‘They’re Steamrolling Us’: Lacking State Support, Russia’s Small Businesses Are Struggling To Survive
ST. PETERSBURG, Russia — Aleksandr Zatulivetrov was once the proud owner of six restaurants in a city thronging with tourists. But four months after Russia introduced lockdown measures, he has put his apartment up as collateral and sold his car to cover rent for the two remaining establishments he hasn’t been forced to sell.
The COVID-19 pandemic has been tough on Russia’s small businesses, leaving many struggling to stay afloat amid state support that pales in comparison with packages offered in many Western countries. Zatulivetrov estimates his losses at 5 million rubles ($68,000) and puts the blame squarely on government mismanagement of the crisis.
“I always had a clear position: I don’t bother the authorities, and they don’t bother me. That’s the social contract,” he said in an interview at Buterbrodsky, a restaurant he runs near the city center that was finally allowed to open this week. “But now they’re steamrolling us.”
Since President Vladimir Putin came to power in 2000, St. Petersburg, his native city, has been transformed. The historic center received a facelift, and businesses boomed in ways not replicated elsewhere: Staid, Soviet-era canteens gave way to vegetarian cafes; boutique hotels replaced drab lodgings; and bars proliferated to serve visitors that flock here each summer to witness the famous White Nights and the midnight sun.
But stay-at-home measures imposed in late March, just as the tourist season was set to begin, have threatened the survival of many of those new locales and forced others to improvise. Some introduced delivery services; others went underground, drawing down shutters and operating through word-of-mouth. But few avoided a collapse in revenue.
In April, a decree by Putin effectively ordered companies to suspend operations while continuing to pay salaries to workers forced to stay home. The situation, and the constantly shifting government guidelines, forced dozens of businesses to close and left many owners struggling to make ends meet.
“We’re in shock,” said Vladimir Konyukhov, a chef who owns stalls selling sushi at two St. Petersburg food courts that remain closed on health grounds. He says his business survived lockdown by opening a delivery service that kept its 50 employees busy and covered 30 percent of their salaries. But after four months, he says, “our project finds itself on the edge in terms of revenue and turnover.”
On a recent afternoon, the pedestrian zones of St. Petersburg were clogged with human traffic. Chairs and tables crowded out the sidewalks of popular side streets. Desperate to maximize revenue, some restaurants introduced service charges and began taking large deposits for table reservations. At Buterbrodsky — a portmanteau of the Russian for “sandwich” and the surname of famous Russian poet Joseph Brodsky — a skeleton staff served guests at three small tables positioned outside the entrance, steps from a busy road.
Although they employ thousands in large cities such as Moscow and St. Petersburg, small and medium-sized businesses are responsible for only around 20 percent of Russia’s GDP. The economy is dominated by industrial conglomerates and major energy exporters.
“Our main problem is we’re too used to asking,” Zatulivetrov, who says he’s negotiating the sale of his other remaining restaurant, My Zhe Na Ty, said of small business. “They pity us, tell us to hold tight, but we’re not a major source of income for the city. If we disappear, so what? Others will come.”
He pointed to the Lakhta Center, an 87-story skyscraper visible from the veranda of Buterbrodsky and home to the St. Petersburg branch of state energy giant Gazprom. “That’s the real taxpayer,” he said.
Dmitry Grozny, a business journalist and former editor of Business Petersburg, a local publication, says the clash between small business and the state in Russia has deeper, systemic roots.
“The interaction between the two is very weak in Russia,” he said. “Officials and business owners live in parallel realities. The former often see business owners as a bunch of rich people who can sit calmly without work and their complaints about lockdown as simply a manifestation of their greed.”
St. Petersburg usually plays second fiddle to Moscow, the dynamic capital of 12.7 million that sets the tone for Russia. But when authorities in Moscow, despite reporting a surge of coronavirus infections, announced that indoor dining would open on June 23, St. Petersburg did not follow suit.
So on July 20, Zatulivetrov and other small business owners gathered to brainstorm ways they could pressure authorities to let them reopen after four months of lockdown, streaming their event live on Facebook. Maksim Levchenko, whose Fort Group owns 12 shopping malls throughout St. Petersburg, issued a direct appeal to Aleksandr Beglov, the city’s powerful Kremlin-backed governor.
“If you’re a man, if you’re a governor, then take responsibility and let us work! Because we have been sitting without work for four months now,” he said.
Levchenko’s overture was widely shared on social media. And Beglov was apparently moved to action. In a televised meeting with officials, he instructed his deputy, Yevgeny Yelin, to petition authorities in Russia’s capital for permission to open St. Petersburg’s malls and restaurants.
“Buy a plane or train ticket, go to Moscow,” the governor told Yelin. “Bring back [their] decision on Thursday, latest on Friday. If the decision is negative, I’ll go there myself on Saturday.”
The following day, on July 21, Yelin announced the city would allow shopping malls and indoor dining to open from July 27, though food courts would remain closed and various restrictions would stay in place. But the concession coincided with a new law clamping down on alcohol sales that threatened the closure of hundreds of bars in the city. It also shut out restaurants operating in food courts.
“This reopening was meant to be a breath of fresh air, for us to pay suppliers and begin working fully,” said Konyukhov, the sushi stall owner. He remains banned from using the venues he traded in before the pandemic.
For Konyukhov and other entrepreneurs out of pocket after months of uncertainty, Governor Beglov’s vacillation over the question of lifting lockdown exposed his reluctance to take responsibility for controversial decisions. St. Petersburg has been hit hard by the coronavirus, recording over 31,000 cases and 2,023 deaths as of July 30. In mid-June, Yelena Tsereteli, the regional official in charge of small-business development, said 40 percent of small businesses in St. Petersburg would not weather the pandemic.
“They keep telling us we need to wait, but there’s no official road map,” Levchenko said. “Instead, there’s a complete indifference. No one wants to take responsibility.”
For Zatulivetrov, who received calls daily from employees asking to return to work, the July 27 reopening was welcome news. That day, his neighbors hosted a party to celebrate in the courtyard of his apartment building.
But while his restaurant is enjoying higher foot traffic, he said he has lost 60 percent of a workforce composed largely of students from outside St. Petersburg and Central Asian seasonal workers who returned to their home countries and now have no way of reentering. The uptick in demand, he said, is temporary.
On July 17, Russia’s Federal Statistics Service reported that real disposable incomes in the country fell by 8 percent between April and June, the height of lockdown restrictions, representing the largest plunge since the catastrophic default of 1998. Zatulivetrov said anger at government policies was only rising among his employees.
“The government had the best chance in years to gain support and love. But the opposite has happened,” he said. “Whether we have a second wave [of the pandemic] or not, the real collapse will begin in the fall. People have simply run out of money — you can see it.”