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Is Russia ready to face an economic crisis?

The sanctions passed against Russia by the United States, the European Union and other countries will undoubtedly have a huge impact on the Russian economy, while the exodus of international companies from the market will affect the country's employment rate. To get an idea of ​​how these changes will affect people's lives, the independent Russian site Meduza spoke to Natalia Zubarevich, an economist and geographer who has studied economic development in Russia and its distribution in the country.


Just a month ago, despite fairly clear American intelligence reports, few people expected Vladimir Putin to launch a full-scale invasion of Ukraine - much less the West to respond with such harsh sanctions. The result was a sudden lack of access to international goods and supplies within the country, with the Central Bank and the Ministry of Finance forced to scramble to reduce backlash. The first relapses have already been seen in some sectors.


"The first sector to have been affected is the automotive assembly industry," explains economist Natalia Zubarevich. "Manufacturers with factories in the Kaluga region are leaving. [...] If they used to assemble German cars near Kaliningrad, now the machinery stops. At the moment Kaluga and Kaliningrad could be the two most affected areas of the industry automotive.


An idea advanced by the authorities is to take over the plants and activities abandoned by foreign companies. "They scare us with the word 'nationalization', but it's more accurate to call it 'outsourced management'", explains Zubarevich. According to the economist, the authorities are likely to resort to a strategy already employed during the COVID-19 pandemic: mitigating unemployment by keeping workers employed in factories, paying them part of their wages - despite the fact that there is nothing to assemble.


Of course, there will also be consequences for consumers. "The prices of the remaining cars will skyrocket. Countries like China cannot meet production needs immediately, and the market will contract dramatically," Zubarevich continues.


The aviation industry has also suffered the impact of the sanctions: foreign companies refuse to serve Russian planes, and many European companies are no longer able to sell spare parts. The Russian government's response will at least give some consumers a break: the prospect is to extend the airworthiness of Russian aircraft for another six months, which expired on 1 March. At the same time, traveling outside the country is practically impossible: as a result of the sanctions, landing on foreign soil would result in the hijacking of the plane.


For the manufacturing sector, however, it is still largely early to say how bad things will go. "There is no manufacturing industry in Russia that doesn't import equipment or parts," explains Zubarevich. "The petrochemical industry, for example, is quite modest. The equipment required to modernize oil refineries comes mostly from Europe, not China. It is not known how these plants will work going forward, nor is it possible, for at least another month, to have a complete picture of Russian industry in general ".


Not even the pharmaceutical sector has been spared from sanctions - and not because the West has targeted it. "Medicines, consumer goods, gadgets, appliances, appliances are all imported through shipping containers," Zubarevich notes. "All the main companies that transport them have terminated contracts with companies in Russia".


Meanwhile, according to Zubarevich, the price of medicines is soaring. "To put this into perspective, about 55% of the medicines sold in Russia are imported. As for the medicines we produce internally, the percentage rises to 80-85% for the ingredients. In addition to interruptions in supplies, there are also problems in the pay for delivered goods - banking transactions don't work very well. All these factors affect the pharmaceutical market. "


Those who live in the city will suffer more from the effects of the next economic crisis than those who live in smaller towns. This is because the former have more to lose.


"The income in Moscow is double the Russian average," notes Zubarevich. "The demand for consumption in the capital will change as the food industry shrinks. Housing, services and transport will not go anywhere. It is too early to make any further predictions, because consumption patterns have not yet changed, but one thing is sure. Moscow is biased towards the service sector, where the risks are quite high ".


Instead, there is one category that has less to worry about: it is federal employees. "Aside from inflation, they are at no particular risk. They will continue to get paid no matter what happens."


Even outside the cities, where people can grow food on a patch of land, no one will be spared completely. "We are at the beginning of a gigantic experiment: how will consumption patterns change? Grocery stores will not disappear, but everything else is unknown," explains Zubarevich. "People in rural areas have gardens and orchards. Some will plant more potatoes, others will grow cucumbers and tomatoes, still others have animals - such as chickens, pigs. Life in the countries is much more tied to the land, so here too the economic losses will be mainly due to inflation ".


As for the Russian "monocities", where almost everyone works in the same industry, the sanctions will certainly have a cost to bear, even if it is too early to predict.


"All industries use imported equipment," adds Zubarevich. "What will happen to the Severstal steel mill, now that its owner, Alexey Mordashov, has been hit by the sanctions? Hard to say. What effect will the sanctions on billionaire Alisher Usmanov have on the mining town of Stary Oskol? Here too it is impossible to predict."


Likely, these oligarchs will eventually find solutions to keep their plants from closing their doors, but these solutions will come at a cost. "They could use fictitious companies to import equipment and export products," notes Zubarevich. "But this strategy requires additional time and expense."


The authorities' rapid crackdown on independent media in the first weeks of the war means that much of the public in Russia is unaware of the extent of what is to come. "The elderly and middle-aged people will realize this gradually, but they will put up with and adapt," explains Zubarevich. Young people are more insightful - and perhaps it is worse for them. "Russian youth are in pieces right now, there is a reason why the most viewed content on social media right now is conversations with psychiatrists. People understand that there is nothing they can do, they watch helplessly as their lives are shattered ”.


Meanwhile, according to Zubarevich, the worst impact for the elderly relates to medicines. “Other than that, they will survive on buckwheat alone. Many of them also boast, they say: 'We have seen worse' ". Only time will tell if they are right.



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