Russian entrepreneurs adapt to virus lockdown challenges

MOSCOW – Valentina Konstantinova remembers Russia shutdown for coronavirus well a year ago. His 18-room boutique hotel, called Skazka, or “fairy tale,” was full and within days there was only one guest left.

“I still don’t understand how people could have disappeared in a day, and where,” she recalls. The lockdown lasted for six weeks, but with the borders closed, its business prospects were bleak.

A year later, Skazka is still open – thanks to some creative thinking from its owners – but with fewer guests than before.

Russia was never completely locked down after last spring, and as a result its economy and some of its businesses did not suffer as much as some countries did during the pandemic. But he has also seen his death rates rise.

When infections spiked again in the fall, the government resisted the imposition of restrictions that would have shut down many businesses.

If there had been another lockdown, “we would already be closed,” Konstantinova said.

A six-week lockdown further damaged the weakening economy and deepened Russians’ frustrations with falling incomes and deteriorating living conditions. President Vladimir Putin’s approval rating fell from 69% in February 2020 to an all-time low of 59% two months later before rebounding, according to the Levada Center, Russia’s largest independent pollster.

For the remainder of 2020, industries and businesses have mostly remained open. During a resurgence of the virus in the fall, some areas imposed restrictions that limited the hours or capacity of bars, restaurants and other businesses, but they were rarely completely closed.

According to the Organization for Economic Co-operation and Development, Russia’s gross domestic product fell only 3.6 percent, slightly more than the world average of 3.4 percent. By comparison, the UK’s GDP fell by 9.9%. France 8.2%, Germany 5.3% and Canada 5.4%.

Yet it was Russia’s steepest fall since 2009. In recent years, its GDP has grown by around 1-2% per year.

At the same time, Russia has seen a significant increase in mortality, said Sergei Guriev, professor of economics at Sciences Po’s Institute of Political Studies in Paris. The total number of deaths in 2020 increased by nearly 324,000 from the previous year, according to statistical agency Rosstat.

The country has recorded more than 97,000 deaths from COVID-19, according to Johns Hopkins University, although experts say the real number is likely higher and even Rosstat said more than 200,000 people with the virus are died between April 2020 and January 2021.

“These losses, which obviously could have been avoided, are the price to pay so that the Russian economy does not shut down and that Russian GDP only shrinks by 3%,” said Guriev.

Online sales had a good year. Ozon, a major Russian e-commerce platform similar to Amazon, saw sales increase nearly 2.5 times last year, said the company’s communications director, Maria Zaikina.

But even without a second foreclosure, some small and medium-sized businesses needed creative ways to stay afloat, with government support mostly limited to tax deferrals, cheap but hard-to-obtain loans, and direct grants. relatively weak. Many are not earning what they were doing before the pandemic.

A survey of 5,000 of these companies found that around a third still saw a drop in their income at the start of 2021. The survey, conducted by Russian business ombudsman Boris Titov and cited by the RBC newspaper on the month last, found that about 27% of revenues said at the same level as last year and nearly one in 10 was looking to close. Only about 19% said they were slowly starting to recover.

Almost 60% of companies surveyed said that continued depressed demand for products and services was one of the biggest challenges they faced.

Russians’ incomes fell 3.5% last year, Guriev said, noting that Moscow is spending much less to support businesses and consumers than other countries, where governments have taken “measures of a unprecedented generosity “.

This could be because the government, with its sovereign wealth fund valued at $ 165 billion in April 2020, was reluctant to open state coffers last spring, when oil prices plunged.

During the first lockdown, Konstantinova still wanted to use her hotel, which is located in a museum and entertainment complex built in a style mimicking 17th-century Russian architecture. In collaboration with NGOs and aid groups, she offered free rooms to victims of domestic violence, refugees, doctors and foreigners stranded in Russia.

With tourists unlikely to return anytime soon, Konstantinova was looking for ways to transform her hotel. Some of her non-paying guests were from India, and she decided to use their expertise to add a restaurant serving authentic Indian cuisine. The project took off and his business is now in balance.

“Profit is out of the question at this point, of course, as is prepayment of loans,” she said. “But the fact that we are working at a level of balance is important. This means that when the market recovers, the business is likely to make a profit. “

Artyom Borovoy, co-founder of a company that builds stands for exhibitions, was in a similar situation.

When the business of the convention shut down, Borovoy’s company, Stend-Do, began making folding desks for those who work from home – an idea he says came from discussions about Zoom with his friends. out of desperation ”.

Simple, inexpensive plywood desks that fold like an easel and can be used sitting or standing have proven popular for those working remotely in small apartments. Borovoy sold around 2,100 of them last year, but admits the new project is only earning enough to cover the costs.

“In terms of profit, there isn’t one yet,” he said.

Borovoy and Konstantinova say they have not received any significant government support other than tax deferrals.

Amid the restrictions, some companies have turned to acts of defiance to preserve their revenues.

In St. Petersburg, where strict restrictions were imposed due to a wave of the virus during the New Year’s holidays in December and January, there was a backlash from restaurant and bar owners who received the order. to close between December 31 and January 3, and required to close at 7 p.m. for one week after that.

Dozens of owners have joined what has been called the “Map of Resistance” – a pop-up website listing bars and restaurants that have refused to obey the restrictions.

“How else were we supposed to survive? said Mikhail Kavin, manager of the Commode bar – just off the city’s famous Nevsky Prospekt – which offers rooms named after different cultural figures such as “Gershwin”, “Brando”, “Rockefeller” and “Lebowski” .

“People had to be able to eat and work. The authorities were unwilling to engage in dialogue. They did not provide any support, neither to the employees nor to the business owners, ”he said, noting that joining the Resistance Card“ was our only way to be heard ”.

Police raided Commode in early December for serving clients behind closed doors after 11 p.m.

Authorities eventually relaxed restrictions: cafes, restaurants and bars were still banned from operating between December 31 and January 3, unless they had “winter terraces” serving customers outside. , but they could open between 6 a.m. and 11 p.m. the following week.

Commode worked over the holidays despite the restrictions, but even flouting the rules it did not bounce back to its pre-pandemic sales level, Kavin said.

“Maybe a few months or weeks was an exception to the rule, but it’s a long, long way to go to make a full recovery,” he added.

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