The two linked stories in this blog post show the effects of the double-whammy of economic sanctions and the sharp decline in global oil prices on Russia. While oil, the nation’s primary export, has dropped in value by roughly 50% just since last June, inflation has skyrocketed due to the shortage of many necessary goods due to the sanctions. The articles focus on regional shopping malls in the Moscow area between the beginning of 2013 and this April.
After massive protests against Russian President Vladimir Putin’s administration just a few years ago, he awarded the Russian people with ownership of their homes. So, with a flat 13% income tax rate, no mortgage or rent, and socialized health care, Russians had a considerable amount of “disposable’ (spendable) income, and spend they did!
Regional shopping malls had first been introduced into Russia in 2000 and by the time that the first article was written, Russians were spending 60% of their after-tax income on retail products, including food. Swedes, the second-highest in Europe, spend 40% on retail purchases and, for comparison, Germans spend only 28%.
The people naturally found indoor shopping malls a great venue during the harsh Russian winters–with their multiplex cinemas, bowling alleys, ice skating rinks, indoor playgrounds and, of course, shops and restaurants. In the Metro Moscow area alone, there are 82 malls with a combined 34 million square feet of space. That shopping experience was noted in the earlier linked NY Times article: http://www.nytimes.com/2013/01/02/business/global/with-a-mall-boom-in-russia-property-investors-go-shopping.html.
With the rapid decline of spendable income and shortages on many items over the past year, many older Russians have been reminded of the shopping experience during the former Soviet Era. In 2013, the average monthly take-home pay in Moscow peaked at $1,700 (in dollar terms); however, when adjusted for inflation, it is projected to average only $900 this year. The second linked article, also from the NY Times, shows how shopping in Russian malls is today: http://www.nytimes.com/2015/04/10/business/international/in-moscow-economic-sanctions-rattle-malls.html.
Little by little, the Russian people are hearing rumblings of their nation’s agitation in Eastern Ukraine–sending weapons and supplies and, of course, some Russian soldiers. Vladimir Putin controls the media and he continues to deny any involvement whatsoever, other than the annexation of Crimea. That was probably expected in order to maintain control of the Navy’s only warm water port at Sebastopol. But, so far, roughly 1,000 Russian soldiers have keen killed under mysterious circumstances, and there have been protest marches against the war, not only in Moscow, but in other cities as well. Isn’t it odd that Russia annexed Crimea so quickly, but then it stopped there?
All of the international intrigue is beyond the comprehension of the average Russian. That’s why the shopping mall comparison is so revealing between the two articles. Wages have declined, retail items are scarce, inflation is high and the Russian Treasury is rapidly depleting its foreign currency reserves. Although shopping malls might be an American invention, the fact that in Russia today, they have changed from bustling centers of capitalism to virtual ghost towns is quite illustrative of the impact of of the sanctions, as well as the rapid decline in global oil prices. The malls truly reflect the pain that the Russian people are now feeling