Ruble's slide bites in Russia

Your company manufactures water filters and has major production centers in Germany and Poland. You export your goods to Russia, which is a key market. How is the decline of the ruble affecting your business?

It is frustrating to see that happening because the prices of our premium filters are already costly if you take into consideration all of the logistics and taxes involved, but now, when you do the calculation from euros into rubles, the price is exorbitant and we are afraid that our clients, even rich clients in Russia, will not be emotionally ready to pay that much. I believe this affects all premium products, for example, cars and jewelry.

You travel between Berlin and Moscow for your business. What cultural changes have you seen in the Russian capital? How is the person on the street reacting to the fall in the ruble?

For example, in the supermarket, you see people astounded by the price changes. Many people will have to change or adapt to the new reality, and adapt their spending habits, as they will not be able to afford those delicious products that are imported from the West. They simply will not have the money. Many perceive the New Year celebration as the main celebration in Russia, and that was a shock as many people had to rearrange their trips abroad simply because they could not afford it anymore, and this also had an affect on travel agencies. This is the reality.

Is it the case that people will have to go back to buying all Russian goods, not just food, but everything that is produced within Russia?

Russian production is under-developed, everyone admits that, everyone knows that. There is uncertainty in the air, even those people with money, they are trying to economize, to save up because they are not sure what the future holds for them. The other thing is local products are quite often bad quality, and people will try to find a balance between what they are ready to spend and what they are willing to buy. This balance, this equation will not be easy.

It appears people have been directly hit in the pocket by the knock-on effects of both falling oil prices and sanctions. Do you think people are just living day to day, or are they thinking about the long term? Maybe people will try to leave, causing a "brain drain" in Russia?

Yes and no. Many people at the moment are trying to put on a brave face, but in terms of the economical side of things, there is this uncertainty. Just imagine, you wake up in the morning and find out your salary has been slashed by forty percent. This is ridiculous. There are lots of economic migrants from eastern Ukraine, they are qualified personnel, and this is also pushing salaries down. That means this influx of qualified personnel into the Russian capital may cause, at the end of the day, this "brain drain", and people may start looking for work elsewhere, outside of Russia.

That must be another frightening prospect in terms of the state of the Russian economy. As someone who works between Germany and Russia, what changes have you had to make to your business practices?

First of all, we had to adapt to this new exchange rate, so we had to fix our prices not in rubles, but in in euros. That was the first fix we had to deal with. In this painful period of change we cannot afford to lose our clients, but on the other hand, we cannot afford to make losses, that is why we had to make it clear to our customers that they will have to accept the fact the prices would be fixed in euros. Then we had to explain to our customers that we cannot give them any discounts, bonuses, nothing. That is so discouraging. When you work in this premium sector, this upper market, they always expect discount, and so on. What we can promise is good service and that is it.

Do you feel the Russian soul has been affected by all of this? Have people lost their confidence?

Russia has been through a lot of hardship in the past twenty years. People remember the 1998 default and so on. This virus of panic is very contagious. Once you see people queuing up at the local bank, this virus is in your veins immediately, and then you rush to the bank to withdraw everything immediately. Especially in big cities where people have a lot to lose, they try to convert their money into euros or to simply take the money, to have cash in their hands. People are less affected in places outside of Moscow and St. Petersburg because their salaries are paid in rubles and they do not travel abroad, so they are mainly unaffected. You have this imbalance between the big cities with high salaries and high flyers, and then the rest of Russia where people have not felt the change yet.

Gerhard Hessel is the Development Director for Bestwater Russia, which has a headquarters in Berlin.

Interview conducted by Lucia Walton.