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Russia's small businesses suffer in pandemic

Emily Sherwin
April 3, 2020

In his response to the coronavirus crisis, President Vladimir Putin has announced that Russians should stay home on paid leave. But so far it's small businesses who are paying the price — creating a sense of injustice.

Danilovsky Market in Moscow
Image: picture-alliance/dpa/S. Krasilnikov

"Let me call you back, I'm heating the kiln," Maria Gilmanova says. She's trying to keep her ceramics company up and running. It sells to restaurants, cafes and anyone who wants to buy hand-glazed cups or plates online.

"Our sales have fallen by 70%," she says, explaining that she has lost a huge chunk of business from the closure of restaurants and cafes, a measure to stop the spread of the coronavirus.

Just like in other countries, retail, bars, restaurants and the travel industry have been hard hit in Russia as borders and non-essential stores closed. Most regions and big cities have imposed self-isolation measures as coronavirus infections have soared to over 4,000 this week. But in Russia, small and medium enterprises (SMEs) are so far largely carrying the economic burden of the measures themselves.

Vladimir Putin
Putin has called a nationwide 'holiday' — at the expense of businessesImage: Reuters/Sputnik/Kremlin/A. Nikolsky

Much of that is down to the wording Russian President Vladimir Putin has used. Last week, he announced a "non-work week" for Russians in his first address to the nation on COVID-19. On Thursday he extended the measures for another month to stop the spread of the virus in Russia. "Employees will continue receiving their pay," Putin stressed. But so far it's businesses, not the government that have to keep paying their employees, even as work dries up.  

"This is going to put a huge strain on the small business sector and a lot of these sectors of course are already the ones worst hit by the lockdown," according to Chris Weafer, senior partner at Macro-Advisory Limited, a consulting company specialized on Russia and Eurasia.

Read more: Russian online bar shakes up self-isolation

Helping the big fish

Putin did announce some economic support measures last week, including a corporate tax holiday for six months and a reduction of social taxes businesses have to pay for their employees. On Friday, Russia's Prime Minister Mikhail Mishustin announced a six-month deferral on rent payments.

"We don't feel like the government is supporting us enough. We physically can't pay our rent," Gilmanova says, explaining that the government's announcement simply means they will have to pay double rent later, when the ceramics company will likely still be licking their wounds. She says that her employees are still going to work while the measures allow them to.

Russia's chamber of commerce has said that over three million small business owners could have to shut up shop if the effects of the coronavirus pandemic drag on.

But instead of helping the businesses who are hardest hit, so far the government's measures, such as deferrals on taxes and payments, are mainly helping big businesses, according to Weafer. "For small business there really isn't any comfort in a cost reduction if you're not getting any income," he says, adding: "I would expect that a lot of businesses that have now closed will simply not reopen."

Instead of announcing government subsidies for small and medium enterprises, this week the government published a revised list of organizations that are "systemically important" to the Russian economy. The 646 organizations will receive government support if necessary. The list was initially created during the 2008 financial crisis. As political analyst Ilya Grashchenkov pointed out in a Facebook post, the list includes huge international companies like Adidas and Ikea.

Sacrificing the weak?

Putin's critics took to social media after his latest speech to call the thinking behind Putin's measures unjust. "Let me explain Putin's logic," Alexey Navalny, a Russian opposition politician, commented on Twitter. "He assumes that the entire economy is state-run. State employees, employees of state-owned companies and large controlled companies will get their salaries. The rest – anyone like designers, lawyers, taxi drivers, waiters, and so on can be sacrificed."

Meanwhile, social media users have been sharing information about the government support plans that other nations have rolled out over the coronavirus.

According to Russia's national statistics agency Rosstat, small and medium-sized enterprises made up just over 20% of Russia's economy in early 2020. Putin himself has set the official goal of increasing how much SMEs contribute to Russia's GDP to 40% by 2024.

Read more: Disinformation and propaganda during the coronavirus pandemic

Sailing through crisis

 man in a face mask in a street in Ryazan
Russia has reported more than 4,000 COVID-19 casesImage: Imago Images/ITAR-TASS/A. Ryumin

Weafer argues that the Russian government has taken a wait-and-see attitude when it comes to the coronavirus, rather than resorting to knee-jerk reactions. The seeming calm shows that the government has become used to dealing with "external pressures and financial pressures," since it came under international sanctions over the Ukraine crisis in 2014, Weafer says.

Since then, the Russian economy has been in a sort of self-isolation itself. The country has reduced debt and created a financial reserve for hard times, including a huge gold reserve. According to Weafer, that's why the government is still prioritizing "the biggest employers, the biggest companies and particularly the state sector" and relying on them to keep Russia's economy stable.

But he thinks the government is likely to roll out other economic support measures, including for small and medium enterprises, in "phases" in the coming weeks.

Growing anger

But business owners are losing patience already. Oleg, who runs a company that sells materials for interior design is angry. He tells DW that his business has lost up to 40% of its profits already and won't be able to pay people's salaries. He says Putin's "holiday" is a euphemism that allows the government to shirk funding obligations it would have in an official emergency situation.

Stepan Goncharov, from the Levada Center, an independent Russian pollster, says that people seem to want "decisive action" from the government now – and that includes the economic situation.

"The economy is the most important indicator of the government's effectiveness. And if the government cannot resolve economic problems effectively that could mean a growing desire for protest," Goncharov told DW.