What is the price of Crimea

NT continues to analyze the consequences of the annexation of Crimea for the country. How did this affect the economy of the Russian Federation - Dmitry Butrin tried to calculate

The temporary occupation of Crimea by the Russian Federation (in the Ukrainian version), which is also the annexation of Crimea and Sevastopol to the Russian Federation (in the Russian version), is five years old. Thousands of commentators have emotionally spoken about the “price of Crimea” over the years. Everyone wants to capture everyone, war and its derivatives (and the annexation of Crimea, of course, should be considered a derivative of war) is a profitable business, the world has waged wars for thousands of years and profited from it.

The fifth anniversary is a good time to figure out what exactly the Russian Federation has gained from the annexation / annexation of Crimea and Sevastopol and what it has lost, in the format of one paragraph of the alleged “textbook of the future”. For clarity, we need to confine ourselves to the economic aspect of what is happening - in any case, they are now more definite than all the others.

Analysis problems

The biggest difficulty in “assessing Crimea” for both the Russian economy and the Ukrainian economy is the separation of these events from everything else that happened in these economies in 2014-2018. However, it is impossible to describe the impact of the annexation of Crimea on the economy of Ukraine, and there is no point in it either - a rough estimate makes it possible to describe the loss of Crimea for Ukraine at 3% of GDP, this is a one-time loss of the gross regional product of Crimea (GRP) in Ukraine's GDP in 2013, but as a state, Ukraine, of course, was not a subject in this story, but an object - it was not going to “throw out” Crimea, so it’s simply meaningless to say “what they wanted and what happened”. As for the Russian economy, here it is also not very clear what to take into account. For example, the devaluation of the Russian ruble since 2014 has a distinctly “Crimean” component, but not only - its contribution was analyzed by rating agencies and the Central Bank of Russia in 2015-2016, but roughly and conditionally, attributing to it mainly the impact on the ruble of EU and US sanctions (and a number of other countries, but they are much less voluminous). But even the devaluation itself was also determined by the collapse in oil prices and a dozen more, sometimes very important, but not formally related to Crimea, events. On the one hand, it makes no sense to deny that the change in domestic policy in the Russian Federation, which was reflected, among other things, in economic policy after 2014, is inseparable from the events in Crimea and Donbass (use the abbreviations “DPR”, “LPR”, “ORDLO” etc. in this case it is unproductive - the economic aspects of what happens from what we call Donetsk and Luhansk "unrecognized republics" or "occupied territories" will not change, the author thinks the term "military protectorates of the Russian Federation" is more honest for them). It is possible to single out “Crimean” aspects from it only hypothetically – more on that at the end of the article.

From a demographic point of view, Crimea is not a very advantageous population. The demography of the population of Ukraine in terms of the volume of problems is even worse than in Russia, the share of pensioners is slightly larger on the peninsula. Unemployment in Crimea at the time of annexation was obviously higher than the average in the Russian Federation

What did you buy

The task of any war or its derivatives is to annex the territory with its population, military and civilian infrastructure, resources, and the economy itself existing on the territory. In any case, this is the definition for the European wars of the XVIII-XX centuries. Previously, there were other economic motives for states and rulers who unleashed wars and undertook annexations - the destruction of a competitor in global trade, the disruption of its communications, or the destruction of its infrastructure in order to slow down its growth - but now, apparently, it makes no sense to talk about such motives. In any case, the story of Crimea is not about that.

What did the Russian Federation get from the annexation? First of all, the new population: Crimea and Sevastopol - this is 2.36 million people in 2019, 2.34 million in 2014. This is 1.6% of the current population of the Russian Federation. The balance of "left" and "arrived" in Crimea after the events of 2014, at least from the point of view of official statistics, has changed almost nothing on the peninsula. The number of forced migrants from Crimea to Ukraine after the annexation, according to the most non-conservative sources, is estimated at 50-60 thousand people, which is an order of magnitude less than the number of refugees from the Donetsk and Lugansk regions both to the Russian Federation and Ukraine. Of course, it can be stated that usually in such situations, expensive specialists leave the region - public administration and management in general, finance, highly paid mobile professionals - but the peculiarities of the Crimean economy as part of Ukraine make it possible not to overestimate these losses: on a general economic scale, they are poorly perceptible, Crimea was not regional center of economic activity and did not become one.

From a demographic point of view, Crimea is not too, let's be cynical, a profitable population. The demographics of the population of Ukraine in terms of the volume of problems is even worse than in Russia, the share of pensioners is slightly higher on the peninsula (although not radically, moreover, "pensioner" regions are not always problematic - see "Florida's economy"). Unemployment in Crimea at the time of annexation was obviously higher than the average in the Russian Federation and in all surrounding Russian regions. At the same time, the number of jobs in Crimea has obviously increased since 2014 in the public sector, mainly due to jobs serving the military sector, while unemployment, on the contrary, is declining, although it remained last year at a rather unfavorable level of 6.4% of the population of the two regions ( according to ILO methodology).

The Crimean industry as a taxpayer is of no particular interest to anyone. There is not enough of it, it is weak and small-scale, there are no resources in Crimea that are interesting to anyone on the scale of the Russian Federation. Agriculture in Crimea exports little outside the region, except for wines (on a very limited scale compared to the Russian market, these are fractions of a percent in the total turnover of wine in the Russian Federation) and wheat (exports are approximately equal to local consumption). It makes almost no sense to include the “acquisition” of taxes from Crimea and Sevastopol in the general calculation - most likely, they will not exceed the total calculation error.

A separate issue is the tourism sector of Crimea. About 6 million tourists in Ukrainian Crimea in 2013 and 6 million tourists in 2018 in Russian Crimea are equal. The peak of the fall of the Crimean tourism market was in 2014, when the region was visited by 4 million tourists. However, nothing special happens. In Crimea, as part of Ukraine, tourism contributed to the GRP of the region (without Sevastopol, however, there are relatively few tourists there) 12%, in Crimea, as part of Russia, about 17%: the shadow sector has decreased. But in general, even the growing tourist flow to Crimea will not give a lot of taxes. Now direct income from tourism in the GRP of Crimea and Sevastopol is about 200 billion rubles. per year, apparently, at a slightly higher level, taking into account inflation, it will remain, since there are simply no super-large investments in the tourist infrastructure of Crimea, comparable, for example, with Turkish investments in the Antalya region in the 1990s.

For Russia, tourism in the Crimea and the military in Sevastopol and on the territory of the peninsula are the main specializations of the regions. There is no hope that Crimea, as a whole, a very economically closed macro-region, will in the future export something very much in demand both outside the Russian Federation and to the regions of Russia.

As a result, another 1-1.5 trillion rubles, or up to 0.1% of GDP%, will be spent on Crimea until 2029. Half - in investments, it is difficult to talk about the payback on the horizon of 20-25 years

What did you spend

Actually, the main expenses of the Russian Federation “on the Crimea”, which can be viewed from different angles both as losses and as gains, are caused by the need to “reach out” the level of consumption and budgetary security of the two new regions to a certain conditional level, which can be considered “average Russian”. In itself, such an action is meaningless, since the economies of each region are unique - but from the point of view of the budget, people are not unique, therefore, the norms for providing pensions, roads, hospitals and, in general, medical services, schools and teachers, energy infrastructure and communications are reflected in expenses for Russia (including including non-investment) funded by the federal center.

What is the "budget" price of Crimea and Sevastopol for Russia? To “align” the budget system of the Russian Federation, a new federal target program (FTP) for the development of Crimea and Sevastopol until 2022 has been opened. It provides for about 820 billion rubles. federal spending: these are mainly roads, schools and hospitals, energy, they do not include pensions and benefits, additional payments to doctors. It can be roughly estimated that about 600 billion rubles have been spent over five years under the FTP. and about 300 billion rubles. - to other types of "budget stretching", directly or indirectly related to the federal budget of the Russian Federation. For example, the training of Crimean officials according to Russian standards was carried out by the RANEPA within its own budget - it was slightly increased for this. Of these funds, expenses for 400-450 billion rubles can be considered investments, the rest is just salaries, benefits, purchases, consumption.

Another “alignment” is the construction of the Kerch bridge. In Russia, it is traditionally believed that these costs should be divided according to purposes not only for the Crimea, but also for the Krasnodar Territory (the bridge has two ends, one of them is not in the Crimea), but it is obvious, however, that the bridge is mainly needed by the Crimea as a transport and energy (an energy bridge with the Crimea also had to be built) connection with the metropolis - which Perekop used to be. The price of the bridge is known - it is about 230 billion rubles. (170 billion rubles is the bridge itself, the rest is infrastructure in the Crimea and Taman, mainly railway), we will not be much mistaken if we calculate that 200 billion rubles. of this, these are spending on Crimea in 2014-2018. Formally, this is an investment. In fact, these are unproductive expenses: there is no reason to expect that the bridge will turn the economy of Crimea and Sevastopol into developed regions; on the horizon of 20 years, it is apparently impossible to talk about the payback of the project in any sense - rather, it is an “anti-degradation” investment due to the fact that Crimea, as a peninsula, needs a transport artery connecting it with the Russian economy to compensate for the collapse in trade with Ukraine.

Part of the "alignment" is happening. In 2014, Crimea and Sevastopol accounted for 0.25% of Russia's GDP, now they are about 0.4%. An increase over five years of 0.15 percentage points of Russia's GDP is apparently equivalent to 300 billion rubles. (it did not occur abruptly) - by about 1.1 trillion rubles. expenses (and, apparently, about 0.6-0.7 trillion of formal investments).

Taxes in Crimea, we note, are paid in much the same way as in the rest of Russia, with one exception - Crimea and Sevastopol have been a special economic zone (SEZ) since 2014, that is, they pay social fees in the same way as the Russian IT industry - at a reduced rate, in practice this means a constant need to finance the Crimean health care and Crimean pensioners (600 thousand people). This is a lot of money, about 50 billion rubles. in year.

The main change that really took place in the economies of Crimea and Sevastopol from 2014 to 2019 was a change in the level of income, expenses and investments from the “average Ukrainian” ones (contrary to the general belief in the Russian Federation, investments in the Ukrainian Crimea were somehow radically less than in average for Ukraine) to the “average Russian”. Despite the conventions of these figures and distortions in the recalculations, we can confidently say that the per capita GRP in Crimea in 2014 was about 3-4 times lower than the average for Russia and 2-3 times lower than in neighboring Russian regions of non-export specialization (Stavropol and Krasnodar, developing grain exports - a bad example for comparison).

Undoubtedly, the growth of the GRP of Crimea and Sevastopol (now - from 6% to 10% per year, "Chinese" rates!) Will continue - this is provided for by the policy of "alignment", since the peninsula needs at least five more to completely "align" with Russia - ten years of investment, similar in scale to the past five years. That is, before bringing it into a state of “truly Russian”, as a result, another 1–1.5 trillion rubles, or up to 0.1% of GDP% by 2029, will be spent on Crimea. 20-25 years horizon is difficult to say. About 1 trillion rubles, or 0.2-0.25% of Russia's GDP, have already been spent over the five-year period.

In the dry matter

In fact, “Crimean patriotism”, especially in 2015 and to a lesser extent in 2016, has an economic dimension: there were noticeable bursts of business activity and even industrial production. But such “bursts” never change the overall picture; they are pure fluctuations, followed by similarly small and subtle declines in future growth rates.

Nevertheless, we can say quite confidently: Russia's investments in Crimea and Sevastopol in 2014–2019 increased Russian GDP and had a positive impact on economic growth rates. Let me note, first of all for the opponents, that GDP as such is not a measure of good or harm, but rather an abstract indicator of the production of value added in the economy. Not taking into account investments in Crimea, including military ones, as a factor in GDP growth in 2014-2019 is just lying. But it is also incorrect to assume that spending on Crimea increased Russia's GDP by about 0.3-0.4% per year - most of this money would have been spent in the regions of the Russian Federation in an alternative scenario. Since 2017, with the introduction of the “budget rule”, this problem has disappeared, but in 2014–2016, Crimean spending, including military spending, probably contributed about 0.1% of Russia’s GDP growth per year.

However, it is incorrect to say that Russia's GDP has grown due to the growth of military spending in Crimea, among other things. On the one hand, we simply do not know this: we only know that in 2014–2019. some money under closed budget items was invested in Crimea, too, but how much was unknown. According to indirect data, not so much to include in the calculation: usually very large investments are accompanied by a specific economic recovery in the region (growth in employment, wages in the service sectors, consumption of energy, fuel, cement, metal, etc. Most likely, it is additional troops were transferred to the Crimea, these figures can now also be taken into account in the “Chinese” growth rates of the GRP of Crimea and Sevastopol, but in general the country is neither warm nor cold from this.

One more specific moment: wars and events replacing them are often conducted for "military-strategic" reasons, in which there is a tangible financial and economic component. At least it used to be: often territories were seized from neighboring countries for the exact reason that by owning them, for purely military-strategic reasons, you can spend less on defense. We are not in a position to show that Russia won something by controlling Crimea, from a military point of view, or did not win anything. It is impossible now to say, for example, whether Russia, taking into account all the costs in a circle, brings profit or loss to arms exports: most likely, the military themselves do not have and do not want to have an exact answer to this. In any case, there was no sharp decline in defense spending after the annexation of Crimea, nor any increase.

An additional loss, which, however, can be considered as a gain, is military refugees to Russia from "Novorossiya", mainly from the "military protectorates of Russia" in the Donetsk and Luhansk regions of Ukraine. There are different estimates of their numbers, apparently, 0.8–1.1 million is realistic. And this, of course, is an acquisition: there are not enough workers in Russia, and the costs of absorbing refugees in Russia are very low. But in fact, they did not bring huge incomes or expenses in this five-year period, especially since a significant part of them remain in the “shadow” of the Russian economy for purely legal reasons. In any case, these are hundredths of the GDP of the Russian Federation per year, they can be ignored altogether.

There are no other material acquisitions, in fact. Investments in the Crimea and Sevastopol, as already noted, are unlikely to be very productive. The maximum that will be received is 0.4%, which the GRP of the peninsula occupies in Russia's GDP, will turn into 1.1%, which the region, poor in any resources, except for beautiful sea views, can bring to the Russian Federation.

The main losses of the Russian economy are sanctions and Russian "counter-sanctions", as well as the "Crimean share" in the reduction in trade between the Russian Federation and Ukraine, until 2014 - one of the largest trading partners. Here the figures are quite confident: Russia's real GDP lost in 2014, according to the most conservative estimates, 0.3 percentage points (p.p.). Growth for reasons not related to the collapse in oil prices (the day before, in 2013, GDP growth was 1.3%, in 2014 - 0.7%), in 2015 - at least 1 p.p. (a collapse of 2.5%, of which 1.5 p.p., apparently, fell on oil, 1 p.p. - on sanctions and a decrease in trade with Ukraine together). Estimates of the extent to which sanctions, a decrease in foreign direct investment, counter-sanctions and the partial loss of a major trading partner limited the dynamics of economic growth in the future vary, estimates in the range of 1–1.5 percentage points are considered reliable. GDP. However, it is impossible to separate the “price of Crimea” and the “price of Donbass”: conditionally, we can assume that they are comparable, the effect of only supporting the military protectorates of the Russian Federation on the territory of Ukraine without the annexation of Crimea and only from the annexation of Crimea without the support of protectorates would be similar.

Crimea has become only a logical episode in essence and random in circumstances, arising from the peculiarities of the country's development - the weakness of its political power in the face of pressure from the military, political esotericists and chauvinists, the nationalization of the economy, the loss of prospects due to the systemic corruption of the elites

Lost profit

Finally, in the spirit of the times, it makes sense to assess Russia's "lost profit" from what is happening - what would happen if there were neither Crimea nor Donbass, what opportunities, in addition to the lost 1–1.5 p.p. (and also with reservations) economic growth closed this decision. Hypothetically, friendly relations with Ukraine and the rapid development of trade with it could give the Russian Federation small tenths of GDP growth per year - and mostly not at the expense of Ukraine itself, but due to a wider and calmer development of foreign trade. But let's be honest: this would not cancel either the anti-American hysteria, or the development of horse corruption, or protectionism, or a decrease in investment. Crimea has become only a logical episode in essence and accidental in circumstances, arising from the peculiarities of the country's development - the weakness of its political power in the face of pressure from the military, political esotericists and chauvinists, the nationalization of the economy, the loss of prospects due to the systemic corruption of the elites, the anti-entrepreneurial moods of the authorities and society.

However, for a hypothetical paragraph of a text about the economic history of Russia in the 21st century, all this is just a suggestion. The paragraph, as a result, can be constructed something like this:

“During the first five years after the annexation of Crimea, Russia was forced to invest in the local economy, which in 2014 amounted to 0.25% of the country's GDP, about 1.1 trillion rubles. (up to 1.5% of annual GDP). These expenses did not bring a systemic change in the specialization of the economies of Crimea and Sevastopol; in 2019, the total GRP of the two regions amounted to only 0.4% of the GDP of the Russian Federation; tourism, the main specialization of Crimea, recovered in volume only by 2019 at the level of 6 million tourists per year, which did not allow to compete with the largest tourist centers of the region - Turkey, the Krasnodar Territory, Crimea was inferior even to Georgia. The main investments of the Russian Federation in the region are the Crimean bridge (about $4 billion), roads and energy, and military infrastructure. The annexation of Crimea has become one of the main reasons for moderate sanctions against the Russian Federation by the EU, the United States and other countries, another reason is the support of the Russian Federation for separatist movements in the South-East of Ukraine, which led to the flight of about 2 million residents and 10 thousand military and civilians from the region casualties in the region. Sanctions in 2014–2015 contributed to the decline in Russia's GDP and further limited its growth at the level of 1 p.p. GDP, which is comparable to Russia’s own GDP growth rates in 2019.”

Additional costs

Why does such a seemingly large event have such a small result? Can we consider that, for example, the annexation of Novorossiya would cost Russia, say, 7-8% of GDP comparable to the Crimean losses? Does this mean that the annexation of all of Ukraine (now it is only 8% of Russia's GDP), Belarus (4%), Moldova (0.5%), Northern Kazakhstan (1-2%), and in general the entire former USSR is quite a feasible task , which the Russian government can at least set itself? And even the Baltic countries: their three economies together, however, are already only a little smaller than the economy of the whole of Ukraine, but the worst of it is the beginning. Is it possible for Russia to restore the USSR by military force if the reaction of the US and the EU to what is happening is exactly the same as in the case of Crimea?

I would like to answer “no”, but in reality, at least the risks of such attempts, if they proceed solely from economic calculations, are not zero. In any case, the Russian authorities can get involved in this story. Another thing is that the result will be exactly the same.

And this is the main economic result of the Crimean five-year period: we have become "better" at killing.

Photo: Sergey Khazov-Kassia, Simferopol, February 23, 2014