18 August 2016

Russia’s September 2016 State Duma Elections: Business as Usual?

By Olga Skorokhodova, Government Relations & Public Affairs Department, PBN H+K Moscow

Russia’s September 2016 State Duma Elections: Business as Usual?
One month before the State Duma elections on 18 September 2016, PBN H+K’s GR & PA team looks back at the Duma’s impact on business in 2011-2016 and ahead to the next Convocation. 


While the media focus on the unfolding election campaign, now is a good time to look back at the business-related activities of the Sixth Duma Convocation (2011-2016) and identify what drove the legislative agenda. Policy priorities that set the tone in recent years have become structural factors that will define the objectives for incoming Duma Deputies. Our expectation of the Seventh Duma Convocation is simple: defense of political and social stability and continuity in tightening regulations for the business and information spheres. Business as usual.


How the Last Duma Will Be Remembered
Russia’s State Duma, or lower house of parliament, sat for the last time before elections at the end of June 2016. According to Kommersant, since 2011 it has reviewed more than 6,000 bills, of which the president eventually signed 1,800 into law. But this Convocation’s most remarkable quality is that, more so than any of its predecessors, it managed to react to rapidly changing political contexts. President Putin himself noted, in his closing speech to members of the outgoing Duma, their “readiness to consolidate for the sake of the job at hand, for the sake of Russia”. 


Sovereignty, Information Control and Non-Tax Fees
Of the hundreds of initiatives passed, those with the most significant business impact included:
  • Import Substitution
Since 2014, the long-term policy of localization of production has given way to a sustained drive to replace imports and bring greater “sovereignty” to Russian industry. This has been seen in restrictions on state procurement policy; efforts to replace imported components needed in the Military-Industrial Complex; creation of new formats for manufacturing investment (Special Investment Contracts); and in the financial system with amendments to legislation on the national payment system.
  • Media & Internet Regulation
Repeated amendment of the Media Law increased state oversight of the information space (“Blogger Law”, blacklisting of “extremist” sites, restricting foreign media ownership) and labeled foreign-funded NGOs as “foreign agents,” questioning their legitimacy.
Tools to physically control information flows were created by legislation on the localization of personal data and anti-terrorism amendments (the so-called Yarovaya package). The costs of creating the necessary infrastructure required will largely be shouldered by business.
  • Non-Tax Fees
Finally, Duma Deputies responded to the financial crisis by tapping a major source of budget revenue, non-tax payments. The most prominent being amendments to the Waste Law obliging businesses to recycle consumer waste or pay a fee. There is no separated waste collection in Russia, making it virtually impossible for companies to recycle “their” waste.


Motivation: National Security, Patriotism and Budget Revenue
Several common themes underpin these seemingly unconnected measures.
  • “Securitization” of political and economic life is the most significant trend. This began long before the 2014 Ukraine conflict, Crimea and international sanctions. Where terrorism and extremism previously dominated the national security agenda, since 2014 “tightening the screws” has become necessary in areas including industry, food supply and the social welfare. 
  • Patriotism – emotional, irrational and largely dependent on heightened geopolitical tensions – plays a supporting role. In this, the State Duma has no equal. Its function is to publicly demonstrate that Russia cannot be intimidated and is ready to fight back.
  • Finally, since late 2014, the need to bolster the state budget without increasing the direct tax burden has become a central factor in lawmaking.


The Seventh Duma: Continuity in Change
In his speech, President Putin stressed the need for continuity of lawmaking, setting the tone for the next Duma. After all, all three of the main themes – sovereignty, patriotism and the tight budget situation – are long-term factors.
Fighting corruption is likely to remain a priority, as demonstrated by recent cases against senior functionaries and regional governors.
Relatively new and almost unregulated sectors will come into the limelight, primarily on-demand services and e-commerce. The Duma will also play a role implementing long-awaited decisions on liberalization of parallel imports, cross-border e-commerce and mandatory electronic marking of goods (RFID tagging). Without doubt, discussions around the fate of the internet and communications industries will progress to their next stage, with data – big, private and personal – becoming new battlegrounds.


18 September: Changing Faces?
We knew to expect significant changes in those serving as Deputies long before parties announced their candidate lists. However, changes of personnel will not necessarily alter the balance of power in the Duma. According to forecasts by Vedomosti, United Russia will win some 50% of the vote, the Communist Party will retain its 20%, the LDPR will extend its presence to 15%, while A Just Russia will have to make do with 7-10%.
Whether the liberal Yabloko or new Party of Growth will pass the 5% threshold is the only uncertainty. The latter, led by business ombudsman Boris Titov, is the latest attempt to form a “party of business.” Either way, the chances of either party exerting significant influence are slim.


Post-Election: Business as Usual
​Despite bringing a number of innovations (new date, primaries, return to the mixed proportional-majority representation system, carefully designed single-mandate constituencies, etc.), the 2016 Duma elections do not promise major political change. All were designed with a single outcome in mind: maintaining the social and political stability that is essential for a smooth 2018 Presidential campaign, for which the Duma elections are to serve as a dress rehearsal. “We don’t need any revolutions,” was Prime Minister Dmitry Medvedev’s key message at June’s United Russia forum.
Nor will there be a revolution in the state’s attitude to business – it is expected to provide funds to support stability and, in selected cases, give advice and possibly enter into dialogue with the authorities.
Strengthening control and increasing centralization will continue to dominate the agenda for the government and, consequently, for the new Duma too. These objectives will almost certainly outweigh any sympathy for business’ desire to increase competition and undertake structural economic reforms.