Political Competition To Increase Over The Next Decade

BMI View: Russia's main political challenges over the coming decade will be implementing institutional and economic reform, managing the country's demographic decline, and containing the Islamist insurgency in the North Caucasus. We expect Russia's political system to become more competitive over the next decade, either due to public pressure or internal rivalry, especially as the search begins for President Vladimir Putin's successor.

After a decade of political stability and economic prosperity in the 2000s, we believe that Russia is entering a more turbulent period that could distract policymakers from tackling the country's immense challenges over the next 10 years. Russia's political power structures were shaken by the rise of popular opposition movements between the December 2011 parliamentary election and the presidential election held on March 4 2012, and although protests have since died down, we believe this show of dissent will encourage President Vladimir Putin to focus more on maintaining his popular support base and balancing competing interests in the Kremlin rather than implementing much needed reforms.

However, he will have to do this against the backdrop of chronic institutional weakness, demographic decline, and militant Islamist insurgent activity in the North Caucasus. Meanwhile, Putin's plans to entice leaders in Central Asia and the Caucasus to join the Eurasian Union over the coming years may depend on the perception that Russia's influence in the region will remain in the ascendancy.

Challenges And Threats To Stability And Governance

Corruption And Institutional Weakness: Despite efforts by the government to purge Russia's institutions of corrupt officials in recent years, Russia remains a highly corrupt country, ranking 133rd out of 176 countries in Transparency International's 2012 Corruption Perceptions Index. This makes Russia one of most corrupt countries in Europe, and the high degree of corruption and alleged meddling with votes were a major reason behind the emergence of public protests in 2011-2012.

Russia's corruption is a manifestation of weak institutions and a lack of political accountability in the legislature and judiciary. The absence of a strong and independent judiciary and free and independent press compound this weakness. Even with signs that the Kremlin is committed to fighting corruption, graft is so deeply embedded in Russian institutions that this would take many years, if not decades, to accomplish.

Demographic Decline: Russia's population is shrinking and ageing. The UN's World Population Prospects 2012 database forecasts the population declining by 16% from 144mn in 2010 to 121mn in 2050. In addition, the proportion of Russians aged 65 and older will rise from 13% in 2010 to 21% in 2050. This is not as severe as in some other major states such as Italy, Japan and South Korea, but it is nevertheless significant. The bottom line is that large parts of Russia will become depopulated or populated by elderly residents, thus minimising their economic productivity.

There are two additional concerns that Russia has about its demographic decline. The first is that the country will be unable to meet its military recruitment requirements owing to the shrinking pool of males of military service age. The armed forces are reportedly already having difficulty maintaining personnel levels as a result of widespread bullying and unhealthy recruits. Over the long term, this could undermine Russia's ability to defend itself.

The second concern, voiced by ultra-nationalists, is that higher birth rates among Russia's Muslim populations and immigration by Central Asians and Chinese will eventually transform the fundamental character of Russian society. This could eventually lead to regional insurgencies, as seen in the North Caucasus, or even Chinese demands on Russian territory, as a large part of Russia's eastern region was seized from China in 1858-1860.

North Caucasus Insurgency: Russia has faced a separatist rebellion in Chechnya since 1991 and fought two wars there (1994-1996 and 1999-2004) to bring the republic to heel. Even with Chechnya officially pacified under the pro-Russian regime of Ramzan Kadyrov, violence continues. Since 2008, insurgency has spread to the republics of Dagestan, Ingushetia and Kabardino-Balkaria. The insurgency has manifested itself in bomb attacks, gun battles, ambushes, assassinations and kidnappings. Violence has not been restricted to the region - in fact, Moscow has seen several deadly terror attacks in recent years.

A combination of heavy federal subsidies to improve economic conditions in the North Caucasus and a targeting of key insurgency leaders has failed to restore stability. In addition, the Circassians of the region are becoming more politically active in promoting their nationalist aspirations and pressing their historical grievances against the Russian state. All this poses a risk for the 2014 Winter Olympics, which will be held in the city of Sochi, as well as for the 2018 FIFA World Cup.

A New (Old) Tinderbox
The North Caucasus

The North Caucasus insurgency is necessitating a stronger Russian state through tighter security measures. A further consequence is that it has boosted far-right groups in Russia, leading to violence against North Caucasians and Central Asians in Russia's major cities.

Regional Disparities: Russia is a highly unevenly developed state, which is probably inevitable given its vast size. Much wealth and power are concentrated in Moscow and St Petersburg. Although elites have emerged in other parts of Russia, there is some resentment at the dominance of the two main cities. A further obstacle to regional development was Putin's decision in 2005 to abolish elections for leaders of Russia's ethnic republics and administrative territories as part of a bid to centralise power after the 2004 Beslan school hostage crisis. Thereafter, regional leaders became much more beholden to the Kremlin, giving them less leeway to pursue their own economic policies. While Prime Minister Dmitry Medvedev reintroduced elections of regional governors in 2011, candidates still need to be approved by the Kremlin. The move, therefore, is unlikely to be seen as a major democratisation drive for the time being.

Also noteworthy is that several regions have shown an ability to achieve autonomy from the Kremlin since the end of the Soviet Union. These include the oil-rich Muslim republics of Tatarstan and Bashkortostan. Although Moscow has reasserted its grip on the regions, we cannot preclude renewed assertiveness later this decade.

Uncertain Geopolitical Environment: Russia is far weaker militarily than in the Soviet era and thus feels more vulnerable to external powers. The Kremlin still views the US and NATO as threats, despite the obvious difficulties the Western alliance has faced in Afghanistan and Libya. Moscow also feels geopolitically vulnerable in the South Caucasus, which explains why it attacked Georgia in 2008, and Russian leaders fear the spread of Islamist militancy from Afghanistan to Central Asia. Meanwhile, some military planners are increasingly worried about the rise of China. Furthermore, Russia is also cognisant of the growing importance of the Arctic for resource extraction purposes. From the point of view of the Kremlin, these external threats justify a strong Russian state and powerful military - possibly at the expense of democracy. Overall, we expect Russia to maintain a tough foreign policy stance towards the West for the foreseeable future.

Scenarios For Political Change

Russia has a long history of autocratic or strongman rule, and much of the country's political outlook over the next 10 years will revolve around the position of President Putin, and speculation about whether he will seek a new term in 2018 ( see 'Who Will Eventually Succeed Putin', August 6 ). Below, we list three broad scenarios of how Russia could evolve, politically.

Move towards increased political competition (our core view): The popular protests of late 2011 and early 2012 showed that there is growing opposition to quasi- autocratic or quasi-one party rule in Russia. At the end of the 1990s, after a decade-long economic depression and a breakdown of law and order, many Russians craved a strong leader. However, since then, Russia has become much more prosperous and stable, meaning that there is less need for an all-powerful political leadership. Regardless of how the economy performs, we expect the Kremlin to come under greater pressure to liberalise the political system. On the one hand, a deterioration of the economy would increase criticism of Putin and his system. On the other hand, a robust economy could make the electorate look beyond 'bread and butter issues' to matters such as political competition, transparency, and civil rights.

A move towards greater competition would probably be triggered by rising popular pressures (manifested by increasing street protests), the growing profile of opposition activists such as Alexei Navalny (who at the time of writing was running for the mayoralty of Moscow in the September 2013 election), and potentially even disaffected elements of the Kremlin establishment. In fact, the ruling United Russia party could itself be deliberately broken up for the purposes of creating greater competition. If the Kremlin fails to respond to public discontent, then we could even see a concerted (and possibly successful) attempt at a Ukraine-style 'orange revolution', i.e. mass protests that toppled the old establishment.

Furthermore, we cannot preclude that Putin himself will gradually withdraw from frontline political life towards the end of his current term, while promoting a reliable successor to safeguard his legacy.

Consolidation of one-party rule: There is also a possibility that during Putin's current term (2012-2018), the Kremlin , following a period of rising protests, will move towards greater authoritarianism, placing ever greater restrictions on opposition parties and activists, for the purposes of perpetuating United Russia's rule under Putin and his eventual successor. Elections would still be held, but United Russia would win virtually all of the seats in the Duma, similar to the elections in the Central Asian republics.

We believe that any move towards 'hard' authoritarianism would be extremely risky, for it could provoke a powerful backlash from the public, not to mention from the United States and the EU, which are already critical of Russia's human rights record. Moreover, there do not appear to be any pretexts - such as an economic crisis, or terror campaign - under which the Kremlin could justify a further reduction in democracy. Nonetheless, we cannot completely rule out this scenario.

Back to the chaos of the '90s: A third possibility could see Russia slipping back to the chaos of the 1990s, if political liberalisation fails to maintain stability or if infighting between Kremlin factions intensifies. Under such circumstances, Russia could see frequent policy shifts or reversals, as competing interest groups vie for influence more aggressively in the absence of a strong political arbiter in the post-Putin era. Meanwhile, a weakening of central authority could allow regional leaders to accumulate more powers, allowing them to behave increasingly independently of the Kremlin. While decentralisation towards true federalism would arguably be desirable and democratic, there would also be a risk that regional leaders could position themselves as strongmen, thus impeding local -level democratisation. A weakening of central authority could also encourage separatist movements in the North Caucasus or Urals region. Eventually, an extended period of chaos could lead to new demands for a strong leader.

The above scenarios represent broad outlines of Russia's future, and are not necessarily mutually exclusive.

Challenges Beyond The 2010s

Beyond the current decade, Russia's main challenges will remain institutional reform and managing demographic decline. On the foreign policy front, if Russia fails to maintain its position as an independent great power, it may well have to decide whether to align formally with the West or China, depending on whichever is more powerful and deemed more threatening to Moscow's interests in the 2020s. Finally, climate change remains a major unknown for Russia. In theory, the warming of northern Russia could open up vast swathes of land to further development. However, climate change could also bring more droughts and forest fires, as was evident in 2010. Thus, it is a double-edged sword for Russian policymakers.

This article is tagged to:
Sector: Country Risk
Geography: Russia, Russia, Russia, Russia

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