Russia's industrial giants are in crisis mode, and the impact is hitting home for workers across the country. As the war in Ukraine rages on, the Russian economy is feeling the strain, and companies are taking drastic measures to stay afloat.
The Big Picture:
Russia's industrial sector is in turmoil, with companies furloughing workers and cutting costs as the war economy falters. The conflict has disrupted supply chains, shrunk domestic demand, and dried up exports, leaving industrial titans scrambling to adapt.
A Closer Look:
- Cost-Cutting Measures: Companies are opting to reduce work days rather than lay off employees, a delicate balance to maintain productivity while managing expenses.
- Industries Affected: The railway, construction, automotive, and mining sectors are bearing the brunt of these changes. These industries are vital to Russia's economic backbone, and their struggles highlight the broader challenges the country faces.
- War Economy Pressures: The move to furlough workers underscores the pressure on Russia's war economy. With military spending taking precedence, non-military sectors have shrunk by a staggering 5.4% since January, according to the Center for Macroeconomic Analysis and Short-term Forecasting.
The Ripple Effect:
- Reuters' Findings: Six companies in Russia's mining and transport sectors have reduced their working week to lower wage bills without increasing unemployment. This includes Cemros, Russia's largest cement manufacturer, which has shifted to a 4-day week to retain staff amid a construction industry slump and rising cement imports.
- Cemros' Strategy: Spokesman Sergei Koshkin explains, "We're taking this anti-crisis measure to keep our entire workforce intact." With 13,000 employees and 18 plants nationwide, Cemros is a significant employer. The company expects Russia's cement consumption to drop below 60 million tonnes this year, a level not seen since the COVID pandemic.
- Impact on Heavy Industry: The conflict in Ukraine and Western sanctions are taking a toll on corporate Russia, especially its heavy industry plants. Many of these plants, established during Stalin's industrialization drive in the 1930s, are now facing an uncertain future.
Economic Challenges:
- Government Response: Russia's ministries of Labour and Industry have been silent on the matter, despite Reuters' inquiries. In January, Reuters reported that President Putin was concerned about economic distortions, including the impact of high-interest rates on non-military sectors.
- GDP Growth Slowdown: The Center for Macroeconomic Analysis predicts a significant slowdown in GDP growth to 0.7%-1.0% this year, a far cry from the economic boom during Putin's first two terms (2000-2008) when Russia's economy soared to $1.7 trillion from $200 billion in 1999.
- Recent Economic Performance: In 2022, Russia's economy contracted by 1.4% but rebounded in 2023 and 2024, outperforming the G7 average. However, the economy ministry forecasts a sharp decline in growth to 1.0% this year, raising concerns about the country's economic trajectory.
Controversial Factors:
- Chinese Imports, High Rates, and Sanctions: Economists point to a perfect storm of challenges: high-interest rates, a strong rouble, falling domestic demand, weak export markets due to sanctions, and cheap Chinese imports. These factors are squeezing companies from all sides, making it difficult to maintain profitability.
- Russian Railways' Dilemma: With 700,000 employees, Russian Railways is a behemoth. The company has asked central office staff to take three additional days off per month, unpaid, on top of regular holidays. Economists attribute the company's revenue decline to falling shipments of coal, metals, and oil, a direct result of the war's impact on exports.
- Automobile Industry Struggles: The iconic Gorky Automobile Plant (GAZ) and truckmaker Kamaz have both moved to a 4-day week, affecting tens of thousands of workers. Avtovaz, Russia's largest carmaker, followed suit in September, impacting 40,000 employees. These changes reflect the industry's efforts to survive in a challenging economic climate.
The Human Cost:
- Alrosa's Cuts: Alrosa, the world's largest rough diamond producer, has reduced its payroll by 10% for non-mining staff, primarily through shorter work weeks. The company also paused operations at less profitable mines, leading to an undisclosed number of layoffs.
- Widespread Reductions: Across the metals, mining, timber, and coal industries, companies are cutting work weeks, staff, or production. Sveza, a leading timber and paper company, closed a plywood mill in Siberia, resulting in over 300 job losses.
- Regional Impact: Wage cuts in Russian heavy industry can significantly affect regional economies, as these industries are often the primary employers in cities and towns across European Russia and the Urals.
Government Intervention:
- Past Bailouts: In previous downturns, Russia has bailed out major employers to prevent unrest in industrial towns. During the 2008-2009 global crisis, Russian Railways and car manufacturers received state support to avoid mass layoffs. In 2022, the government instructed car factories to furlough rather than fire staff.
- Current Interventions: The government is intervening across sectors, offering discounts on rail transport, tax deferrals, and targeted support. The coal industry, employing 150,000 people, is a particular concern, with Deputy Prime Minister Alexander Novak warning of financial deterioration and potential bankruptcies.
Coal Industry Crisis:
- Kuzbass Struggles: In Siberia's Kuznetsk Basin (Kuzbass), known for its vast coal deposits, 18 out of 151 enterprises have closed. Alexander Kotov, a consultant at NEFT Research, revealed that 19,000 coal workers lost their jobs in the first half of 2025.
- Mechel's Woes: Mechel, a major coal miner, reported worsening losses and suspended operations at one of its mines. The company also cut unprofitable operations, leading to staff reductions, according to an anonymous industry source.
- Personal Impact: Vladimir, a coal miner in Kuzbass, shared his experience with Reuters, saying his salary had been reduced despite a promotion. He noted that while basic needs are met, the coal sector is in crisis, with wage cuts across the region.
Steel Industry in Distress:
- Bankruptcy Moratorium: Russia is considering a moratorium on bankruptcies in the metals industry, according to a government meeting protocol. The steel industry, a significant contributor to Russia's economy, is quietly cutting back due to high-interest rates, a strong rouble, and weak demand.
- Industry Sources: An insider close to the industry revealed that almost all metal processing plants are reducing auxiliary staff, even though a four-day week has not yet been implemented. Another source indicated that the industry is overstaffed for the current conditions but is reluctant to resort to mass layoffs.
The Bottom Line:
Russia's industrial sector is facing a complex crisis, with the war in Ukraine, economic sanctions, and internal challenges creating a perfect storm. As companies navigate furloughs, cost-cutting, and government interventions, the future of Russia's economy remains uncertain. But here's the controversial part: is Russia's economic strategy sustainable in the long term? Share your thoughts in the comments below.
