Window on Eurasia: Russia’s Light Industry Suffering Heavy Losses

Paul Goble

Vienna, February 6 – Russia’s already hard-pressed light industries are suffering “heavy losses” as a result of the economic crisis, industry sources say, and while the amount of money involved is far less than those in the oil and gas sector, the declines over the last year threaten to “put a cross over this branch” – that is, kill it all together.
That is because Russia’s light industries had already been under pressure from cheap imports coming in from China and Turkey. But today when Russian officials are talking about the need for re-industrialization and the diversification of the economy, the destruction of this sector is especially disturbing.
During 2008, the Russian State Statistical Committee reported, the volume of production in the domestic textile industry fell by almost 12 percent, even though there were some gains in sub-sectors like clothing for newborns -- up 8.8 percent -- and women’s coats – up 6.1 percent (www.bfm.ru/news/2009/02/06/legkaja-promyshlennost-neset-tjazhelye-poteri.html).
As a result of declines which in some part of light industry exceeded 50 percent last year, by the beginning of 2009, BFM.ru reported, “many Russian producers have landed in the most difficult financial position, and one, the Russian Textile Alliance, has announced its plans to liquidate at least some of its 81 companies.
These producers ceased production already in December because of debt, and financial analysts say that there is no way most of these factors will be able to avoid simply disappearing from the marketplace, leaving their owners with no money, their employees with no jobs, and Russia with one less industry not tied to the export of natural resources.
But the impact on the light industrial sector is broader than just textiles. For example, the Unichel shoe company cut production by a third at the end of last year. And the Elektronika factory which had been manufacturing consumer electronics closed its doors after the company defaulted on its debts.
In addition to the difficulties that have arisen in this sector as a result of declining demand, “the devaluation of the ruble” has also hit this part of the economy hard because many of the components Russian firms use in the manufacturing process come from abroad and are now more expensive, prompting yet more declines in the marketplace.
Earlier, one executive in this sector said, “money was cheap and labor relatively cheap. But now things are just the reverse.” That has led firms to cut waves by up to 30 percent, something that may be necessary for firms in this sector to stay in business but an action that has infuriated workers and led some of them to take part in public protests.
Because this sector is relatively small compared to the exporters of natural resources, the Russian government has not done a great deal to try to defend it. But it has now begun to take notice of the problems of light industry and at least take some symbolic actions to demonstrate its concern for the workers and their employers.
The most significant – or at least the most high profile – of these actions has been a joint effort by the trade ministry, customs officials and the interior ministry to block the importation of fraudulent merchandise and thus protect the Russian marketplace where many goods are produced on the basis of licensing (www.gzt.ru/business/2009/02/05/223003.html).
Russian officials began talking about the need for a struggle against such fraudulent goods already in June 2008, especially when figures showed that nearly half – 49.7 percent -- of the goods on the market came from “shadowy” producers abroad, especially in China, Turkey, India and Poland, as well as at home who were violating licensing rules.
Officials like Sergey Shiryaev, the head of the trade ministry’s department for the development of light industry, have sketched out a 12 year plan to combat such goods, not only to help Russia’s domestic light industries but also to ensure that the Russian government is able to collect all the taxes it is owed.
So far, however, this new program apparently has not had a major impact for the hard-pressed light industry sector, but the ministry obviously hopes that it will as do all the workers in that part of the economy as well as all those who believe that Russia cannot survive and develop into a modern society by exporting oil and gas alone.