Two Decades of Economy Growth At Jeopardy
When Vladimir Putin arrived at the Kremlin as the unlikely successor to a deeply unpopular Boris Yeltsin in 2000, he did so with an ambitious plan to reform the country.
Plunged into extreme financial disarray and plagued by decades of corruption and cronyism, Putin vowed to lead Moscow into a new century of prosperity and growth. And as history has shown, the spy-turned-strongman isn’t one to be caught making vain promises to his citizens - between 2000 and 2021, the Russian GDP grew a spectacular fivefold, from $300 billion to $1.71 trillion.
Coupled with some efforts to diversify the economy away from raw materials to high tech exports, reign in and, quite crucially, Russia’s ascension to the World Trade Organization in 2012, the country saw a steady rise of median wealth and a prosperous middle class whose consumption habits came to mirror those in the West.
At the end of 2019, Russia’s GDP per capita stood at $11,498 from $1,331 in 1999. For many, this translated into holidays abroad, expensive foreign cars, international education and a wealth of perks once unimaginable under the Soviet Union.
But with sweeping Western sanctions being imposed on Moscow following the country’s invasion of Ukraine and a rapidly collapsing ruble paralyzing Russians, many are facing the choice of either fleeing or living under an unpredictable and volatile economic future.
One month since the start of the war, a new reality is dawning for Russians: two decades of hard-fought economic growth could soon be nothing more than just a specter of past times.
Economic Pain and Isolation
Sanctions have been quick and swift, striking at the very heart of Russia’s ‘economic fortress’. Following the 2014 annexation of the Crimean peninsula by Moscow - and the ensuing Western sanctions - the Kremlin sought to build up its economic defenses, rolling out a raft of measures, from increasing Russia’s domestic production to shifting import reliance from western countries and beefing up its official reserves. This would, in theory, make the Russian economy sanction-proof. 2022 has proven otherwise.
Still wrapped in some dependence from other countries and neighbors, there’s hardly any sector in Russia that remains untouched by the fallout of recent sanctions.
A mass exodus of over 450 Western companies, including Apple, Ikea, Starbucks, McDonald’s, H&M, Nestle and Microsoft, has seen Russians facing shuttered stores and being denied products and services they could once easily access.
Disrupted supply chains now threaten imports and exports, some banks have been removed from the SWIFT international payment system impacting Visa and Mastercard operations, international flights remain severely restrictive, and the prospect of massive unemployment is slowly creeping in.
Annual inflation in Russia now stands at nearly 15% and the country’s GDP is predicted to contract by 20% in the second quarter of 2022, taking these economic war scars into Soviet-era records.
For many, the scale of the response by western countries has come as a surprise. Even in 2014, the burden of economic restrictions wasn’t so hardly felt.
This time around, however, the consequences are quickly becoming apparent.
Medicine Supplies More Expensive or Unavailable
While no essential goods have run out of stock in Moscow for now, the weight of the economic restrictions has started affecting the supply of some medicines. In an echo of Soviet times, Muscovites can be seen queuing outside pharmacies in search of much-needed essentials.
For Margarita, a journalist in Moscow, and her family, sanctions are hitting close to home. “Losing Netflix or McDonald’s isn’t dramatic. At the end of the day, we can live without it. What’s become really bad is the situation with medicines. For example, my mother has diabetes and insulin prices have spiked. Actually, in some pharmacies, she was denied her regular dose. She was told that there was very little insulin left and that they couldn’t release it. I also suffer from a psychological disorder and can’t find drugs for myself anymore. They don’t sell it in Moscow. And the same goes for many life-saving treatments. Supply is running out”.
Medicine prices have risen by as much as 40%, according to Russia’s health watchdog. Meanwhile, there have been reports of shortages of over 80 different drugs, including cancer treatment medicines.
Western countries introduced sweeping sanctions with the stated goal of weakening sectors of the Russian economy contributing toward war efforts, as well as targeting Russian government officials and oligarchs with ties to the Kremlin. But the feeling in Moscow is that regular Russians are the ones being left paying the bill.
“I don’t understand how these sanctions would hurt someone in the Kremlin. They are fine living in Russia. I can’t imagine oligarchs having issues getting insulin or any other products.“ said Margarita.
The Russian government has repeatedly dismissed the effects brought on by sanctions. The Kremlin’s spokesperson, Dimitry Peskov, earlier argued this would create a new opportunity for Russian companies, and has repeatedly claimed that Russia has "the potential to offset the harm" caused by the restrictions.
Apparently, that hasn’t done much to reassure many at home. With the ruble sliding to record lows against the US dollar and the threat of military conscription looming, thousands of Russians have opted to flee the country in the weeks following the beginning of the war.
Those left behind have no option but to contend with a rapid rise in consumer goods prices, record inflation levels - and stock ruptures.
”Rising prices are especially bad for those who couldn't afford much before the sanctions were imposed. Now, they can afford even less. And unlike others who fled to Georgia, Armenia or elsewhere, they don’t have such an option. Russians are being left without any opportunities to start over”, Margarita added.
Supermarket shortages, price hikes and poverty looming
Reports of shortages in some supermarket chains are becoming increasingly frequent, including sugar, pet food, grains and personal hygiene products. Items produced by international companies or reliant on imported materials are slowly disappearing and being replaced, if ever, nondescript alternatives at higher prices.
Once an unthinkable scenario in modern-day Russia, empty shelves are now a common sight across the Russian capital.
“In recent years, we came to realize that it’s possible to buy Russian cheese that tastes good and western-style meat products that are equally good. But while I wouldn’t say that the country is self-sustainable, we won’t probably experience hunger, “ explains Julia, a marketing manager for an international company in Moscow, “However, poverty is unavoidable and we cannot expect much economic development in the coming years”.
The Russian currency has lost some 20 percent of its value against the dollar over the last four weeks and facing uncertainty over foreign supply and delivery issues, retailers have been prompted to hike prices.
Long-term prospects for the economy aren’t very optimistic either. Having effectively failed to diversify away from oil and gas during the past 20 years, and now facing a massive pull-out of foreign investment and international companies, Russia is heading into a daunting future.
Julia believes that the deterioration could fuel wider unrest ”I am more worried that people might be getting poorer and more aggressive. This could lead to a revolutionary mood. There’s nothing good about a country being beaten down by outside sanctions and experiencing unrest within. I think it will encourage those who’ve been protesting before even more”.
Unemployment Concerns
Behind closed doors, another concern looms - unemployment.
Foreign-owned companies are among the biggest employers in Russia, employing roughly 6.5% of Russia’s total workforce. McDonald’s alone employed some 62,000 people before suspending operations at the start of March, as did IKEA whose workforce stood at 15,000, to name just a few companies.
While official statistics are yet to be released, the exit of the vast majority of international corporations from Russia is likely to deal a hefty blow to employment figures. The current unemployment rate stands at 4.4% but estimates point at a sharp increase in the near future.
Without access to foreign materials and supplies, and waning domestic demand, Russian companies might soon be heading for the door, too.
"The new realities will require deep structural changes in our economy," Putin admitted earlier this month. "And, I won't hide it, they won't be easy.”
Russians are protesting - and “paying with their freedom”
As the war in Ukraine enters its second month, the dire economic costs are just a part of the toll the conflict is bringing upon ordinary Russians.
In Moscow, frustration and shame are common themes in hushed conversations.
Alice is a young anaesthesiologist at a clinic in Moscow, for whom the war is both incomprehensible and a dark prelude to a new era in Russia.
“A doctor's job is to save lives. I understand the value of human life like no one else, so my heart breaks knowing what is happening in Ukraine,” she confesses.
“Our generation, those born after the collapse of the Soviet Union, grew up with Western ideas about peace, globalization, unity and joint progress. Sadly, those ideas are not in line with those of our government, which is heading back to an archaic, traditional, and totalitarian past.”
Some 14,000 people have been arrested as part of anti-war protests across Russia earlier this month, while the government has rushed to pass a number of laws aimed at criminalizing independent war reporting and preventing rallies, with penalties of up to 15 years in prison for citizens found guilty of spreading “false information” and “discrediting” information about the Russian armed forces.
“The day the war started, we understood the horror and the abyss into which our country was falling. We have seen political persecution, how our independent media has been destroyed, how televisions were turned into a stronghold of Goebbels-like propaganda, how censorship has been strengthened.“
”But we have also tried to do everything in our power to keep telling the truth and follow our conscience. And many Russians are now paying for it with their freedom”, Alice added.
*中文版請見：【莫斯科現場】「Netflix 不能看可以忍，問題是生病的母親買不到胰島素」──嚴峻制裁下，俄羅斯平民的生活
Editor: Sylvia Tien
