Export restrictions on dual-use goods and technologies from Western countries to Russia were imposed back in 2014 in response to the annexation of Crimea and aggression in eastern Ukraine, but their impact was not particularly noticeable. On the contrary, Russia took active steps to digitalise and develop its IT sector over the past decade. As a result, in 2018, it scored 80.2 out of 100 points in Allianz Trade’s Digitalisation Index, and in 2022, it ranked tenth in terms of digital governance, according to the World Bank's GovTech Maturity Index 2022.
At the same time, the interest in IT sector development from Russian elites had a dual nature. The business community saw it as an opportunity to realise Russia's competitive potential in terms of its intellectual and educational capital. Meanwhile, the power elites that dominate Russian governance viewed it in the context of advancing the ideal of a digital, postmodern totalitarian regime. These two interests provided the sector with the most favourable conditions for development in the pre-war years.
However, experts have noted Russia's high dependence on Western technologies, solutions, and 'hardware.' This dependence, coupled with mutual suspicion between Russia and China that has hindered cooperation in the IT sphere, will prevent the country from achieving a high level of digital sovereignty and provide the EU and the US with leverage to contain Russia, according to a report by the German Council on Foreign Relations (DGAP) published in 2022, just a few weeks before the start of Russia's full-scale invasion of Ukraine. The latest DGAP report, released last week, attempts to assess both the effectiveness of sanctions imposed on information and communication technologies since the start of the war and the 'discrepancies between assumptions and reality that must be considered by the international sanctions coalition.'
The sanctions and export controls imposed on Russia have significantly affected its access to technologies and jeopardised the country's economic and geopolitical position, the report states. The most radical control mechanism has been the introduction of the Foreign Direct Product Rule (FDPR) against Russia, which requires third-country companies producing goods using American technologies to obtain a licence from the US government before shipping a product to Russia. Given that the development and production of high-performance chips around the world rely on American software and technologies, the FDPR is expected to cut off not only the Russian military-industrial complex but the country’s entire economy from these critical components. Moreover, Russia became the first country targeted by this measure, as before that, the FDPR was applied against the Chinese company Huawei.
Although they were expected to force the majority of Western technology companies to withdraw from the Russian market, the unprecedented scale of sanctions and export controls has fallen short of its predicted impact. While many companies in the sector did reduce their operations or freeze investments in Russia, their services and products still remain available in the country. Despite public statements, only a minority have completely ceased their operations in Russia. For instance, although Microsoft suspended new sales, it continues to provide access to software that has already been sold. And, the company recently began offering licence extensions for software to foreign companies operating in Russia and non-sanctioned Russian organisations.
Nevertheless, sanctions and export controls have generally resulted in significant vulnerabilities in Russia's information security and a growing dependence on third countries, primarily China. This has resulted in an influx of grey imports of equipment and unlicensed software. For example, nearly all of the infrastructure for telecommunication operators is built on foreign 'hardware,' with 60% consisting of European base stations made by the Finnish company Nokia and Swedish company Ericsson, both of which have exited the Russian market. The remaining 40% comes from the Chinese companies ZTE and Huawei, which have also started scaling back their operations in Russia. Due to the departure of vendors, Russian operators cannot continue deploying networks using higher technologies and are being forced to relocate equipment from peripheral areas to densely populated regions with higher demand. As a result, the mobile Internet speed in Russia’s regions has declined, with a drop of about 7% in February 2023 compared to the previous year, in all regions except Moscow, where the Internet speed increased by 32%. The process of cannibalising existing equipment to the detriment of the country’s regions will continue.
Russian mobile operators are considering using equipment from Indian, Israeli, and Turkish manufacturers on their networks. However, these vendors are unverified, and their technology has compatibility limitations with Russia’s existing networks. As a consequence, the implementation and adaptation of such equipment will be costly for operators, which, as the report notes, will ultimately affect the cost of mobile communications. As a result, the fast and affordable mobile Internet that Russia could boast of in the previous decade will become a thing of the past. Moreover, due to the degradation of the country’s mobile networks, Russia is rapidly approaching the limits of its digitisation, another factor which will hinder its economic growth. While an increasing number of countries adopt next-generation cellular networks, Russia will fall further and further behind.Simultaneously, Moscow's technological dependence on Beijing will increase. China supplies Russia with sanctioned electronics, and second-tier Chinese companies are filling the gaps left by the withdrawal of foreign companies from the Russian market. By the end of 2022, Russia was importing close to the pre-war monthly volume of microchips and chip components, with over half of these imports originating in China. The dominance of Chinese smartphones in the Russian market has also become noticeable: their share of total sales reached 70% in the first quarter of 2023 (compared to 50% last year).
However, Beijing is not interested in turning Russia into a technologically competitive country, and its willingness to support the Russian IT sector is limited by the high risk of secondary sanctions and traditional security concerns. As a result, Chinese second-tier companies have been the first to enter the Russian market, while major technology players like Huawei have, on the contrary, withdrawn their business or scaled back their operations. Thus, after relying on 'first-hand' suppliers (Western market leaders), Russia has been forced to redirect its focus to third or fourth-tier suppliers, which further guarantees its technological backwardness.
The West should intensify its efforts to monitor compliance with sanctions and implement measures against intermediaries involved in the supply of sanctioned technologies and equipment. The report’s authors underscore that this process should rely on both government structures and investigative journalists, NGOs, and businesses. Western governments and companies should pay particular attention to maintaining open channels and platforms for uncensored communication and information for Russians, even as the sanctions regime tightens. This is to prevent the monopolisation of the country's information space by the repressive Russian government and the further fragmentation of the global Internet environment.