No Return to the Status Quo Ante

Arnaud Dubien, Director of the French-Russian Observatory, on Bilateral relations, the state of the Russian economy and the consequences of Russia’s shift toward the East.

French-Russian Observatory

Arnaud Dubien

How do you assess the current state of French-Russian relations?

The French-Russian relationship is going through a difficult period. It cannot be assessed independently of the Ukrainian crisis. The bilateral partnership, which had developed considerably in recent years, has suffered and is still suffering the consequences of the crisis in the Donbass, the European sanctions and the Russian counter-sanctions, and, more broadly, the informational context in France and Russia. We observe a strong polarization of the positions expressed by politicians, experts and journalists from both countries.

However, there are positive elements: France, in the person of President François Hollande, took over the Ukrainian file. This started as early as spring 2014, with the creation of the "Normandy" format, in spite of very strong external pressure not to invite Vladimir Putin to the June 6 ceremonies commemorating the 70th anniversary of the Normandy landing. Everyone also remembers the stop François Hollande made in Moscow and his meeting with the Russian President on December 6, while he was on the way back from his official visit to Kazakhstan.

The key role of France in the Minsk process bodes well. Of course, there is a media context, there is a deep confidence crisis, there is the Mistral issue — alas visible and highly symbolic, but there also are more positive signals coming from the highest level.

Is the Russian economy "in tatters?"

No, unlike what President Obama somewhat unwisely said last fall. The very dark scenarios, sometimes apocalyptic, which had flourished after the "black Tuesday" of the ruble in mid-December, were not confirmed. The Russian economy is not collapsing. The currency rebounded, oil prices — that determine the macroeconomic and financial balances of the country — have stabilized and are even back up to 65 dollars a barrel, and the recession should be slightly under 3 persent while some observers used to forecast a contraction of 5 or 6 points. That said, the situation is not bright. The real incomes of the population are down for the first time since Vladimir Putin came to power in 2000, investments — Russian and foreign — are stopped, inflation will be close to 15 persent this year, the budgets of most regions are in deficit. To summarize, I would say that Russia is resisting the shock rather well. But the fundamental challenges it faces are still there. The country needs to invent a new development model for the decades to come.

Are French investors leaving Russia? What is the state of bilateral trade?

As far as I know, no French company intends to leave Russia. People understand that beyond the current turmoil, it is a country with huge potential and needs, especially in terms of infrastructure. French companies can contribute to the modernization of Russia. Several hundred are located there and already work there, bringing their technology and know-how.

In the short term, the situation is very different, depending on the sector. Retail is doing quite well, while automakers recorded very poor sales figures. One consequence of the late 2014 — early 2015 ruble crisis and of the political climate born of the Ukrainian crisis will be greater localization of production in Russia.

Unfortunately, bilateral trade is expected to fall further this year. This is the result of several factors. First, the economic situation in Russia, where imports fell by about 30 persent in the first quarter. The counter-sanctions adopted by the Kremlin last August in response to Western sanctions have also deprived French agri-food companies of their outlet to the Russian market. Finally, there is a real problem of funding from French banks. Dozens of large SMEs have told us they cannot get loans for their export projects in Russia. Officially, the problem does not exist, or it is technical. But in practice, the traditional reluctance of bankers vis-à-vis Russia has been amplified by sanctions — yet they affect a very limited number of sectors — and by the BNP Paribas deal. The current phenomenon of "overcompliance" does not penalize Russia but our own companies and, ultimately, the trade balance of France.

Are we witnessing a shift of Russian foreign policy toward the East?

For centuries Russia has claimed its dual vocation — European and Asian. But in fact, both the tsarist empire and the Soviet Union were European-centered powers. It is still the case today in economic and demographic terms, but things are changing. Russia has realized that it cannot ignore the Asia-Pacific region, toward which the world's economic and political center of gravity of the world is slipping. It has many assets, so far neglected, in order to play a role there.

Indeed, Russia became aware of this prior to the Ukrainian crisis. The APEC summit in Vladivostok in September 2012 showed this new eastern ambition, 25 years after the famous speech Mikhail Gorbachev had pronounced in this city. Russia intends to strengthen its trade with the countries of the region, but also to develop the eastern provinces of Siberia and the Far East, very vulnerable socio-economically speaking.

The commemorations of the 70th anniversary of the victory over Nazi Germany highlighted the rapprochement between Russia and China. Dozens of agreements have been concluded, less than a year after the signature of the contract on the "Power of Siberia" gas pipeline. The French-Russian Observatory, which is closely monitoring what is happening in the Russian regions, had noticed the proliferation of Chinese investment projects in many sectors. Obviously, a tectonic movement has begun. Of course, to speak of a Russian-Chinese alliance is exaggerated. But to deny that something big is happening, as many European analysts are doing, is quite incomprehensible. By the way, Russia's Asian policy is not directed toward China only. Moscow is also developing partnerships with India, Vietnam and South Korea.

What will the international position of Russia be in the coming years and what will be the nature of its relations with the West?

The prevailing feeling in the circles of power in Moscow is that there will be no return to the status quo ante. Russia is preparing for a relatively indifferent coexistence with a Western world from which it doesn't expect very much anymore, that it considers largely responsible for the international disorder — especially in the Middle East — and that is no longer the central reference. Russia will favor cooperation with countries (BRICS, Turkey, Egypt, Iran, etc.) which it considers able to resist American pressure. The Russian elite has integrated — if not fully accepted — the country's growing dependence vis-à-vis China. A power concerned for its safety and rank, Russia will continue to maneuver without much strategy, in a reactive and opportunistic approach, alone but not isolated.

Russia - France 2015
Russia - France 2015
Welcome to Russia-France business supplement, devoted to strengthening bilateral relations between Russia and France.
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