March is usually an important month for Alexandra Gerasimova’s business, Fitmost, which offers subscription fitness classes across Russia. People want to shape up after the long winter, and revenue from that month helps to cover the income loss during the quieter seasons of spring and summer.
But by mid-March, after weeks of slowing business, her company shut down fully as millions of Russians confined themselves to their homes in a lockdown against the coronavirus. With revenue already down by 90%, Gerisamova says her only goal is to survive. To avoid cutting any of her 30 employees, she decreased salaries across the board.
Unlike the U.S. and countries in Europe, Russia has so far offered only limited support to businesses that have been forced to shut. Garisamova, whose company is one of many ineligible for state aid, has no idea how they’ll keep going. “If nothing changes in 3 months, I don’t know how business will get going again,” she says.
Coronavirus crept up slowly on Russia and its impact is still far behind many countries in Europe, much less the U.S. The first locally transmitted infections – cases not brought in by Russians returning from abroad – were confirmed on 15 March. Since then, the numbers have spiralled upwards reaching 68,622 cases and 615 deaths as of April 24. Most of these are concentrated in Moscow – the country’s main economic and transport hub – but all of Russia’s 84 other regions are affected. Moscow’s Mayor said on April 10 that the city was far from reaching its peak, and was merely in the “foothills.”
But the economic fallout is already well under way. Small and medium-sized businesses in Russia have pleaded for help and have warned of mass bankruptcies in petitions to the government, including one launched on March 24 with more than 300,000 signatures. Anger over job losses and a lack of clear information saw 2,000 people protest in the southern city of Vladikavkaz on April 20, resulting in riot police violently dispersing the crowd and detaining dozens of people, according to local media.
Yet Russia’s leader has seemingly taken a back seat while the crisis worsens. President Vladimir Putin made just four public addresses about coronavirus, before retreating to his country residence outside the capital, leaving the Moscow Mayor Sergei Sobyanin and Prime Minister Mishustin – a little known figure before his surprise appointment in January – to take the lead.
Putin was not prepared when the epidemic hit, says Nikolai Petrov, a Senior Research Fellow at London think tank, Chatham House. “That’s why he’s hardly visible now,” he says. Putin has “left Sobyanin and Mishustin to call the difficult shots so that if and when the epidemic gets worse, they can take the flack,” says Ben Noble, a Russian politics lecturer at University College London. “It’s a familiar Putin playbook move that we’ve seen before. He doesn’t want to be in leadership when he thinks it can backfire on him.”
So far Sobyanin has been the face of government efforts to stem the disease’s spread. In Moscow, he has introduced controversial and draconian lockdown measures, even introducing restrictions on how far residents can go outside to walk their dogs. Mishustin has been responsible for applying them to the rest of the country.
But their efforts came too late, according to Anastasia Vasilieva, the head of Russia’s Alliance of Doctors. The virus has spread further than the official numbers suggest, she claims. In January 2020, pneumonia cases in Moscow surged 37 % year-on-year, an increase which Vasilieva believes to have been caused by coronavirus.
“The situation is bad and it’s hidden,” says Vasilieva, an ally of the opposition leader and fierce Putin critic Alexei Navalny. “Hospital beds are full of patients with pneumonia, who aren’t being tested for the virus”.
On April 2, Vasilieva was detained by the police while delivering protective gear to a hospital outside of Moscow, accused of violating self-isolation rules. “They were trying to frighten me, they said it’s a bad thing for everyone if I criticise Russia’s situation,” she says.
But the state of Russia’s situation increasingly is becoming plain to see. The collapse in oil and natural gas prices threatens living standards, as the energy sector makes up two-thirds of the country’s exports. Experts are now predicting the worst recession in a generation, with a rise in the unemployment rate to 15% that could leave as many as eight million people without a job.
The looming economic collapse spells bad news for Russia’s leader. “His approval ratings have been largely tied to Russia’s economic fortunes,” says Noble, noting that his numbers fell significantly in 2018 after he hiked the pension age. The Russian president’s approval ratings already dropped from 69% in February to 63% in March, near where they stood before Russia annexed Crimea in 2014, an event that sent his popularity soaring to 85%, according to the independent polling agency, the Levada Centre.
The government has not entirely ignored the economic situation. Putin introduced an economic stimulus plan for businesses on April 15, including interest free loans and payments of 12,130 rubles ($160) per employee in April and May. But it’s not nearly enough to save the economy, according to Alexei Kudrin, head of Russia’s Audit Chamber. Kudrin told Russia’s RBC news site on Monday that the government needs a package that amounts to 7% of GDP to save the economy – four times the current package – which would be almost as much as Russia’s cash reserves of $165 billion.
“The Kremlin is reluctant to spend more. The general policy has been to hang onto money,” says Tatiana Stanovaya, Founder & CEO of political analysis firm R.Politik.
Many businesses are unable to take advantage of the scheme. Gerasimova’s company, Fitmost, is excluded on the grounds that it is an IT company, which does not fall within the 12 categories of businesses that can get help. “We’re one of many companies that are completely alone in this,” she says. And most of those that have applied have been refused.
At least 900 companies had applied for a total of $81 million (6 billion rubles) in such loans, but only 1.2% of that amount has been granted as of Friday, Bank of Russia Chairman Elvira Nabiullina said during an April 10 press conference.
The government “thinks they can ignore” small and medium businesses – which make up an estimated 42% of the economy – because it does not consider them a “political force”, says Stanovaya. “But the majority of people with decent salaries in the middle class have supported Putin because they want stability. They are the social base of Putin’s regime in some way. After this lockdown, the Kremlin could face a lot of resentment,” she adds.
Now, the dire economic situation threatens Putin’s plan to remain in power beyond the end of his current term in 2024. Since January, parliament has been working on a package of amendments that, among other changes, would allow Putin to run for two more terms as president. He signed off on the amendments on March 14 but a nationwide public vote that was due to take place on April 22 has been postponed. “It’s difficult to see how Putin can get the result in the vote on the constitutional reform he needs if the current economic climate continues with the price of oil remaining low,” Noble says.
Putin’s lackluster response so far has “zeroed his political capital,” says Petrov, of the Chatham house think tank. “No more he can count on – what many Russians see as – achievements like the annexation of Crimea. He needs to prove he’s effective in power now. But he’s completely out of touch.”