Russian President Vladimir Putin said on February 21 that Western sanctions have played a “stimulating role” in Russia’s economic development, rather than bring it to its knees. 

Domestic companies increasing relied on local scientific and technological expertise after they were cut off from technology sanctions that have largely failed. He noted that Russian firms had found domestic solutions that were often “more effective than their foreign counterparts”.

“External problems, sanctions, with all the challenges and difficulties, played an important, stimulating role for us. Russian companies are now increasingly turning to our scientists and receiving such assistance from them. Moreover, domestic solutions often turn out to be more effective than foreign analogues,” Putin said at the plenary session of the Future Technologies Forum, TASS reported.

Putin also announced that science funding will be increased to 2% of GDP. "It is critical to channel all additional resources to support exactly promising, breakthrough areas," he said.

A VTsIOM poll this week found that most Russians agree and believe the war in Ukraine has reduced social inequality and made Russian society fairer for the first time since the fall of the Soviet Union.

Since the launch of Russia’s military campaign in Ukraine, attitudes have shifted partly thanks to the surge in state spending that has disproportionately benefited Russia’s poorest regions. In order to entice regular Russians to sign up for military service, average incomes have jumped and regional governments have been paying out enormous sign up bonuses that are several times higher than the average income. A study by the Bank of Finland institute for Emerging Economies (BOFIT) showed that regional retail deposits have grown fastest in Russia’s poorest regions.

At the same time, despite the high rates of inflation of about 10%, nominal wage increases have been rising even faster by around 12% a year, leading to a record growth in real disposable income that has fuelled a consumer boom in the last few years and created a new War Middle Class. Bank deposits and savings have swelled as a result.

While many Russians were against the idea of the invasion of Ukraine at the start of the war, now that it has started, most believe that at Russia should not lose what is widely seen as a proxy war with Nato. Patriotism is at an all-time high and Putin’s personal trust rating is currently at 80%, according to a survey conducted by the Public Opinion Foundation (FOM).

"When asked directly if they trusted Putin, 80% of participants responded affirmatively (no changes). The majority also endorsed of the president’s job performance (80%, no changes)," the service said, reports TASS.  A total of 53% of those polled said they approved of the Russian government’s handling of the country (no changes), while 56% approved of Prime Minister Mikhail Mishustin’s performance (a 1% decrease).

Russia's economy put in a better than expected 4.1% growth and growth for 2023 was also upgraded to 4.1%, Mishustin told Putin last week. However, the economy is now cooling and growth is expected to slow sharply this year.

Shortly after the extreme Western sanctions were imposed in the first month of the war three years ago, Central Bank of Russia (CBR) governor Elvia Nabiullina warned Russian companies that they would have to go back two or three generations of technology to keep their production lines running. However, that did not come to pass.

Russia’s economy was rescued by the “accelerated adaptability” of private companies, top Kremlin policymakers told St Petersburg International Economic Forum (SPIEF) last summer.

“Russia has developed antibodies [to the sanctions] and it has a perfectly healthy body. All we have to do now is develop some more muscles,” was how Russian Finance Minister Anton Siluanov described the situation.

Part of this success was Russia quickly found trade partners willing to act as middle-men to bypass sanctions and the import of technology fell only 2% by value in 2023 from the pre-war levels. But it was also due to Russian enterprises boosting investment and re-tooling their production lines, using technology from places like China that was not under sanctions. Russia is Europe’s manufacturing powerhouse and the level of technology needed is not the highest and so does not have to be exclusively sourced in the West.

“Accelerated adaptability” was the mot du jour at SPIEF. A CBR survey conducted in the autumn of 2022 found that only a tiny share of companies had found no solution to replacing banned goods. Trade via friendly third countries means that most of the products that disappeared in the first half that year were back in the stores by the end of the year. In March 2023, Putin remarked that “every cloud has a silver lining”, describing the restrictions as a step towards strengthening Russia’s economic and financial sovereignty.

In one example, Russian Deputy Health Minister Sergei Glagolev said earlier this month that the share of domestic production among drugs registered in Russia neared 80% in 2024, Interfax reported. 

In recent weeks, reports have emerged suggesting the potential return of Western firms to Russia as a result of the unexpectedly warm tones at the opening session of the Russo-US ceasefire talks in Riyadh on February 18. Against this backdrop, Russian officials have signalled a selective approach to the re-entry of Western companies.

Western companies will be admitted to be in sectors without risks for the national economy, Russian Foreign Minister Sergei Lavrov said on February 21, but they need not be "discouraged from the Russian market," the foreign minister added.

On February 20, First Deputy Prime Minister Denis Manturov announced that Russia would permit only companies it deemed beneficial to return to its market. He added the following day that he would be willing to consider allowing US company Boeing to restart purchases of Russian titanium, reported Interfax. 

Speaking at the Future Technologies Forum the following day, Putin instructed the government to regulate the process for companies seeking re-entry, a sharp volte-face from the Kremlin’s previous policy of de facto appropriating leading Western business still operating in Russia.