Eurasia Press & News
For some Russian regions, the country’s invasion of Ukraine means they face shelling and dwindling export revenues due to sanctions. For others, it means an unprecedented influx of cash as they profit from the flywheel of war and growing domestic consumption.
Sociologists can debate just how actively the majority of Russians support President Vladimir Putin’s regime, but there is no doubt that he has the support of the majority. The reasons usually cited for this include mass propaganda, strict control over public life, and a newly awakened imperial mentality: the dream of once again living in a great power that is reckoned with and feared.
These factors are undoubtedly important, but there are other forces at work here, too. Many people in Russia have a purely pragmatic material interest in supporting the regime, as evidenced by a significant increase in the incomes of once hopelessly subsidized regions and impoverished sections of the population.
Russia’s currently favorable macroeconomic situation is well documented, but even GDP growth of 3.6 percent in 2023 does not provide a complete picture of the surge in revenue that the war has brought to individual regions and industries. In last year’s report by Russia’s Federal Tax Service, one striking feature is the sharp increase in regional contributions to the country’s consolidated budget in 2023 compared with 2021. These contributions—and, accordingly, regional revenues—collectively increased by a record 36 percent, with most of that growth occurring in 2023.
The three regions showing the biggest growth are quite unexpected: the Amur region (+176 percent), Tula region (+103 percent), and St. Petersburg (+87 percent). The regions rich in mineral resources are not even in the top twenty, except for the Sakhalin region. In other words, sanctions are making themselves felt: the incomes of traditionally wealthy net contributor regions such as Khanty-Mansi, Yamalo-Nenets, Moscow, and Tatarstan have also grown, but very modestly compared to others.
Instead, the top twenty regions—all of which increased their contributions by at least 50 percent compared with 2021, include ones that were previously below average even in the fattest years, such as Chuvashia (+72 percent), Smolensk (+72 percent), Kurgan (+69 percent), Transbaikal (+66 percent), Mari El (+64 percent), Bryansk (+58 percent), Pskov (+53 percent), and even Tuva (+57 percent) and the Jewish Autonomous Region (+49 percent).
Almost all of the above regions, with the exception of Transbaikal, reveal the same pattern of changes: their tax returns (and therefore regional revenues) remained at about the same level in 2022, and then began to soar in 2023.
Examining the growth of regional contributions to the federal budget from corporate income tax sheds further light on the situation. The leading regions in this category are almost all of the same ones already mentioned: Chuvashia, Bryansk, Kurgan, Smolensk, and so on. The once hopelessly impoverished Transbaikal and Jewish Autonomous Region are also among the leaders, having started from a low baseline.
Meanwhile, the regions demonstrating a drop in tax contributions (and therefore income) in the two years of war include three regions with traditionally strong metallurgy industries: Lipetsk, Kursk, and Belgorod, which saw their incomes plummet in 2022 (though even they still managed to bounce back somewhat in 2023). The clear losers at the end of 2023 can be counted on the fingers of one hand: Chukotka, Altai, and Kaliningrad.
Analysis of data—namely the change in per capita income—from Rosstat, the state statistics service, during the two years of war also shows that the main beneficiaries are regions that were once subsidized, primarily located in central Russia, the Volga region, and the Urals, as well as some regions of the Far East that were once the country’s poorest. It’s also true, however, that the situation in the poorest regions of the North Caucasus (Ingushetia and Dagestan) has barely changed.
Even a cursory glance at the list of regions that have benefitted from the war reveals that these are territories with significant machine-building assets that have seen an avalanche of budget funds come pouring in from state defense orders. Related industries such as food production, clothing, and footwear have also benefited greatly.
Judging by their contributions to the consolidated budget, as well as by Rosstat data, the revenues of the footwear industry and textile production have doubled, while that of clothes manufacturing has more than tripled. These industries owe their growth not only to defense industry orders, but also to import substitution, which finally became a reality after the exodus of foreign manufacturers and a reduction in exports.
Unexpectedly (though understandably given the lack of direct flights to many countries from Russia now and the difficulty Russians have securing visas to those countries), the beneficiaries of the war also include the country’s own hospitality industry, whose revenues have doubled in the last two years, with by far the main growth seen in 2023.
Industries that have taken a hit, meanwhile, include metallurgy: specifically the production of cast iron, steel, and rolled steel, as reflected by the fall in taxes paid by regions with strong metallurgy industries. This fall is linked to the reduction of export opportunities: domestic consumption alone simply does not need so much metal, even taking into account defense orders.
Other clear losers include timber processing (which goes some way to explaining the losses of regions that play a major role in this industry, such as Karelia and Komi) and real estate transactions. There was a drop of about 25 percent in the production of medicines and medical goods, as well as an almost 30 percent reduction in medical services. It would appear that import substitution in this area is not going well.
For some Russian regions, the country’s invasion of Ukraine means they face shelling and dwindling export revenues due to growing sanctions. For others, it means an unprecedented influx of cash as they profit from the flywheel of war and growing domestic consumption. By the end of 2023, there was no doubt that the incomes of regions, enterprises, and people who had been struggling for decades to make ends meet had drastically increased.
These people are capable of providing Putin’s regime with significant and sustainable support: not just because of their “imperial mentality” or under the hypnotic influence of propaganda, but for the most pragmatic of reasons. Quite simply, it is in their interest to do so.
