LONDON — After sanctions hampered production at its assembly plant in Kaliningrad, Russian automaker Avtotor has announced a lottery for 10 acres of free land — and the opportunity to buy seed potatoes — so employees can work in the U.S. The westernmost fringes grow their own food. The Russian Empire in “economically difficult times”.
In Moscow, shoppers complained that a kilo of bananas soared from 60 rubles to 100 rubles, while in the industrial city of Irkutsk in Siberia, the price of tampons at one store doubled to $7.
Banks shortened receipts in response to paper shortages. Clothing makers say they are running out of buttons.
“The economic outlook for Russia is particularly bleak,” Finland’s central bank said in an analysis this month. “By waging a brutal war against Ukraine, Russia has chosen to be poorer and less influential economically.”
Even the Central Bank of Russia is forecasting a staggering 18% to 23% inflation this year, with total output falling by as much as 10%.
At a time when even using the words “war” and “invasion” is illegal, it’s not easy to figure out the impact of war and sanctions on Russia’s economy. President Vladimir V. Putin has insisted that the economy is withstanding measures imposed by the United States, Europe and other countries.
The financial strategy adopted by Moscow initially helped mitigate the economic damage. At the start of the conflict, the central bank doubled interest rates to 19 percent to stabilize the currency, and recently cut it to 14 percent. The ruble is currently at its highest level in more than two years.
A dizzying rise in global oil prices has caused oil tax revenue to soar to more than $180 billion this year despite production cuts, according to Rystad Energy. The gas delivery will add another $80 billion to Moscow’s coffers.
In any event, Mr Putin has shown little sign that pressure from abroad will prompt him to scale back the military strike against Ukraine.
Still, Avtotor’s vegetable plot draw and its depiction of the vulnerabilities facing the Russian people, along with shortages and rising prices, are signs of the economic woes that have plagued some Russian businesses and workers since the war began nearly three months ago.
Analysts say rifts with many of the world’s largest trading partners and technological powerhouses will cause deep and lasting damage to the Russian economy.
“Real 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.
Solanco said stocks of supplies and spare parts to keep businesses running will run out within a few months. At the same time, the lack of cutting-edge technology and investment from abroad will hinder Russia’s future production capacity.
The Bank of Russia has acknowledged that consumer demand and lending are declining and that “companies are encountering considerable difficulties in production and logistics”.
Ivan Khokhlov, co-founder of 12Storeez, the clothing brand that has grown from a showroom in his Yekaterinburg apartment to a giant with 1,000 employees and 46 stores, is tackling the problem directly.
“With each new wave of sanctions, it becomes more and more difficult to produce our products on time,” Mr Kochlov said. The company’s bank accounts in Europe remained frozen due to sanctions imposed shortly after the invasion, while logistical disruptions forced him to raise prices.
“We face delays, disruptions and price increases,” he said. “As logistics with Europe are disrupted, we are more dependent on China, which has its own difficulties.”
Hundreds of foreign companies have scaled back their Russian operations or pulled out of the country entirely, according to an account kept by the Yale School of Management. This week, McDonald’s corporate exodus continued. After three years, it plans to sell its business, which includes 850 restaurants and franchises and employs 62,000 people in Russia, the company said.
“I passed the first McDonald’s opened in Russia in the 1990s,” Artem Komolyatov, a 31-year-old tech worker in Moscow, said recently. “Now it’s completely empty. Lonely. The sign is still up. But it’s all cordoned off. Totally dead.”
He said two police officers in bulletproof vests and automatic rifles stood guard nearby, ready to stop any protesters.
At Leningrad railway station, at one of the few franchises still open on Monday, customers queued for more than an hour to end up tasting McDonald’s hamburgers and fries.
French automaker Renault also announced on Monday a deal with the Russian government to leave the country, but that includes an option to buy back its shares within six years. Finnish paper company Stora Enso said it was divesting three corrugated packaging plants in Russia.
Even in the lucrative energy sector, more serious disruptions to Russia’s economic structure are likely to increase in the coming years.
Europe has vowed to finally give up Russian oil and gas, which will force Moscow to seek customers further afield, particularly in China and India. But Daria Melnik, a senior analyst at Rystad Energy, said a shift to Asia “will take time and massive infrastructure investment, and over the medium term, Russia will see a sharp decline in production and revenue.”
Without sufficient storage capacity, Russia may have to cut its overall oil and gas production. However, wells are not like faucets, which are easy to open and close. The first, most likely will never be usable again.
“Some spare capacity in Russia will be destroyed,” Ms Melnick said of the country’s oil flows.
Russian Finance Minister Anton Siluanov said the sanctions could reduce oil production by as much as 17 percent this year.
Other industries saw even steeper declines. Passenger car production fell 72% year-on-year in March.
In the industrial sector, which includes chemicals, oil, gas and manufacturing, the 4-week average of imports fell 88% compared to early February before the invasion, according to FourKites, which tracks supply chains. Consumer-related imports fell 76 percent, making it difficult for Russians to buy tampons and cellphones, and for hospitals to get replacement parts and supplies for dialysis machines and ventilators.
In an April survey of healthcare professionals, 60% of respondents said they had experienced shortages. Among imported products, disposable gloves, catheters and suture materials were most missed.
For consumers, the price hikes on basic goods have been so dramatic that a Twitter account has sprung up, mocking social media posts in which Russians lament the price hikes on everything from palmolive shampoo to nectarines. It was called but what happened? And has nearly 44,000 followers.
A 26-year-old Moscow resident who asked not to use her name for fear of reprisals said prices for imported fruit, such as the bananas she puts in her oatmeal every morning, have skyrocketed.
“It’s a product I buy every time I go to the store, so I noticed right away,” she said. Her total grocery bill jumped by about a third, she said.
In Irkutsk, the price of a box of tampons doubled from $3.50 in the weeks after the war began, said a 23-year-old designer who makes $450 a month, speaking on condition of anonymity. “For the same amount of money, I could buy a good basket of groceries, or a new T-shirt,” she said, comparing pre-war prices.
Abroad, Russia’s economic outlook is also shrinking. Earlier this month, Fennovoima, the Finnish company that operates the nuclear power plant, abruptly announced it had terminated its contract with Russia’s state nuclear company Rosatom, which named Putin as its founder, to build the plant in the northern city of Hanhikivi.
“We are very disappointed,” Rosneft, which owns a third of the project through its Finnish subsidiary, said in a statement. “We are completely unable to explain the reasons behind this decision.”
Ivan Nechepurenko contributed reporting.