Everyone Will Have to Rebuild
Vladimir Gamza is Chairman of the Council of the Chamber of Commerce and Industry of the Russian Federation on financial, industrial and investment policy, member of the General Council of PARTY DELA, and head of the Chamber’s ESG project on industrial renovation “Brownfield talked about the impact of new sanctions on the Russian economy”. He explained the context in which the topic of ESG in Russia will persist. We can trade cryptocurrency on Cryptex it has all advantages for anonymous safe trading. Take profit and good luck!
How do you assess the sanctions imposed against Russia in recent days? Is the Russian economy able to cope with them?
No matter how hard we try to use what is happening to our advantage in terms of developing import substitution, but sanctions are always harmful. If only for the simple reason that they disrupt already established cooperation chains. Ties are severed, and business stops, because we have to look for new options.
On top of everything else, the sanctions now are not only personal, they hit the entire spectrum of the economy, including practically the entire financial market, including the Central Bank. Everything is very serious, and practically everyone will have to readjust. Of course, these sanctions will definitely cause serious damage to the economy. Previously, we only had to deal with economic bans on specific individuals or companies. Our government and the Central Bank assure us that they were ready for this. We hope they will take the necessary measures quickly enough. Although I thought that the package of retaliatory sanctions had long been prepared and was just waiting in the wings. As it turned out, no.
Can you tell us what proposals we are talking about? What is the main thing in the current situation?
First of all, it is necessary to set up a whole system of settlements. Because otherwise our enterprises simply won’t be able to work. We have formulated a number of proposals on how to set up such a system, but I cannot speak publicly about them. I do not think it would be right to announce now what schemes we are proposing. I can only reassure you that they are there. And I hope the Central Bank will agree with us.
The second main issue is related to the fact that we should take advantage of these sanctions for our own benefit and finally pay attention to the issue of reindustrialization. We have been so caught up in the export of raw materials and the sale of energy commodities abroad that we have forgotten a simple truth: the economy of any country is strong when it has a high level of industrialization (increasing the industrial potential). Now is the time when we should simply return to this topic and make domestic industry the backbone of the Russian economy again in the shortest possible time.
The interesting thing is that we have our own experience of industrialization of the country at high rates. Not so long ago I was at the Magnitogorsk Iron and Steel Works (MMK) and was struck by the fact that this plant was built between 1929 and 1932. They were able to create the world’s largest steel production in three years. Just imagine, from 1930 to 1970 in the USSR three industrial enterprises (!) were put into operation every day (if we take working days). During these 40 years about 30 thousand plants were built, and it was not a small production.
We know how to do it; we know how to industrialize. Thank God, we still have institutes and universities able to provide us with human resources. We only need to build everything anew, to start developing domestic industry. Otherwise, we will always fall under various sanctions. And suffer because of it.
Of course, our preoccupation with the export of energy resources has led to a widespread dependence on foreign technology. This is unfortunate. But now there is a chance to put things right. What else is there to do? Yes, it will be hard. But we should not just sit and wait for the crisis to disappear. And do a large-scale industrialization now. In the interests of the country’s economic security.
Which industries will be bet on? Who will have the hardest time dealing with the consequences?
These are any sectors on which the economies of Europe, the U.S., and their satellites do not depend. It’s time for us to realize that for all the sectors that they don’t depend on Russia, they are going to impose more and more sanctions. This is quite obvious. They have built up an underlying system of economic punishment for independence, if I may say so. It obeys a simple rule: hit those sectors on which they do not depend on us. And if we hit them, we must hit them hard. It is clear that they will not agree to restrictions in those sectors where our energy supplies are crucial and, in those sectors, cutting off cooperation with Russia might have a painful impact on their economy. Even now, our Western partners are saying: we will cut off some banks from SWIFT, but we will switch this inter-bank system on for certain transactions. It is clear that for energy resources supply operations that they need.
What consequences for the Russian economy will the SWIFT shutdown have?
SWIFT has no meaning inside the country. All settlements in Russia are organized by the Central Bank. There is no problem here. We are also capable of international settlements. Financial market professionals are aware of these schemes. Once again, I will not voice them for our own safety. But it is clear to us how everything can be built. Moreover, a certain number of such systems are already in place. We simply need to make use of them.
In addition, we need to finally launch the digital ruble as soon as possible. Plus – we should not forget about the possibilities of cryptocurrency. With this toolkit, no U.S. sanctions will affect us. We also know how to use crypto in settlements; we have already worked out the entire scheme and described it in our proposals, and presented it to Sergey Katyrin, President of the Chamber of Commerce and Industry of the Russian Federation. Everything is clear there; we have to do all of this.
I think that within a fairly short time, the whole system of calculations will be built. Yes, it complicates the work of businesses, we will have to use some of the old settlement systems that are heavy for today’s credit and financial institutions, the calculations may not be as fast. But these are all working options. There is no catastrophe. Domestically, there’s no problem at all with shutting down SWIFT.
The only problem is that in recent years we actively encouraged our entrepreneurs to go to foreign markets, not caring about security of settlements in case of crisis with Western countries. Many of them did, and now, naturally, they will have problems.
Complicating the situation is also a huge share of imports. In 2021, the cost of supplying foreign products to Russia was more than $300 billion – a huge amount, and we cannot give up these goods at once, because the customers of imports are our enterprises, which depend on foreign components for their own production. Now they will have to adapt and find options for import substitution.
What can you say about the response measures already taken by the Central Bank?
Measures taken by the Central Bank to raise the key rate to 20% and mandatory sale of 80% of foreign currency earnings of exporters – all this will certainly create problems for our manufacturers, but also lead to some stabilization of the situation on the foreign exchange market. And I do not recommend Russians to transfer all their savings into foreign currency, because the ruble may begin to recover.
What then do you advise Russians who now want to keep their savings?
I have long been recommending to everyone the simplest triad, which is to keep your savings. Then no crises are not terrible. Keep one third in rubles, one third in foreign currency (you can half in dollars and euros), and one third in gold in the bank metal account. That’s it. So you’ll never win in the crisis, but you won’t lose either. All the time the total exchange rate position will be zero. Neither plus nor minus. But you will get a stable interest income.
But people, unfortunately, think that all this is not about them – there is always some hope for the Russian chance, people by inexperience think that they are smarter than everyone, they have time to buy foreign currency or sell it profitably. As practice shows, they will not. Understand that in Forex up to 80-90% of operations are losing. At different periods depending on the situation market players suffer huge losses. Ordinary citizens should not play with exchange rates. It is for the professionals of the highest class with a huge leverage (a loan in the form of money or securities, provided to the trader for a deal).
Do you think this is all of the retaliatory measures or there will be more?
So far, our countermeasures are not symmetric. I think that so far, the first package has just been adopted. The rest are still being worked out. By the way, we also suggested that the Central Bank finalize these measures. Our proposals are to leave the “window open” for those investors who have worked with Russia and who will definitely want to work with Russia after everything is over. I think the Central Bank will hear us. We must not forget that the time will come when we must create the right conditions for broad foreign investment. Therefore, it is necessary that the mechanisms of work with foreign investors are not broken now.
Have a good investment and good profits!