June 1, 2023

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Index – Abroad – here’s the secret, how to catch the Russians

The past nine months have been depressing for the Russian IT industry, which has suddenly entered a defensive phase after three decades of growth. Sanctions and mass withdrawals by multinationals have eroded the industry’s access to foreign capital and technology.

Tens of thousands of Russian IT professionals have fled the country since the start of the conflict, and President Vladimir Putin has acknowledged that Russia’s IT sector is facing major difficulties as it tries to contain the fallout from international sanctions.

At the same time, some industry insiders argue that the crisis could provide an opportunity for Russian tech companies to recapture the domestic market and ease technology dependence on the West.

The capacity of Russia’s information technology sector will be key in determining whether Moscow can keep up with the rest of the world economically and militarily in the long term.

Western pressures have their limits

While many expected Western sanctions to bring Russia to its knees, this has not happened yet, and it looks like that won’t change anytime soon. Due to high interest rates and capital controls, the value of the ruble has returned to pre-war levels, and Russia appears to be keeping pace with its foreign currency bond payments – In May of this year we wrote on the code.

However, to say that all is well with Russia’s economy and people’s living standards would be an exaggeration. New regulations fostering strong state control and the war forced many Western companies out of the country.

As a result of the annexation of Crimea in 2014 and subsequent Western sanctions, Russia began to build a self-sufficient economy based on fossil energy sources.

All this provides the Russians with a valuable source of foreign exchange, which they can use to purchase various products from neutral and allied countries.

There is no sign that Moscow can be persuaded to end the war

Limits of economic power and pressure However, they are found in this case. For all the damage Western sanctions have caused, there is no sign that they will persuade Moscow to end the war in Ukraine or change its strategic goals.

Economic power is usually designed as a substitute for military power. For example, increasing sanctions against Russia, instead of complying with the Ukrainian government’s demand that NATO establish a no-fly zone over Ukraine’s airspace. This formulation helps explain why governments embroiled in geopolitical conflict have increasingly turned to economic action rather than direct military conflict in recent decades.

However, the fact that sanctions only cause pain to their targets is just an illusion.

The fact that Russia’s GDP is expected to fall by nine percent and annual consumer price inflation is expected to hover around 20 percent indicates that Western sanctions are affecting not only Russian oligarchs, but ordinary families as well.

Another limitation of economic sanctions, if struck against a critical and interconnected economy, they can cause damage that reverberates far beyond the target country. For example, the EU was initially reluctant to allow Russian banks in the early stages of the war in Ukraine for fear of harming its own banks that had claims against Russia. Germany was reluctant to ban Russian natural gas imports, fearing it would trigger a slowdown in the domestic economy.

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Giorgi Andras Teig is a senior researcher at the National Public Service University’s Institute for Strategic Defense Research He previously told Index:

Sanctions could lead to a 12-13 percent drop in global trade, and the market needs to address this on both the demand and supply side.

Among the latest, the eighth round of EU sanctions, the EU will ban exports to Russia of materials used in aircraft manufacturing, some electronic equipment and some chemicals. The package also affects the import of many Russian products and prevents EU citizens from participating in the management boards of Russian state-owned companies.

Technological sanctions will cause enormous damage to the Russians

However, it would be wrong to assume that the prohibitions are meaningless individually, since we do not have to talk about them as one, but separately. Among others, there are financial, energy and technical sanctions against Russia, as well as restrictive measures imposed on oil and gas, and sanctions on the information technology sector will also be effective in the short term.

The US and 37 other countries have imposed export restrictions that limit Russia’s access to strategic technologies such as semiconductors, microelectronics, telecommunications equipment, sensors, lasers and aircraft components, the report said. Al Jazeera.

US President Joe Biden’s administration has blacklisted more than a dozen Russian technology firms and companies. Even measures that do not directly target the IT sector have affected the industry’s work, as financial constraints make it difficult for IT companies to send or receive money from abroad. Logistics barriers have made it more expensive and complicated for foreign technology suppliers to ship their hardware to Russia.

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It is one of the companies exiting Russia in recent months

  • Microsoft,
  • IBM
  • Oracle
  • Intel,
  • SAP
  • Cisco Systems,
  • Adobe
  • And Nokia too.

Overcoming Western barriers is not the only challenge facing the Russian IT industry. The Russian Electronic Commerce Association estimates that 50,000 to 70,000 IT professionals left the country in the first few weeks of the war.

Russoft Software Development Association came up with limited data, according to which about 40,000 IT workers went abroad in the first half of 2022. This wave of migration has raised concerns about the threat of a potential brain drain.

According to data from the Ministry of Digital Development, there were between 500,000 and 1 million professionals in the Russian IT sector before the war.

The Kremlin has sought to stem the exodus of IT workers by offering new benefits, including deferment of military service, exemptions from paying income taxes, discounted mortgage rates and additional funding for subsidies.

(Cover photo: Andrey Rudakov/Bloomberg/Getty Images)