Russia’s small businesses see little state help

Many told to close, keep employees on payroll, but money running out

ST. PETERSBURG, Russia — Two weeks into the coronavirus lockdown, Alexander Zatulivetrov, a Russian businessman, had had enough.

In defiance of President Vladimir Putin’s orders, he announced that he would reopen one of his two restaurants in the center of St. Petersburg unless the Kremlin declared a state of emergency, a legal provision that would allow him to stop payments to banks and landlords and force the government to offer compensation.

“Where are your voices? We all have tens of workers who need jobs!” Zatulivetrov wrote in a plea to other restaurant owners to join him. “We are dying!”

Thanks to a “rainy day fund” of more than $550 billion, accumulated from the sale of oil when the prices were high, Russia is likely to weather the economic storm created by the coronavirus better than many countries. But it risks losing much of a sector that Putin has for years touted as the key to Russia’s long-term economic success — small and midsize businesses.

Unlike many Western governments, the Kremlin has so far provided little support to business. The overall relief package in Russia has amounted to less than a quarter of what is being injected in Germany, and most of the support has been aimed at helping large corporations, many of them owned or closely entwined with the state. Only about $10 billion has been pledged to small businesses so far.

Alexei Navalny, one of Putin’s most vocal critics, has said the aid should be pumped up to $27 billion, but the Kremlin has accused him of populism.

As the pandemic began to advance through Russian cities at the end of March, Putin issued orders that required businesses to both shut down and continue paying salaries. But he did not specify where owners were supposed to get the money.

“I paid everything I had to my employees,” Zatulivetrov said.

With entrepreneurs like Zatulivetrov largely left to fend for themselves, the pandemic is threatening to undo decades of effort to diversify Russia’s economy. If small and medium businesses fail, the health crisis will leave Russia’s economy disfigured and even more dependent on the Kremlin.

Those businesses account for a small part of Russia’s output compared with state-run behemoths like Gazprom and Rosneft, but they are a particularly vibrant part of the economy, employing more than 18 million people, or a quarter of the workforce, and pioneering new fields beyond oil and natural gas.

Since the “shock therapy” market overhaul of the early 1990s, Russian entrepreneurs have gone from shady trades such as selling tainted alcohol in kiosks to, in some cases, running internationally acclaimed restaurants and producing high-quality clothing and food. However, the attitude of Russian authorities toward them has changed little since the times when the Soviet financial police, the Department Against Misappropriation of Socialist Property, fought ruthlessly against “profiteers” reselling American jeans.

In March, Putin reversed his earlier praise for small businesses, saying in an interview that “there are certain grounds” to regard business owners as swindlers, echoing the Soviet bias against entrepreneurs but somewhat undercutting his own cheerleading of smaller industry.

“The government believes people in retail are all crooks,” said Irina Nurullayeva, the owner of four flower shops in St. Petersburg. “The problem is that all these officials have not been in touch with normal life since the 1990s, when this could have been the case.”

So far, the Russian government has offered subsidized loans, limited tax cuts and tax holidays to help businesses. The subsidized loans became an embarrassment when the country’s economy minister could not get one himself despite calling two banks to test the system.

Putin also offered two grants of $160 per worker to cover a portion of their salaries for April and May. But few qualify for the grants, which cover only companies that have retained at least 90% of their employees as of April 1. In any case, $160 covers only a third of an average salary and only for two months, business owners said.

Eduard Emdin, co-owner of Wynwood, a hotel in St. Petersburg named after a neighborhood in Miami famous for its graffiti walls, put it this way: “If this lasts for longer than three months, the whole story of small business will become part of the history textbooks.”