Russia’s single-industry cities pose risk to economy

Togliatti, Russia; Source: ShinePhantom via Wikipedia

The issue of failing monogoroda, or single-industry cities, is rapidly becoming one of the most pressing economic issues and sources of political risk within the Russian Federation.

The Russian government defines single-industry cities as urban areas in which at least 25% of residents are employed by a single facility. These cities were created during of central economic planning and have struggled to adopt to a post-socialist economic system. The Russian government’s list of monogoroda included 342 urban centers in 2013, which is about one in ten Russians. These cities have traditionally been a base of support for President Vladimir Putin, compounding their political importance.

As a result of a number of factors—including high production costs due to outdated technology and poor infrastructure, declining global non-energy commodity prices and underinvestment by federal authorities—many of these cities are in crisis, with many of the factories that they depend on at risk of being shuttered. Single-industry cities were initially hard-hit by the 2009 economic crisis, when the collapse of demand led to declines in industrial production, approaching 25% in some regions.

The potential for political unrest in single-industry cities also appeared during the 2009 economic crisis. The most prominent example was Pikalyovo, a small city of 22,000 located 250 kilometers southeast of St. Petersburg. In the spring of 2009, Pikalyovo’s three mutually dependent plants began to close, putting nearly a quarter of the city’s residents out of employment. In desperation, local residents began to block a federal highway to attract national attention. The strategy worked, as it led then-Prime Minister Vladimir Putin to visit the city and force Oleg Deripaska, a prominent oligarch, to reopen an aluminum refinery and repay the workers’ salaries that were in arrears.

Social unrest resurfaced again at the end of 2013. Industrial plants in single-industry cities can also provide urban centers with essential services, compounding the threat posed by factory closures. Selenginsk, a city in the Buryat Republic, is centered around a paper mill that also provides heating for the town. When the plant closed in November 2013 due to poorly functioning equipment and heavy debt, residents were left with dwindling supplies of coal and the potential that they would soon be left without heat in the middle of the Siberian winter. Thousands of residents took to the streets while local authorities announced they were prepared to call Putin himself to have the problem addressed. In January, a Russo-Japanese consortium purchased a controlling stake in the paper mill and agreed to pay off the company debt.

In response to the growing problems, Moscow had prepared to spend up to 100 billion rubles in 2014 on projects geared toward the economic diversification of monogoroda, including creating industrial parks and offering loan guarantees for small and medium enterprises (SME). The Russian federal government has also developed plans to shut down monogoroda which it considers to lack prospects for modernization. Many of them are in Siberia and the chronically underdeveloped Far East.

Residents will receive a sum of money (and a bonus) to leave the cities and move to the Far East. However, recent press reports quoting Aleksei Ulyukaev, Russia’s Finance Minister, indicate that the 40 million rubles that the Ministry of Finance allocated to regional budgets for infrastructure development and monogoroda factory modernization was instead allocated to the construction of kindergartens.

Moscow’s management of the unfolding crises in its single-industry cities will be a vital to its attempt to maintain political stability in the midst of growing economic sclerosis. Russia was recently labeled the most protectionist economy of 2013, and the potential for further economic protectionism to buffer the ailing and uncompetitive industries that are the lifeblood of monogoroda is definitely present. That said, 2013 was a tough year for these cities, and 2014 may prove even more difficult, given that Moscow appears unwilling to devote serious financial resources to the mongoroda.

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Categories: Economics, Europe

Author:Luke Rodeheffer

Luke is an incoming MA student at Stanford’s Center for Russian, Eastern European, and Eurasian Studies, where he is the recipient of a Foreign Language and Area Studies scholarship for Turkish. Luke was previously a Fulbright fellow in Ukraine and research assistant at Koç University in Turkey. In addition to security analysis and political risk assessment focusing on the former Soviet Union and Middle East, he enjoys hiking and writing. He has previously contributed to a variety of publications, including Business Insider, The Diplomat, The Interpreter, and the Middle East Monitor. Follow him on Twitter at twitter.com/lukerodeheffer.

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