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How Looming Recession Is Unsettling One of Russia’s Boom Cities
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The WSJ's Paul Sonne gives this exceptional account of how Russians are coping in the economic crisis of 2015-2016, with the twin shocks of the collapse in the ruble and the collapse in oil prices. He does this by looking at the Kaluga region, a provincial city 110 miles south of Moscow that has benefitted from large foreign investment to meet the needs of 20 million consumers in the Moscow region. The governor of Kaluga since 2000, Anatoly Artamonov, worked hard to attract foreign investment that includes VW, Volvo AG, Continental AG, Lafarge, Samsung Electronics, General Electric, and other companies. He ran a collective in the Brezhnev era, and now is energetic in meeting needs of foreign investors. Karmanov says it is stupidity to not say he is talking to business people in other parts of the world because of the political climate in the country. About 42% of the industrial output in Kaluga comes from the foreign automobile plants, including VW. The automobile and light commercial vehicle production in Feb. 2015 dropped by about 39% compared to Feb. 2014, according to the Association of European Business estimate. Only 40% of autombile production cost from assembly lines is sourced locally, the rest is imported at the new value of the ruble which has fallen about 50%, leading to higher prices and slumping demand. Ordinary Russians are feeling the effects of the crisis with higher prices. Consumer price inflation in Feb. 2015 was at 16.7%, with 23.3% increase in food prices. High interest rates to prop up the ruble meant cutting off access to credit to finance consumer purchases. An 8% drop in real wages in Jan. 2015, according to Capital Economics, added to pressures on consumers. With the political and economic crisis following Russia's Ukraine intervention foreign investment in 2014 declined to $18.6 billion in 2014 compared to $61.5 billion in 2013, and the EBRD bank cut financing with the sanctions.
Faces in Russia during the economic crisis of 2014-2016- Anatoly Artamonov, governor of the Russia's Kaluga region, and plants of Severstal
03/17/2015
This account of life in the Kaluga region, a provincial city 110 miles south of Moscow, shows how Russia is coping with the 50% drop in the value of the ruble and the drop in oil prices below $50. Anatoly Karmanov, the able and energetic Russian who once ran a collective in the Brezhnev era, says its stupidity to have to hide that he talks to business people in other parts of the world to attract investment. VW plans to continue investment in the country, Continental AG is continuing production based on replacement demand for tires. The auto industry which provides about half of the output in Kaluga is hit hard, with the Association of European Business estimate of about 39% drop in production in Feb. 2015 compared to Feb. 2014. Only about 40% of production cost is from local parts at assembly factories, the rest is imported parts at the new ruble exchange rate, leading to a jump in prices and slumping demand.
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