Slowdown of the Moscow’s economy due to sanctions has not happened

How Moscow’s economy is doing under sanctions, which of the worst areas are in crisis, what kind of help the authorities are providing them, and how the next year’s budget will be planned in the light of the situation, Vladimir Efimov, Deputy Mayor of Moscow for Economic Policy and Property and Land Relations, said in interview with RIA Novosti on the site of the St. Petersburg International Economic Forum. Maria Zybina was conducting an interview.

— The economy of Moscow has just recovered from the COVID, and suddenly large-scale sanctions came. How has been Moscow living in the last three months, and how much have we lost since the beginning of February because of this whole situation?

— It is too early to talk about losses, but now we see an inertial development of the situation. The first two months of this year had positive dynamics for almost all industries - for trade, industry, construction and real estate. Of course, the last three months have made some adjustments, but we cannot say that something has stopped abruptly or that the situation has become desperate. Everyone had large inventories, including consumables, raw materials, if we’re talking about manufacturing. There were stocks by commodity, if we’re talking about trade. Plus, when the whole situation began to develop, we saw a rush of demand, primarily in non-food trade.

To understand, the revenue in the first week of March was even more than in the New Year’s Eve week, when we traditionally had the peak sales. Now we don’t see a sharp slowdown, as we saw in 2020 during the COVID restrictions. There are certain industries where there is a decrease in revenue and a number of other indicators, but this is due to adaptation to the new conditions of operation of enterprises. If we talk, for example, about trade, since the beginning of the year the growth of revenue of trade enterprises - 30%, which covers inflation and exchange rate fluctuations. Of course, business revenue is now slightly lower than in early February, but the February level was 25% higher than a year earlier. We also see positive dynamics in industry: plus 10.4% in the four months of this year. This positive dynamics is due to the growth of the manufacturing industry to 13.7%. Among the leaders are textile, pharmaceutical, medical and electrical equipment manufacturers. But the slowdown is also there. If we talk about April, of course, he was close. There are whole spheres that have stopped: it is primarily the automotive industry, microelectronics. Most enterprises have now either fully or partially reopened. There are areas that are not affected by the restrictions like pharma, furniture, petrochemistry - they work in the previous mode and show positive dynamics. So we have industries that are failing, we have industries that are showing good results. But due to the fact that we do not have a dominant industry, in general we have a positive trend.

But it would be wrong to say that everything is fine. We regularly meet with companies and see their mood. The first point was the shock of a sharp increase in the Central Bank’s key rate, which we overcame with our support measures. Recall, on behalf of Moscow Mayor Sergey Sobyanin, the city allocated RUB 10 bn to support industrial enterprises, and to support the construction industry, namely – commercial construction – RUB 10 bn. We have allocated these funds to compensate for part of the loan rate for enterprises, have raised the rate to 9% and believe that this is a reasonable rate, which allows enterprises to obtain financing and develop their production if necessary. A today, we have cumulatively subsidized more than RUB 160 bn of loans - a third of them have been issued by industrialists, the rest by construction companies, respectively. We have generally overcome this phase of shock, including through government programs that support both small businesses and systemically important enterprises. The next task is to build new logistics chains and find new suppliers of components or raw materials for production. Companies are actively engaged in this. So far, the figures that we see are much better than our expectations. We thought that the situation would be much worse in a number of industries. Enterprises were able to adapt faster than one would expect.

— Does it mean, we’re not expecting some kind of setback, but rather an adjustment?

— The city’s economy is adapting to work in new conditions, and key indicators are quite optimistic. Businesses adapted faster than expected, and consumer demand returned to normal. On the other hand, we will certainly see a slowdown in the economy and agree with the forecasts given by the federal government, minus 5-7%, but it is difficult to say for sure. There are a number of indicators that are important in projecting and that have a high degree of uncertainty. We do not quite understand what sanctions will be imposed, how they will be applied, how many will be imposed, what products will be replaced with analogues given the new logistical constraints, and most important, how much time and money will be required. Of course, this adjustment period will affect the reduction of production of at least the same automotive industry. The former plant "Renault", which is now owned by the city and called the factory "Moskvich", is not engaged in production. Starting new production takes time, the production plant does not yet produce, although people are not fired, work, get paid.

— Are there any other factories, besides "Renault" under threat of closure? Maybe it is also planned to take them on the balance of the city?

— At the moment, we do not have such critical productions. There are companies that claim or have declared the possibility of suspension, but in fact the activity is ongoing. And in parallel, there are negotiations with potential investors, or with management about their buyout and taking over management. Objectively speaking, we had two critical positions: this is "McDonald’s", which employs a large number of people, and the factory "Renault", which, on the one hand, has a large number of employees - about four thousand, but more importantly, any automotive plant has a large cooperation with other enterprises, and they also have people working for them, so stopping or liquidation of one plant leads to unemployment five to eight times more. These are very important enterprises. And, fortunately, we have found a solution for them. In general, we do not see an increase in unemployment: it is at the same level – around 0.5%. In fact, this means that there is no unemployment in the city. Nor do we see an increase in the number of people who are taken out of the ordinary when the enterprise has stopped its activities, but has not dismissed employees, but pays them 2/3 of salary. Now we have about 20.000 of these people, which is also not a critical figure for the city. And it does not change, recently is stable.

— At the session, you said that about RUB 40 bn have been allocated to the business support. How does the business generally respond to support measures? And is there any problem with getting them?

— As for the support of the industrial enterprises, we proactively offered it to everyone, and took advantage of at best 5-7% of the total number of enterprises, refuse with the justification that the company has the resources to overcome and adapt the current situation. In total, we have allocated about RUB 40 bn for support measures. Of these, the living money from the budget is just over RUB 30 bn, the rest of the money is, in fact, the revenue we lost when we reset or moved to the right the payments on the lease of land and our city real estate. To date, our support measures cover about 20.000 enterprises. These are industrial enterprises, small business, trade enterprises.

— Earlier, the mayor of Moscow said that the city would gradually give up labor migrants in favor of residents and people from the regions. But maybe in the current economic situation there is a need to involve them again.

— We have a balanced labor market in Moscow, and therefore, when we talk about giving up migrants, we talk about the fact that we focus and prioritize in our work on the growth of the number of highly skilled jobs traditionally occupied by Muscovites and residents of the nearest regions. As for those people who will now go out in the ordinary or get out of work, it is for them. “My Work” Center is working, where individually will offer a track for each person: either to organize training or job search taking into account the existing skills and qualifications of the person.

— In general, is there a shortage of employees in any field?

— We do not see it now. The ratio of the number of unemployed to the number of vacancies ranges from one to eight to one to nine. That is, there are more vacancies than registered unemployed. We can safely say that at the moment we have no tension in the labor market. We see from the income tax receipts that the situation is stable, for this tax we have a positive dynamics relative to last year. In macro-economic terms, this suggests that wages are not declining, and people are earning steady wages.

— Also at one of the sessions of the forum you noted that the budget is growing. I anticipate that the current situation will have an impact on next year’s budget. Are there plans to allocate more money to support business and people and less, for example, to culture, entertainment and health, given that the pandemic is almost over?

— The structure of the budget of Moscow is balanced and has not changed for many years. We spend a little more than half of the budget on social expenditures, about 35-40% are development projects. This structure will continue. Next year we will be quite conservative in planning, but all infrastructure projects and social sphere will remain in the same parameters.

— Are you planning on borrowing?

— So far, there is no need. The budget revenues are higher than we planned. Conditionally, if we pass the remaining six months at the level of last year, we will even have a small surplus, so we should have no difficulties with financing. But once again, I would not swear, we will see how we live to autumn, and then it will be clear, because, unfortunately, in our equation now there are very many unknowns.

— We have already touched on the topic of consumer behavior, you said that in March there was the so-called "boom", does this mean that Muscovites are now actively spending money?

— We now see 15-20% more sales than last year. That is, even after adjusting for inflation, we see a positive trend in consumer demand in real terms.

— You mentioned earlier that movie theaters have begun to close in shopping malls, and premises of departed brands have been emptied. What will happen to the vacant squares now?

— As part of the anti-crisis measures, we have initiated a bill on the possibility for owners of shopping centers to charge companies that have suspended activities a rent of the average amount of last year, now it is under consideration by the Government of the Russian Federation. This is to minimize the losses now incurred by owners of shopping malls due to the fact that most stores have a small fixed rate and a variable, which is calculated as a percentage of revenue. Since the store is closed, there is no revenue, it turns out, and the rent is not paid. And secondly, the bill gives the right to unilaterally terminate such leases ahead of schedule. We hope that in this session the bill will be passed and that it will be a support measure for our shopping centers so that they can quickly find new tenants. According to our information, a large number of companies, primarily producing textiles, clothing, want to enter our market, that is, those who have left, have vacated the market for those who want to come. I’m sure we’ll have no trouble here. If we talk about cinemas, Sergey Semenovich Sobyanin has decided to allocate them support in the amount of RUB 300 m.

— We were talking about inflation: what is it now and what will it be at the end of the year?

— I think inflation will be around 15% by the end of the year. If we take into account the accumulated since the beginning of the year, it is now about 10% and almost zero. This is due to both reduced demand and currency adjustments. Plus, we are well aware that at the moment of high demand prices rose disproportionately costs. People even bought things that normally should not cost so much. Now there is an adjustment of all prices, this is a natural situation.

— Are there any advantages for us in this situation? Any opportunities, as, for example, the mayor said in his speeches?

— Any crisis is an opportunity for the development of the most successful companies, because the unsuccessful in the crisis barely survive, if not survive at all. The current crisis has a slightly different situation. We have successful companies gone and gone, opening a window of opportunity for our developing companies, or for companies from other countries. And we can already see this, for example, in industrial enterprises, which are increasing capacity utilization, because the reorientation goes to the domestic market. I regularly visit industrial enterprises, and many say that they have already found a supplier in Russia, despite the fact that they did not think that we have someone, and produce the same and not worse. Working in the global market, manufacturers have less studied the local market. Now there is a reorientation and search for alternative suppliers. And of course, for those who once entered highly competitive markets, now is a great opportunity both to increase production and get money for investment. I’m sure you will.

— Are there any plans to start their production of packaging for different products?

— There are critical areas where government support is needed, such as high-tech industries, microelectronics, knowledge-intensive industries that require large investments and development, or the creation of industries. Of course, we, together with colleagues from the Ministry of Industry, are carefully considering these industries and are now in the process of discussing what form of support is needed for which enterprises. In industries like packaging, entrepreneurs manage themselves, find new opportunities, niches. The situation in the financial markets has stabilized, with the financing of problems, we hope, will be less and less, the rate will move down, so these industries will develop independently. Of course, if someone needs support, assistance in providing land for the construction of an industrial facility, other assistance that the city can provide, we always do this, we have an Industry Support Fund, an Industry Department, who work daily with entrepreneurs, investors, industrial enterprises, and all issues arising at the city level, we solve. But packaging is not an industry that requires state intervention. Businessmen will do it better than us and faster.

— At the session you said that budget investment stimulate private sector investment. Is it hard to invest now?

— You know, we see one area that has really slowed down a lot, and that is construction. Demand for housing has fallen by 50 to 60%. Similar situation is in the commercial sector. This will certainly affect the level of investment in this area. We meet with all developers individually, watch the projects, what they are implemented, what are at risk. The first issue that concerns us the most is, of course, housing construction, so that in no case would there be deceived shareholders. With regard to commercial development, many projects had been suspended at the time, but that was mainly the case with projects that were launched from scratch. Projects that are in a high state of readiness, financed, all built. I am sure that by the end of the year, given the stabilization of the situation and this industry will be strengthened. Perhaps the number of injectable meters in the next year-two-three may decrease, but this is not critical, because in the last two years there has been a record rate of input. Housing was introduced last year twice as much as the average in all previous years. And there were absolute records for non-residential housing. So, a 20-30% adjustment for the city’s economy will not be critical. It is clear that in the moment you can not stop the construction, it is a process that if you need to slow down, then gradual. For our part, we reduced the rate for developers to 9% for large projects, and all major projects in the field of office construction, industrial and commercial facilities, who approached us, the money for subsidizing rates was received.

— To sum it up, is the city ready to provide people everything they needed?

— One can be absolutely sure that the city will fulfill all the commitments made. Primarily social payments, benefits, maintenance of the city, their city will perform full ruble regardless of any circumstances. We will not cut any programs in any way. All that we promised the residents, investors in the implementation of investment city projects, everything will be realized. No project, not even an investment, has been suspended. As for the next year, we’ll be planning our income conservatively, but the part that deals with all the city’s social obligations to citizens is a protected item that will not be reduced under any circumstances.

Source: Ria.ru