Reply #34: FOR MATT S: Russian one-company towns face decline (SORRY, WRONG PLACE) [View All]

[Demeter]

http://www.ft.com/cms/s/0/8e047eea-c324-11de-8eca-00144feab49a.html

Decked in yellow autumn foliage and perched on the banks of the picturesque River Volga, the city of Tolyatti in southern Russia at first seems a picture of serenity. But tension is not far from the surface. For the 700,000 inhabitants, the next weeks and months will be critical as the city’s main economic enterprise, the carmaker Avtovaz, battles bankruptcy and unemployment.

Russia has hundreds of towns and cities like Tolyatti, a monogorod, or mono-city, where a single industry or factory accounts for most of the local economy.

Fearing social instability and unable to keep many far-flung Soviet-era enterprises afloat, Russia’s government has launched a wide-ranging review of up to 400 such towns and is pondering how to restructure local enterprises, bring in new sources of employment or, as a last resort, shut them down and move the people to new lives and uncertain futures.

Most monogoroda are not more than half a century old, having been built over coal seams or ore deposits or near hydroelectric dams under the Soviet Union’s rapid industrialisation drive starting in the 1930s. Life in these cities has been harsh, for the most part, over the span of their existence.

Now, spread out amid Russia’s vast steppes and forests, many have little economic reason to exist following the fall of communism and the end of central planning. Their products are uncompetitive with imports, they have seen ­little investment and have been kept barely afloat by a government that until this year was awash in oil revenues. With the onset of the economic crisis, many of these towns have gone from limping along to a slow death spiral.

The biggest monogorod in Russia, Tolyatti is home to what remains of the country’s Soviet-era domestic auto industry. Avtovaz employs 102,000 workers making the boxy Lada cars ubiquitous on Russia’s roads. Built a half-century ago near the shores of the gigantic Volga, it was named after Palmiro Togliatti, the Italian communist leader, and this misplaced Soviet optimism can still be found in the peeling socialist murals depicting red flags and happy proletarians on the walls of high-rise apartment blocks.

The city is perhaps the most expensive social headache facing the Russian government, with the largest projected unemployment and highest debts of any one-industry city. Projected redundancies have been estimated at 17,000 to 27,500 (25 per cent of Avto­vaz’s workforce) and auth­orities are working round the clock to keep the factory from going bankrupt.

Referred to in the Russian press as a financial “black hole”, Avtovaz has already swallowed Rbs25bn ($850m, €570m, £500m) in state support, to little effect.

Mismanagement at the factory is at the root of the problem. Last week Avto­vaz admitted 7,500 vehicles were missing from its dealer network. Avtovaz cars just barely compete with imported cars, despite 30 per cent import tariffs. The plant has had a variety of owners. In 2005 Rostechnologiya, the state arms monopoly, took over the plant. France’s Renault took a 25 per cent stake in 2008. Troika Dialog, the Moscow investment bank, owns a similar sized stake.

Politicians and businessmen are bickering about whose fault the situation is and Vladimir Putin, the prime minister, has asked Renault to contribute to Avtovaz’s resuscitation.

Meanwhile, the social dimension is dire and getting more so. Avtovaz was completely closed down in August and has since re­opened, running just one of two normal shifts, with workers on half pay. Many now drive taxis or stand round idly in parks playing chess or football.

“Everyone is worried,” said Mikhail Akhmetov, who drives a taxi on his off days. His salary is Rbs12,000 a month, of which rent is Rbs4,000 and costs such as school fees leave little left for food. “We’re getting close to the edge,” he said.

Car dealerships on the city’s edge stand empty, shops and restaurants have seen a drop-off in clientele. Federal employment centres and social services offices are packed and unable to cope, say residents.

Anatoly Pushkov, the city’s mayor, said out-of-work factory staff have been given temporary public works jobs with Rbs790m in federal employment programme money. He is in constant negotiations with central government officials over how to share the cost of the city’s transformation. “We have to create 20,000 to 23,000 work places,” he says. “It is not as easy as snapping your fingers.”

Over the long term, Tolyatti is relatively lucky in one respect: there is interest abroad in investing in Russia’s automobile industry. Russians bought about 3m vehicles in 2008, nearly overtaking Germany in market volume.

Other towns are not so lucky. Of the 400 mono­goroda under scrutiny by the economy ministry, about 20 will be targeted by special federal programmes, and could theoretically face closure, Elvira Nabiullina, economy minister, told the Financial Times. “In principle, this is possible if we don’t have any alternative forms of employment, no private investors ready to invest,” she said. In that case, “we should create conditions for resettlement, create conditions for mobility of human resources. But as of today such projects do not yet exist.”

Moscow clearly fears instability in these towns, where economic conditions can get very bad, very quickly. A series of strikes in the Kuzbass region of Siberia in 1989, for example, helped hasten the collapse of the Soviet Union two years later. Last June a strike in one monogorod, Pikalevo, brought national attention after Mr Putin flew to the city to address strikers, forcing industry leaders to get the town’s cement factory back on its feet.

Ms Nabiullina said that soon after the Pikalevo disruption the government began developing the new measures aimed at addressing the monogoroda’s economic problems. “It was one of a number of factors which drew the attention of the government to study the situation in these towns,” she said.

In Tolyatti, there have been at least three separate government announcements about imminent layoffs, all with different numbers. The confusion has heightened tensions in the normally placid town and demonstrators have taken to the streets twice in recent months.

Underlying those expressions of frustration are the rising expectations of its residents, which, if unmet, could cause a more severe backlash, said Rimma Mikhareva, editor of local news agency RIA.

“The past eight years the people have got used to living better, and no one wants to go back to how things were in the 1990s, with wage delays unemployment. That could cause an explosion.”