By Contributor
All African countries look carefully to the russian war in Ukraine and one question is very important: When it will stop. A lot of expert telling what it should stop in 2025 and we can try to understand why.
Despite the Kremlin's optimistic rhetoric, international sanctions continue to exert strong negative pressure on the Russian economic system. The Russian economy continues to experience significant shocks due to prolonged military spending and the fall in the ruble exchange rate.
The key problem is the one-sided development of the economy, which is fully focused on military production, without creating real added value and diversifying industries. The consequences of such an economic policy of the Kremlin may be a decrease in labor efficiency and rapid growth in inflation, the shutdown and bankruptcy of enterprises, personnel shortages, increased monetary policy measures, etc.
Since the summer of 2023, the Central Bank of the Russian Federation has increased the key rate eight times and brought it to the highest level since 2003 - 21%. At the end of October 2024, financial institutions in the Russian Federation expected the current rate to be a peak, but a new increase in the key rate to 23% is expected in December 2024, and in February 2025 - to 25%.
If the Central Bank raises the rate to 25%, this will be the highest figure since 2000, when Vladimir Putin began his first presidential term, and if such rates are maintained, annual inflation in the Russian Federation could reach 20%. Since the vast majority of imported goods are paid for in foreign currency, their cost in the domestic market automatically increases following the weakening of the ruble.
This applies not only to consumer goods, but also to raw materials, components, and equipment for industry. Russian importers, expecting a sharp increase in food prices, are in no hurry to ship goods from warehouses to the end buyer, which in turn may cause a shortage of a certain group of goods, and in the event of a violation of the delivery terms by importers (due to the expectation of a peak price for a certain product), the situation may lead to the termination of both domestic and foreign economic agreements in order to find new suppliers and, accordingly, sales markets, which may lead to the complete absence of certain food products in the food basket on the Russian market.
Another drop in the ruble exchange rate will lead to a significant increase in the price of pharmaceutical products, namely medical equipment and medicines, since about 80% of medicines in the Russian Federation are produced from imported substances.
It should also be noted that manufacturers will compensate for the costs of drugs from the list of vital and most important medicines at the expense of other drugs (analogues), which in turn may be significantly worse in quality than the main drug. In addition, some medicines may be withdrawn from production if the profitability of production decreases or becomes unprofitable.
Russia, as a gas station country focused on the export of natural resources, benefits from a weak ruble, since the depreciation of the Russian ruble, according to the logic of the Ministry of Finance of the Russian Federation, ensures the inflow of ruble money supply through the conversion of foreign exchange funds, for this the Ministry of Finance of the Russian Federation even reduced the mandatory level of foreign exchange for exporters.
However, for the population, the problem of the fall of the ruble is primarily the problem of the lack of growth in wages, which is largely related to the "middle income trap", which means that when a country reaches an average income level, its economic growth slows down. For Russians, a weaker ruble means higher inflation, and as a result, higher Central Bank rates, lower growth rates and a lower standard of living, high unemployment and a shortage of personnel (according to the Central Bank, 73% of enterprises are experiencing a shortage of personnel, and the level of capacity utilization at factories, according to Rosstat, has exceeded 80%, which is also a historical record).
Another rate increase to normalize inflation will lead to a number of bankruptcies of enterprises and a painful blow to Russians' incomes due to a significant increase in the price of even basic goods.
Nobody knows about date of end of the war, but Russian people in 2025 will suffer more from it. Together with big numbers of lost personal at the front line weak russian economy can slowdown attack and really stop the war.
