Factory closure symbolizes decay at the heart of Russia’s economy
Evgeny Sidorov knew things were going wrong when the heating at the factory he worked in in central Russia was turned off in the dead of winter. The temperature was around minus 15 ° C and many windows in the building were missing.
Since then, things have only gotten worse at the Ormeto-YUMZ Machine Factory in the city of Orsk. The facility has been closed since September, the salaries of its 3,000 employees are in arrears, and as its banks, lenders and management argue over its debt load, many believe it may never restart.
“There are no materials, there is no money, there are no customers,” said Mr Sidorov. “There’s nothing… They don’t care about us.
The Orsk factory was once a symbol of Russia’s industrial might – a mainstay of manufacturing that built machines for factories nationwide and in 30 other countries. It is now an example of the decay of Russia’s $ 1.7 billion economy, which is crippled by chronic underinvestment, long-delayed reforms, large-scale state ownership, and Western sanctions that are slowly suffocating its banking sector.
Far from Moscow’s Michelin-starred restaurants, Bentley showrooms and glistening granite sidewalks, Russia’s regional industrial belt is in trouble. Expected gross domestic product growth of around 1.7 percent this year would be much worse without strong oil and gas revenues, suggesting other sectors of the economy are stagnating or shrinking.
But the Kremlin’s fear of causing public unrest means that tough restructuring decisions have often been pushed aside in favor of stopgap measures by state banks to support struggling companies.
As a result, while the official unemployment rate of 4.7 percent is near an all-time low, cuts in real wages have been substantial. Real disposable income has declined every year since 2014 and was 11% lower at the end of 2017 compared to four years earlier, according to official statistics.
“Bigger problems in Russia’s real economy are behind the expected modest GDP growth,” said Apurva Sanghi, economist at the World Bank. “Russia’s weak and declining potential growth is the major constraint. ”
High crude prices have largely meant that Western sanctions against Moscow, imposed following the annexation of Crimea in 2014, have not crippled Russia as much as supporters had hoped.
But more than four years of economic restrictions are wreaking havoc on entire swathes of the economy, where the failure of successive governments during President Vladimir Putin’s 18-year reign to adopt the necessary economic reforms has left companies such as the Orsk factory on the brink.
The 76-year-old factory was moved 1,800 km east of Ukraine to the southern Urals during World War II as part of an effort to protect the manufacturing assets of the Soviet Union. It has built equipment for foundries, steel mills and mines across Russia, Asia and Europe.
But taken into private ownership after the collapse of the USSR, the factory’s workforce fell from 12,000 about 15 years ago to 3,000 on September 12, when workers were told not to return. the next morning.
The factory has an unpaid electricity and heating bill of 1.3 billion rubles ($ 20 million), according to employees, and its state-controlled lenders have refused to increase its credit.
“Only people who sell oil think that all is well in Russia,” said Vladimir Gudomarov, head of the Orsk branch of the Russian Communist Party. “We end up here with the little that is left. The authorities are only interested in their own pockets. . . And they just seek to oppress and suppress the public’s anger. ”
As investment continues to flow into gas projects in the Russian Arctic and petrochemical plants in Siberia, other Russian industrial plants have announced mandatory layoffs in recent months. Russian employers owed their workers a total of 3.2 billion rupees ($ 48 million) in unpaid wages at the end of November, according to state statistics.
When the Financial Times visited the Orsk factory earlier this month, smoke drifted across the icy, gray skies from just two of its 13 towers. Hundreds of train cars remained idle on the adjacent tracks.
The governor of the region has promised that production will resume on December 3, but Mr Sidorov is still not convinced. ” I do not believe that. . . They are closing us down little by little, ”he said. He and his wife, who also works at the factory, saw their combined pay cut by two-thirds in September.
Factory management declined requests for comment and employees outside its entrance said they had been warned not to speak to the FT.
Like many regional cities with Soviet-era businesses, Orsk has already experienced similar crises. Despite promises by politicians to keep the other factories in operation, more than 50,000 jobs at 30 factories in the city have been lost over the past two decades.
A former confectionery factory is now a largely deserted mall, and pawn shops and loan companies dot the main street.
“Policies, people’s attitudes are set by those at the top. And they don’t care, “said Mr. Gudomarov, a former employee of the Orsk factory.” It feels like the government has given up on investing for the future. They just care about surviving today. ‘hui.
Such attitudes are a test for Mr Putin, whose popularity has fallen sharply since raising the country’s retirement age this fall. A poll this month by the Levada Center, Russia’s independent polling institute, showed that 61% of Russians hold the president personally responsible for the country’s problems.
While strong diplomatic ties with countries such as China, India and Saudi Arabia have enabled the Kremlin to maintain its global influence despite sanctions, domestic anger over jobs and livelihoods will likely be more difficult. to hide.
“There is a feeling of crisis throughout the city. No money, no job, no hope, ”said a person whose family has worked at the Orsk factory for generations. “It is a very dangerous situation for the authorities to have 3,000 angry people on the streets.”