LONDON — After sanctions hampered production at its Kaliningrad assembly plant, Russian automaker Avtotor announcement a lottery for free 10-acre plots of land – and the ability to buy seed potatoes – so employees can grow their own food in the westernmost fringe of the Russian Empire during “the economic situation difficult”.
In Moscow, shoppers complained that a kilogram of bananas had gone from 60 rubles to 100 rubles, while in Irkutsk, an industrial city in Siberia, the price of tampons in a store doubled to $7.
“Russia’s economic outlook is particularly bleak,” said the Bank of Finland said in an analysis this month. “By launching a brutal war against Ukraine, Russia has chosen to become much poorer and less influential in economic terms.”
Even the Central Bank of Russia predicted a staggering 18-23% inflation rate this year, and a drop in total output of up to 10%.
It is not easy to understand the impact of war and sanctions on the Russian economy at a time when even the use of the words “war” and “invasion” is illegal. President Vladimir V. Putin has insisted that the economy is resilient to measures imposed by the United States, Europe and others.
The financial maneuvers undertaken by Moscow first contributed to mitigating the economic damage. At the start of the conflict, the central bank doubled interest rates to 19% to stabilize the currency, and has recently been able to lower rates at 14 percent. the the ruble is trading at its highest level in more than two years.
And even though Russia has had to sell oil at a discount, skyrocketing global prices are pushing oil tax revenues to more than $180 billion this year despite production cuts, according to Rystad Energy. Natural gas deliveries will add another $80 billion to Moscow’s treasury.
Be that as it may, Mr Putin has shown few signs that foreign pressure will push him to scale back military strikes against Ukraine.
Yet Avtotor’s vegetable garden lottery and what it says about the vulnerabilities facing the Russian people, as well as the shortages and price hikes, are signs of the economic distress that has gripped some Russian businesses and workers for the past the start of the war nearly three months ago.
Analysts say the rift with many of the world’s biggest trading partners and tech powerhouses will inflict deep and lasting damage on Russia’s economy.
“Really tough times for the Russian economy are still ahead of us,” said Laura Solanko, senior adviser at the Bank of Finland’s Institute for Emerging Economies.
The stock of supplies and spare parts that keep businesses running will run out in a few months, Ms Solanko said. At the same time, the lack of sophisticated technologies and foreign investment will hamper Russia’s production capacity in the future.
The Central Bank of Russia has already acknowledged that consumer demand and lending are down and that “companies are experiencing considerable difficulties in production and logistics”.
Ivan Khokhlov, who co-founded 12Storeez, a clothing brand that grew from a showroom in his apartment in Yekaterinburg to a large company with 1,000 employees and 46 stores, faces the problem firsthand.
“With each new wave of sanctions, it becomes more difficult to produce our product on time,” Khokhlov said. The company’s bank account in Europe was still frozen due to sanctions shortly after the invasion, while logistical disruptions forced it to raise prices.
“We are facing delays, disruptions and price increases,” he said. “As the logistics with Europe are destroyed, we rely more on China, which also has its own difficulties.”
Hundreds of foreign companies have already reduced their activities or completely withdrawn from Russia, according to an account kept by the Yale School of Management. And the corporate exodus continued this week with McDonald’s. The company said after three decades it plans to sell its business, which includes 850 restaurants and franchises and employs 62,000 people in Russia.
“I passed the very first McDonald’s that opened in Russia in the 90s,” said Artem Komolyatov, a 31-year-old technician in Moscow, recently. “Now it’s completely empty. Lonely. The sign is still hanging. But inside, everything is blocked. It’s completely dead.
Nearby, two police officers wearing bulletproof vests and automatic rifles stood guard, he said, ready to fend off protesters.
At Leningradsky station, in one of the few franchises that remained open on Monday, aligned customers for over an hour for one last taste of McDonald’s burgers and fries.
French carmaker Renault also announced on Monday an agreement with the Russian government to leave the country, although it includes an option to buy out its stake within six years. And the Finnish paper company, Stora Ensoannounced that it was divesting three corrugated packaging plants in Russia.
Deeper damage to the structure of Russia’s economy is likely to deepen in coming years, even in the money-making energy sector.
Europe’s wish to turn its back on Russian oil and gas will force Moscow to look further afield for customers, particularly in China and India. But the pivot to Asia, said Daria Melnik, senior analyst at Rystad Energy, “will take time and massive infrastructure investment which, in the medium term, will see Russia’s production and revenues fall precipitously.”
Without sufficient storage capacity, Russia may have to reduce its overall oil and gas production. Wells are not like faucets, however, they open and close easily. Cap one, and most likely it can never be used again.
“Some spare Russian capacity will be destroyed,” Melnik said of the country’s oil flow.
Anton Siluanov, Russia’s finance minister, said the sanctions could cause up to 17% drop oil production this year.
Larger landslides are apparent in other areas. Passenger automotive production was down 72% in March from a year earlier.
In the industrial sector, which includes chemicals, oil, gas and manufacturing, the four-week average import volume is down 88% from early February, before the invasion, according to FourKites, which tracks supply chains. The volume of consumption-related imports has fallen by 76%, making it difficult for Russians to buy tampons and mobile phones, and for hospitals to obtain spare parts and supplies for dialysis machines and fans.
In a survey of healthcare professionals in April, 60% of respondents said they had already experienced shortages. Among the imported products, the items most in short supply included disposable gloves, catheters and suture material.
For consumers, commodity price increases have been so noticeable that a Twitter account has emerged in mocking social media posts in which Russians bemoan price increases on everything from Palmolive shampoo to nectarines. It’s called But What Happened? and has nearly 44,000 subscribers.
A 26-year-old Moscow resident, who asked that her name not be used for fear of reprisals, says the cost of imported fruit, like the bananas she puts in her oatmeal every morning, has skyrocketed .
“It’s the product I buy every time I go to the store, so I noticed it immediately,” she said. Her total grocery bill went up by about a third, she said.
In Irkutsk, the price of a box of tampons doubled from $3.50 a few weeks after the war started, said a 23-year-old designer who earns $450 a month and asked that she not be not named. “For the same amount of money, I could buy a basket of good groceries or a new T-shirt,” she said, comparing prices before the war.
Outside the country, Russia’s economic prospects are also diminishing. Earlier this month, Fennovoima, a Finnish company that operates nuclear power plants, abruptly announcement that it was ending its contract to build a power plant in the northern town of Hanhikivi with Rosatom, the Russian nuclear energy company, which names Mr. Putin as its founder.
“We are extremely disappointed,” Rosatom, which owns a third of the project through a Finnish subsidiary, said in a statement. statement“The reasons for this decision are totally inexplicable to us.”
Ivan Nechepurenko contributed report.