As Moscow locks down, small businesses feel the crunch

As Moscow locks down, small businesses feel the crunch

Why We Wrote This

It’s never been easy to run a small business in Russia. Now the pandemic is threatening to shut them down in a new way. But Russian entrepreneurs are figuring out ways to get by, and officials are starting to help them.

Courtesy of Oleg Sirota

Oleg Sirota, who owns a small cheese-making operation in Istra, outside Moscow, is one of many entrepreneurs in Russia whose business is in existential danger due to the coronavirus pandemic and associated lockdown.

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April 20, 2020

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Small businesses make up less than 20% of Russia’s economy, though they have proliferated and diversified in Russian cities in recent years. Their very existence seems a bit of a miracle, and most still find it very tough going in the best of times.

But now that the coronavirus pandemic has prompted a lockdown of Moscow, Russia’s main economic and transport hub, until at least the end of April, many entrepreneurs describe the threat they face as existential.

Vladimir Putin has decreed that the government should pay special attention to the survival of small businesses, including direct subsidies of $162 (the minimum wage) per employee every month for those that retain at least 90% of their staff.

Some hold out hope the crisis will bring change, and, maybe, official attitudes toward them will improve. Mikhail Sagiryan, who runs two fitness clubs in the Moscow region that he’s had to close, says his relations with local officials have greatly improved in the past month.

“They are really trying to be helpful. It’s like a war situation, where everybody should pull together. If that spirit lasts, even a little bit, that would be good.”

Moscow

The rise of Oleg Sirota’s cheese business, and its current dire straits, is actually a tale of two crises.

Mr. Sirota produces quality European-style cheeses, such as parmesan, cheddar, and Gruyere which, until recently, he distributed to eager clients through the Moscow region’s network of farmers markets. The cutoff of European food imports to Russia amid the ongoing sanctions war that began six years ago afforded him and many others the opportunity to step into areas of niche production where they formerly never would have stood a chance of competing.

But now Russia’s coronavirus shutdown is battering his supply lines, scattering the workforce, and severely challenging his ability to keep things going. The entire city of Moscow is shut down at least until the end of April, and no one may even leave home without a digital permit that states their reason for doing so. Buying cheese isn’t on the permitted list.

That’s a serious problem for Mr. Sirota. “We can’t stop working,” he says. “Cows have to be milked every day. If we throw the milk out, we’ll soon go bankrupt. Our partners who work with us will go bankrupt, and our skilled workers will be permanently out of a job. Everything we’ve built will be lost.”

Small businesses like Mr. Sirota’s – he has fewer than 200 employees – make up less than 20% of Russia’s economy, though they have proliferated and diversified in Russian cities in recent years. Their very existence seems a bit of a miracle, since any form of private entrepreneurship was treated as criminal activity during the Soviet era, and most still find it very tough going in the best of times. Among the head winds they face are official corruption, endless red tape, and public suspicion rooted in Soviet-era biases. Some describe the challenge they face now as an existential threat.


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“The situation in our sphere is catastrophic,” says Dmitry Nesvetov, an official of Opora, the organization that represents small businesses in Russia. “The drop in custom for many of our members is nearly total. If we don’t get very real support, a lot of our people will lose everything.”

But Mr. Sirota – like other small business owners – is determined to survive. He’s brought his most essential employees to the Moscow-region village where his cheese-making operation is located, rented housing for them, and put them up in what he calls “barracks” mode for the duration. He’s also leased a fleet of vans, is advertising on social media, and hopes to sell his production by direct delivery.

“Over 3 million Muscovites have left the city,” he says, referring to the fact that many urban Russians own countryside dachas, or cottages, where huge numbers have repaired to sit out the crisis. “We are already up to 100 deliveries daily and if we can get that up to 300, I think we’re going to make it through this. At the start of this I gave a pep talk to my staff, assuring them that we will overcome. I did that mainly to encourage them. But now I’m actually starting to believe it myself.”

Entrepreneurs in crisis

The coronavirus pandemic crept up slowly on Russia – its impact is still well behind many European countries, much less the U.S., with the total cases brought up to 47,121 on Monday – but it is hitting now, especially in Moscow, the country’s main economic and transport hub. After a period of complacency, Vladimir Putin reacted in March by announcing a nationwide shutdown, now extended to April 30, and turned over most of the government’s responses to a team of technocrats.

Many of their initiatives have been well received, including intensive consultations with the business community, and measures to provide tax deferrals, zero-interest bank loans, and rent relief for struggling companies. But few small business operators report any of the declared assistance. That may be due to logjams in Russia’s banks, which are reluctant to issue credit to small businesses.

Mr. Putin has left most of the heavy lifting and bad-news delivering to his coronavirus response team. Instead he’s given a few reassuring “fireside chat” talks to the country, and held online conferences with officials. But he’s also taken steps that could have long-term repercussions. One has been to relax Russia’s tight centralization and hand more authority over to local governors to handle their own regions’ pandemic problems. Another was to decree on April 15 that the government should pay special attention to the survival of small businesses, including direct subsidies of $162 (the minimum wage) per employee every month for those that retain at least 90% of their staff.

Russian entrepreneurs tend to be a hardy breed and, although many speak in despairing terms about the current near-total loss of business and the paucity of official assistance, quite a few say they are finding ways to dig in for the long term and find workarounds.

So says Tatiana Sokolova, head of a Moscow marketing firm who recently returned to her central Russian hometown of Torzhok to help develop its tourist potential.

“In the hotel and restaurant business, all activity has ceased. But we have long-term relations with our clients, and we can expect that to return,” says Ms. Sokolova. “I’ve managed to keep most of my team. I’ve had to reduce their salaries, but promised to make it up to them. We face new problems every day, but I think we will manage. We have good people.”

Several restaurateurs in Moscow are even stepping up to help by arranging delivery of prepared meals to the city’s thousands of beleaguered medical workers after it became known that the government had no plan for feeding them.

Building cooperation?

Some hold out hope the crisis will bring change, that lessons will be learned, laws and regulations will be overhauled and, maybe, official attitudes toward them will improve.

Mikhail Sagiryan runs two fitness clubs in the Moscow region, which he’s had to close. He says it would be good to get some guarantees that he won’t lose his premises – something the Moscow government has started to do – but if this doesn’t go on for too long, he should be able to wait it out.

“The main thing is that the government should take care of ordinary people,” he says. “Business is low on their list of official priorities, we always have been, but common people are very important because they vote, come out to parades, and such. So, if the government provides money for people, maintains order and calm, this will be good for my business in the long run.”

Mr. Sagiryan says his relations with the local officials he deals with have greatly improved in the past month. “They are really trying to be helpful. It’s like a war situation, where everybody should pull together. If that spirit lasts, even a little bit, that would be good.”

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Igor Yurgens, the director of INSOR, a pro-business think tank, says one very positive development in this emergency has been regular consultations between the government and Russia’s three major business groups: the Russian Union of Industrialists and Entrepreneurs for big, Delovaya Rossiya for medium, and Opora for small businesses.

“Of course business is getting only part of what they ask for. Some lifelines are thrown, but the situation is very desperate,” he says. “Still, this process of consultation is working well. It would be a very good thing if it were made permanent.”

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