attention due to a significant increase in “peaceful” rhetoric surrounding negotiations to end the war between Russia and Ukraine. Another factor adding to the interest was that Putin’s Valdai speech followed the BRICS summit in Kazan, where, it is assumed, he faced indirect pressure to clarify his stance on peace talks—primarily from China and its Chinese-Brazilian peace initiative, along with the “friends of peace” platform. This context made Putin’s first major public speech, focused on foreign policy, an opportunity to gauge shifts in Russia’s approach to negotiations. There are signs that Moscow’s “ultimatum” stance, which has been steady since June 2024, has shifted in certain areas.
    • First and foremost, we’re talking about Putin’s territorial ultimatum announced in June 2024. The Russian leader had declared that he would only enter negotiations if Ukraine withdrew its troops from all of the four occupied Ukrainian regions—Donetsk, Luhansk, Kherson, and Zaporizhzhia. It was evident that such a condition would never be accepted, serving as a clear indicator of Russia’s actual stance on negotiations. However, since the BRICS summit, neither Putin nor other Russian officials have directly referenced these “four regions,” and his latest speech at the Valdai Forum reflected this shift in tone. While Putin stressed that occupied territories should remain under Russian control, he notably avoided mentioning specific borders, a topic he had raised in the summer of 2024. This particular change stands out among his other statements and may indicate that Moscow’s position is moving away from its most extreme demands.
  • Wagner PMC in Africa is shifting under the control of the Russian Ministry of Defence. The Russian publication Verstka, in collaboration with Nordsint, conducted a study on the current state of the remnants of the Wagner PMC in Africa. They discovered that recruiters who previously campaigned for and enlisted new fighters for the Wagner PMC are now recruiting contract soldiers for the so-called “African Corps.” The Ministry of Defense established this entity as a rival to Wagner’s operations in Africa during Sergei Shoigu’s tenure as minister. Following Prigozhin’s attempted rebellion and his subsequent death, Wagner’s assets in Africa formally remained autonomous and did not come under the direct control of the Ministry of Defense, unlike Wagner’s forces that were involved in fighting in Ukraine. The shift of these recruiters to the “African Corps” suggests that the Ministry of Defense is actively working to further reorganise the remaining elements of Wagner PMC in Africa.

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