Kari Liuhto
Professor, Director
Pan-European Institute, Turku School of Economics, University of Turku
Finland
Kaliningrad, formerly Königsberg, remained detached from the Russian mainland after the dissolution of the Soviet Union and the regaining of independence of the Baltic States. Kaliningrad, a part of the Russian Federation, is slightly smaller in area than Slovenia. About one million Russians live in the Kaliningrad region, which means slightly fewer people live in Kaliningrad than in independent Estonia.
Due to Kaliningrad’s location, the region is heavily dependent on foreign trade. The shares of the Kaliningrad region in the Russian Federation’s economy, population and foreign trade are excellent indicators to describe Kaliningrad’s dependence on foreign trade. That is, Kaliningrad makes up only 0.6-0.7 percent of the Russian Federation’s GDP and population, but the region’s share of Russian imports was more than five times at least in 2018.
After the sanctions imposed on Russia by the EU and some Western countries since the spring of 2014, it is worth taking a look at what is happening to the economy of Kaliningrad and the people of Kaliningrad at the moment. Since access to information and the reliability of information have substantially weakened since Russia started its senseless war of destruction in Ukraine a year ago, the figures presented in this article should be treated with caution.
According to statistics, industrial production in the Kaliningrad region has dropped by almost a fifth between January and October of last year compared to the same period in 2021. The decrease in industrial production is mainly due to the decrease in the manufacture of electronics (over 50%) and automotive production (some 20%), which is due to problems in getting the necessary parts for the assembly of electronics and cars in the region. It is worth noting that industrial production did not decrease in the corresponding period in the Russia Federation as a whole.
Although Kaliningrad’s industrial production has dropped considerably, it is somewhat surprising that the unemployment rate in the region has not increased, in fact it has actually decreased. At the end of last year, the unemployment rate in the Kaliningrad region was 3.0 percent (the ILO method), while it was 4.9 percent on average in the previous four years. Temporarily, it is of course possible that unemployment will not increase after industrial production has decreased because, already in the Soviet era, companies used to hold tightly to their workforce, whether there was a need for work or not. On the other hand, there may have been an order from the regional administration that companies may not reduce their number of personnel despite the companies’ financial problems. However, it is worth remembering that market forces can be fooled for a short time, but in the longer term it is certain that the unemployment rate in the region will start to increase if there is not an improvement in manufacturing.
Even though Kaliningrad’s industrial production has been hit hard, the services side has yet to see a similar decline. Due to the coronavirus pandemic, foreign tourism to Kaliningrad practically stopped. However, on the other hand, the increase in domestic tourism has replaced the lost income from foreign tourism. In December 2022, tourism to the Kaliningrad region shrank by only about five percent.
Inflation in the Kaliningrad region was ten percent last year, which is in line with the situation in Russia as a whole. In fact, the increase in prices in the Baltic States has been even stronger than in Kaliningrad. The difference is apparently due to the fact that the price of energy in the Baltic States has risen faster than in Kaliningrad.
The Kaliningrad region is traditionally a barometer of East-West relations. In other words, when these relations have been positive, the Kaliningrad region has developed faster than the rest of Russia. Correspondingly, when those relations have been strained, Kaliningrad’s economy and the people of Kaliningrad have suffered. Since relations between the West and Russia are now worse than ever in the era of modern Russia, and the foreseeable future will not bring about any change for the better, Kaliningrad will suffer.
The deterioration in relations means that the war in Ukraine will ravage foreign companies and cause at least some of them to stop operating in the region. The current situation is not easy for foreign tourism either, as the restrictions on Russian tourism in the EU are most strongly reflected in the Kaliningrad region. Whereas in the past when foreign tourists and capital flowed into the Kaliningrad region, it is now likely that the Kaliningrad region will become a military outpost into which missiles to be aimed at the West will flow instead of Western investments. The situation is difficult both for the Kaliningrad region and for the NATO, which surrounds the region. In this context, it should not be forgotten that the distance from Kaliningrad to Brussels is less than 1,200 kilometers, which is a distance that Russia’s supersonic missiles can cover quickly (in less than 10 minutes).
Kaliningrad is no longer an opportunity but a threat, which is why I believe that the Kaliningrad region will also come up in the discussions of the National Baltic Sea Forum of Finland. The forum will be organized for the 15th time in Turku in mid-June. This year the forum will focus on security and safety in the Baltic Sea region. The program and registration information can be found at the event site.
Welcome to Turku and Finland to build the common security and future of the Baltic Sea region.
P.S. It is not particularly likely that Chinese enterprises will find a foothold in the Baltic Sea region in Kaliningrad, but this development should also be closely monitored, as China became Russia’s largest trading partner in September of last year.
Due to Kaliningrad’s location, the region is heavily dependent on foreign trade. The shares of the Kaliningrad region in the Russian Federation’s economy, population and foreign trade are excellent indicators to describe Kaliningrad’s dependence on foreign trade. That is, Kaliningrad makes up only 0.6-0.7 percent of the Russian Federation’s GDP and population, but the region’s share of Russian imports was more than five times at least in 2018.
After the sanctions imposed on Russia by the EU and some Western countries since the spring of 2014, it is worth taking a look at what is happening to the economy of Kaliningrad and the people of Kaliningrad at the moment. Since access to information and the reliability of information have substantially weakened since Russia started its senseless war of destruction in Ukraine a year ago, the figures presented in this article should be treated with caution.
According to statistics, industrial production in the Kaliningrad region has dropped by almost a fifth between January and October of last year compared to the same period in 2021. The decrease in industrial production is mainly due to the decrease in the manufacture of electronics (over 50%) and automotive production (some 20%), which is due to problems in getting the necessary parts for the assembly of electronics and cars in the region. It is worth noting that industrial production did not decrease in the corresponding period in the Russia Federation as a whole.
Although Kaliningrad’s industrial production has dropped considerably, it is somewhat surprising that the unemployment rate in the region has not increased, in fact it has actually decreased. At the end of last year, the unemployment rate in the Kaliningrad region was 3.0 percent (the ILO method), while it was 4.9 percent on average in the previous four years. Temporarily, it is of course possible that unemployment will not increase after industrial production has decreased because, already in the Soviet era, companies used to hold tightly to their workforce, whether there was a need for work or not. On the other hand, there may have been an order from the regional administration that companies may not reduce their number of personnel despite the companies’ financial problems. However, it is worth remembering that market forces can be fooled for a short time, but in the longer term it is certain that the unemployment rate in the region will start to increase if there is not an improvement in manufacturing.
Even though Kaliningrad’s industrial production has been hit hard, the services side has yet to see a similar decline. Due to the coronavirus pandemic, foreign tourism to Kaliningrad practically stopped. However, on the other hand, the increase in domestic tourism has replaced the lost income from foreign tourism. In December 2022, tourism to the Kaliningrad region shrank by only about five percent.
Inflation in the Kaliningrad region was ten percent last year, which is in line with the situation in Russia as a whole. In fact, the increase in prices in the Baltic States has been even stronger than in Kaliningrad. The difference is apparently due to the fact that the price of energy in the Baltic States has risen faster than in Kaliningrad.
The Kaliningrad region is traditionally a barometer of East-West relations. In other words, when these relations have been positive, the Kaliningrad region has developed faster than the rest of Russia. Correspondingly, when those relations have been strained, Kaliningrad’s economy and the people of Kaliningrad have suffered. Since relations between the West and Russia are now worse than ever in the era of modern Russia, and the foreseeable future will not bring about any change for the better, Kaliningrad will suffer.
The deterioration in relations means that the war in Ukraine will ravage foreign companies and cause at least some of them to stop operating in the region. The current situation is not easy for foreign tourism either, as the restrictions on Russian tourism in the EU are most strongly reflected in the Kaliningrad region. Whereas in the past when foreign tourists and capital flowed into the Kaliningrad region, it is now likely that the Kaliningrad region will become a military outpost into which missiles to be aimed at the West will flow instead of Western investments. The situation is difficult both for the Kaliningrad region and for the NATO, which surrounds the region. In this context, it should not be forgotten that the distance from Kaliningrad to Brussels is less than 1,200 kilometers, which is a distance that Russia’s supersonic missiles can cover quickly (in less than 10 minutes).
Kaliningrad is no longer an opportunity but a threat, which is why I believe that the Kaliningrad region will also come up in the discussions of the National Baltic Sea Forum of Finland. The forum will be organized for the 15th time in Turku in mid-June. This year the forum will focus on security and safety in the Baltic Sea region. The program and registration information can be found at the event site.
Welcome to Turku and Finland to build the common security and future of the Baltic Sea region.
P.S. It is not particularly likely that Chinese enterprises will find a foothold in the Baltic Sea region in Kaliningrad, but this development should also be closely monitored, as China became Russia’s largest trading partner in September of last year.