April 12, 2016 / 12:02 PM / in 2 years

People's resilience helps Russia dodge deeper crisis

MIASS, Russia (Reuters) - In Russia’s industrial heartland, people are finding ways to cope with an economic crisis that has stretched household budgets to breaking point.

A general view shows the Ural Automotive Plant (UralAZ) in the town of Miass in the Ural mountains, Russia, March 22, 2016. Picture taken March 22, 2016. REUTERS/Alexander Winning

The stories told in Miass, a mid-sized city in the Urals that is home to a sprawling truck factory and a plant that makes missiles for submarines, show how people’s tolerance and resilience have helped avert a deeper economic slump.

Nikolai Matveev, a trucker, said his family had saved on food by eating home-grown vegetables and meat from the animals he shoots while hunting.

“Our wives are also experts at saving a few kopecks here and there,” he told Reuters. “Shortages in Soviet times taught them well.”

Other workers have moonlighted as taxi drivers to supplement incomes slashed in real terms by soaring inflation and bought cheaper products as prices have risen. Some have had their nominal wages cut, too: lower pay has been an important safety valve for the Russian economy, helping businesses keep costs down as demand flags.

The weaker rouble, which helped drive inflation to 12.9 percent last year, has meanwhile cushioned the blow to government finances from the collapse in oil prices and made some Russian goods more competitive overseas.

Economists say firms in the West typically fire more staff during crises as workers, supported by their stronger trade unions, would not stand for wages sliding so much.

“In Russia it’s different, it’s much more important to work even if you work for less,” said Ivan Tchakarov, a Russia-focused economist at U.S. bank Citi. “It’s the price (of labor) that adjusts not the quantity.”

Russian workers still spend the bulk of their earnings on day-to-day needs, meaning they typically economize on things such as food and clothes. Fewer people have long-term mortgages, student loans or expensive habits.

STAYING AFLOAT

The Ural truck factory, whose gray headquarters dominate one of Miass’ central squares, illustrates how some firms have stayed afloat.

Built during World War Two, it produces everything from dumper trucks to military vehicles and sells to former Soviet countries, Africa and Latin America.

The weaker rouble has made Ural vehicles cheaper for customers abroad. It reduced payroll expenses by temporarily introducing a shorter working week late last year and has fired 140 of several thousand employees in the past six months, though workers say dozens more left by consent.

An assembly line worker said he earned around 25,000 rubles ($375) a month for an eight-hour shift and that his salary had not risen since 2011, which equates to a reduction in real wages of around 30 percent when inflation is factored in. Still, he was not planning to quit his job.

“I‘m not sure I can find anything better,” the worker said, speaking in a deserted cafe on the Prospect of the Car Factory Workers, Miass’ main drag.

Ural’s owner GAZ Group declined to arrange a meeting with its management, but its press office said salaries corresponded with those at other firms locally and were adjusted with workers’ performance.

Last year’s output of around 7,900 vehicles was similar to 2014, as exports offset falling Russian sales, GAZ Group said.

Cheaper labor costs and currency weakness explain why Russian firms’ profits in rouble terms jumped over 50 percent in 2015 even as the economy shrank by 3.7 percent.

PRESERVING STABILITY

People’s willingness to accept lower wages has also helped avert social and political unrest similar to the demonstrations in large Russian cities in 2011-12 that briefly challenged Vladimir Putin’s government.

Despite declining living standards there were no large protests in Russia’s regions last year and few predict there will be before a parliamentary vote in September that the pro-Putin United Russia party is on course to win.

Putin’s approval ratings are close to all-time highs after the 2014 annexation of Crimea from Ukraine, while his opponents are in disarray and confined by laws restricting protests and their lack of access to state media.

The liberal opposition, reeling from the murder last year of Boris Nemtsov, one of its leaders, must fight accusations by Putin supporters that it is directed and funded from the West.

Igor Stepanov, owner of Promprint, a firm in Miass that makes home furnishings, said Russians were patient because they had lived through much worse. “Our country has suffered too much in various conflicts,” he said.

Alexander Ivanov, director of Miass’ employment center, said officials had spoken with local firms about how they handled layoffs to try to preserve stability.

“We say to businesses: we all live in the same city, so if you must cut people, let’s do it in such a way that there aren’t any shocks,” he added.

Ivanov said official unemployment in Miass was around 3 percent, half the level during the 2008-09 global financial crisis, although some joblessness was hidden.

For Russia as a whole, unemployment has stayed at relatively restrained levels below 6 percent for several years.

Veteran local politician Igor Voinov said the situation in Miass now did not compare with the aftermath of the collapse of the Soviet Union.

“In the 1990s they blocked off a road here when pensioners took to the streets. I went out to speak to them and they threw rotten tomatoes at me,” said Voinov, who represents United Russia. “There’s nothing like that now.”

Additional reporting by Jason Bush and Gleb Stolyarov in Moscow; Editing by Catherine Evans

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