McDonald’s disappeared, spare parts at exorbitant prices, yellowed paper… These examples are only the tip of the iceberg of the upheavals which are beginning for the Russian economy, despite the impression given of resisting the sanctions. Ivan, a 35-year-old mechanic in the south of Moscow, sees all types of cars, from the simplest to the most expensive. Lately, his customers are freaking out. The price of foreign spare parts jumped 30% or more as brands stopped exporting to Russia amid sanctions punishing the country for its offensive against Ukraine, launched on February 24. “We are running out of stocks. At some point there won’t be any more. People who have foreign cars are scared, they buy in advance, they wonder what to do in the future, whether to switch to Chinese parts,” he said, preferring anonymity for fear of its hierarchy.
“I think it will be bad for quality, and therefore for safety,” notes the mechanic. Already, the authorities have lowered the safety and ecological standards of vehicles produced in Russia and authorized parallel import circuits to circumvent the sanctions. Vladimir Putin insists that the Western economic “blitzkrieg” has failed and that Russia has the chance to build an economy independent of Western goods, services and technologies.
Revealing VAT
According to the authorities, everything is better compared to the first weeks of the offensive, when the ruble collapsed and inflation soared. They claim that the recession will be limited to 8% in 2022 and that growth will recover from 2023 to return to the green in 2024. But on closer inspection, the damage promises to be heavy. Strict capital controls and a closed stock market have created a strong ruble and a stable stock market. Customs and the central bank stopped publishing monthly international trade data, masking the collapse. Inflation, close to 18% annually in April, is at its highest in 20 years. Signs like McDonald’s or Starbucks are withdrawing definitively, as is the industrialist Renault.
The independent site The Bell notes that in April, revenues from domestic VAT collapsed by half and those from imported goods by a third compared to the same month of 2021. This means that “revenues from the overwhelming majority of companies in Russia have taken a hit,” analyzes Andreï Gratchev, tax expert at Birch Legal. “Problems are arising in all sectors, both in large and small companies”, warned the boss of the central bank, Elvira Nabioullina, at the end of April, citing striking examples: the lack of buttons, imported from Europe, a problem for “several months”. The same goes for the paper, “the wood is of Russian origin, but the bleaching chemicals were imported”. Already, in many Moscow businesses or services, invoices are printed on beige paper. The travel sector is devastated, with Russians no longer able to pay with their bank cards abroad and direct air links with Europe being cut.
Energy rent
Russia’s Black Sea coast, a popular holiday resort, has become difficult to access as the summer holidays approach, with airspace there closed due to fighting in neighboring Ukraine. Data from the Ministry of Finance show that the structure of the economy, after diversification efforts, has taken a leap backwards: the share of income derived from energy fell from 28% in 2020 to 63% in April 2022. From the airline Ural Airlines to the factories of Avtovaz, the country’s leading car producer, which has been shut down for lack of spare parts, tens of thousands of people are on short-time work or on forced leave. For Chris Weafer, of the strategic consulting firm Macro-Advisory, “in March-April, the sanctions mainly affected the financial system”, but from this summer, society in general will be hit. “Lower incomes combined with inflation will very deeply reduce people’s disposable income,” he predicts.
Another aspect that is difficult to quantify: tens of thousands of workers have left the country since the end of February, with overrepresented educated categories, a sign of a brain drain. Currently, Moscow can count on a record energy income of around 25 billion dollars a month to “operate most of the economy”, estimates for AFP Chris Weafer. But the latest European sanctions, which are expected to see European imports of Russian oil reduced by some 90% by the end of the year, could hamper the Russian state while exports are redirected to other destinations. , something Moscow has been preparing for for several months. Sanctions targeting gas would be much more destructive for the Russian economy.
Andrea PALASCIANO / AFP
McDonald’s disappeared, spare parts at exorbitant prices, yellowed paper… These examples are only the tip of the iceberg of the upheavals which are beginning for the Russian economy, despite the impression given of resisting the sanctions. Ivan, a 35-year-old mechanic in the south of Moscow, sees all types of cars, from the simplest to the most expensive. These latter…