Near outlets for luxury goods, goat’s milk is sold outside a metro. Wealth based on energy prices can easily waver
THE LENINGRAD station in Moscow retains its Soviet name but now hosts the Sapsan (peregrine falcon) high-speed train which hurtles towards St Petersburg at 250km/h (155mph).
There’s also a new train service to bring travellers into town from a refurbished Sheremetyevo airport, avoiding the Leningradskoye Chausee, which is almost permanently clogged with expensive western cars.
In the north of Moscow, a monorail links up with the famous metro in which at rush hour there is a train every 40 seconds. In the city centre, almost every luxury western outlet is represented. Yandex (the Russian equivalent of Google) has 56 million users and has launched on the Nasdaq exchange in New York.
Dotted around Moscow are 16 hypermarkets from the French chain Auchan, rebranded in Russian as Ashan. At the Auchan complex on Leninsky Prospekt, there is a Marks and Spencer store with prices considerably higher than outlets in Ireland.
There are paradoxes too. As I arrived at the metro station nearby, I saw shoppers stroll by with their Ashan bags representing the new Russia.
But at the station’s entrance, an elderly man sold milk from his tethered goat in an attempt to make a rouble or two.
The average monthly income in Russia in 1998 was $50 (€35). It is now $800. It sounds small by western standards but there are large variations.
Moscow has more billionaires than any other city on earth, hence the luxury outlets; it has a growing middle class, hence Ashan; and it still has large numbers who barely eke out a living, hence the man with the goat.
Outside Moscow things are mixed too. Nizhny Novgorod was Russia’s third city when I lived here in the last days of the Soviet Union but it has now dropped down the league table with a stagnant economy. Further along the Volga, Kazan with its large Tatar population has seen massive growth. There’s a spanking new metro and inside the walls of the city’s Kremlin stands a huge mosque.
Kazan’s wealth is due to oil. In that respect, it is typical of Russia as a whole. But oil is a notoriously fickle commodity on which to base a country’s economy.
Chris Weafer, until recently the chief economic strategist at UralSib Bank, believes Russia is at a crossroads. A native of Mullingar, he has been living in Russia for 13 years and experienced the economic collapse of 1998 when major banks went to the wall, the rouble was devalued and the country defaulted on its domestic debt.
Since then there has been massive growth running on average at 7 per cent per annum from 1998 to 2008. Weafer gives credit to then president Vladimir Putin who, he says, forced Russian oil executives to “stop playing their oligarch games”. He also brought the necessary stability to allow the economy to develop.
In that 10-year period, Russia earned $1.5 trillion in oil and gas exports and the country saw the massive increase in consumer spending mirrored in the smart restaurants and shops that now abound.
Russia is the second-largest car market in the world and the largest mobile phone market by per capita penetration.
But there is a dependence on oil and gas, and Weafer estimates that, to balance its budget, Russia needs the price of oil, based on Brent Crude, to hover at around $115 per barrel. When one considers that four years ago the price was $50 dollars a barrel, one sees how volatile the situation can be.
Consequently, there has been significant capital flight from Russia. $100 billion left the country in 2009. This dropped to $50 billion last year but, for the first six months of 2011, capital flight amounted to $30 billion, suggesting that this year’s figures will show a significant increase.
Weafer believes it is not just the oligarchs who are taking money out of Russia. Russian companies are investing abroad rather than at home and Russian individuals of moderate wealth are putting money in foreign banks.
A residual Russophobia abroad, allied to the corruption that permeates society and the country’s notorious bureaucracy, inhibits inward investment.
All these factors could lead to political as well as economic instability. Already polls are showing a decline in support for the ruling United Russia party in the run-up to the parliamentary elections in December.
There has been no increase in support for the Communist Party, which is the second-largest in the Duma. Disaffected voters are expected either to register a protest vote for the so-called Liberal Democrats which are led by the madcap right-winger Vladimir Zhirinovsky or simply to abstain.
In the longer term, an economic downturn could lead to political change. People’s expectations are much higher than previously, and signs that many people are prepared to rebel against the top-down, corrupt bureaucracy are beginning to emerge.
At present, this is limited to protests against wildfire property development but in future it may not be confined to that type of action.