Europe

How the Ukraine war is reviving Russia’s rust belt

Poor regions such as Chuvashia experience a boom as Soviet factories fire up for the military

Across Russia, the defence sector has rushed to hire staff in an already tight labour market. Photograph: Getty Images
Mon Jul 15 2024 - 06:00

Looking at his pay cheque, which has tripled since 2022, Russian factory worker Anton does not know whether to laugh or cry.

The 37-year-old is painfully aware that the rise is the result of President Vladimir Putin’s decision to invade Ukraine and turn Russia into a war economy.

“On the one hand, it’s war, and people — even my relatives — are dying,” said Anton, whose uncle was killed in Ukraine.

“But then ... there is this rebirth of manufacturing,” he said, with the war having a “genuinely positive effect” on people’s quality of life in his region. “Have we ever had a period like this, in the history of our country, when us proles have earned this much?” he added.

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As Russia braces for a long war, state orders to arm, fuel, feed and clothe the army are injecting vast sums of money into the economy.

This has led to a boom where many expected western sanctions to deal a painful blow: Russia’s economy is forecast to grow 3 per cent this year, far above the US and most European states.

The effect is most pronounced in rust-belt regions such as Anton’s Chuvashia in central Russia, which is home to 1.2 million people and where Soviet factories have been revived and are working around the clock to supply the war.

“Some of the most underperforming regions have suddenly started to grow. Manufacturing regions, areas where there is a lot of defence and related industry,” said political scientist Ekaterina Kurbangaleeva.

“The most underdeveloped regions and the low-income segments of the population are the ones that are winning,” Ms Kurbangaleeva said. “That’s where the money is going.”

Understanding the experience of regions like Chuvashia is critical for forecasting Russia’s long-term ability to sustain its war of attrition against Ukraine, both economically and politically, analysts say.

Orders at Anton’s metal manufacturing plant began to rise in autumn 2022, about six months after the start of the invasion of Ukraine.

The moment “was a clear turning point. That’s when the regime realised this would not be a short war,” said Laura Solanko, of the Bank of Finland’s Institute for Economies in Transition, who has studied the effect of the war on household incomes.

Factories across Russia began shifting production to military needs. In Chuvashia, seven plants were filling orders for the armed forces before the war; by October 2022 the number had risen to 36, according to the local governor.

Anton’s plant took on only a handful of defence orders, stepping in instead to fill gaps left in civilian production.

By the end of 2023, industrial output was up in almost 60 per cent of Russian regions. Chuvashia recorded the second-highest rate, with its factories producing 27 per cent more than the year before, local data shows.

Across Russia, the defence sector has rushed to hire staff in an already tight labour market. “The same day I quit my old job, I was offered a new one,” said one worker in his 50s. At his new workplace in Chuvashia’s capital, Cheboksary, management has doubled the number of machine units working around the clock.

By August last year, the unemployment rate in Chuvashia had dropped to 2.2 per cent. “Things have become easier,” said a 23-year-old worker at a defence plant. “With the situation in the country, we’re really in demand.”

Businesses have pushed up wages to retain staff. The young worker’s pay had increased by “at least twice as much”, while five others said their salaries had also shot up. Anton said his pay had increased from around Rbs40,000 (€400) a month before the war to Rbs120,000 today.

Although a majority of people in Chuvashia are employed in the public sector, where salaries have remained the same, the region’s average monthly wage reached a record Rbs68,657 in December last year, almost double the prewar level, according to official data.

To meet demand, some are returning to jobs they last did in the 1990s, when the Soviet Union collapsed, said Natalia Zubarevich, an economist and expert on Russia’s regions. “They’re in their 60s but they’re coming back because it’s really lucrative.”

The worker in his 50s said older labourers were in demand because of their skills. “No one has been training as a lathe worker, not for years,” he said. “The Soviet foundations were lost ... So mostly its pensioners working or almost pensioners like me.”

Pay negotiations had become easier and management more keen to compromise, Anton said: “They’re really trying hard to keep us.”

Inflation, however, has eaten into salary growth. Prices across the country have grown by over 21 per cent since the start of the war, with the cost of food rising even faster.

“Go into a shop and take a look, everything has soared,” another Chuvashia factory worker said — “Rbs60,000 a month will go just on food.”

Anton said inflation meant his pay rise had not been “truly transformative,” but he felt his purchasing power had grown.

This effect is likely to have an impact on the political views of swathes of the Russian population, bolstering support for the war, sociologists said.

Early in the war, western policymakers hoped the effect of sanctions and inflation would help turn the Russian public against the war, with a lighter wallet and emptier fridge acting as a counterweight to the pro-war propaganda on state TV.

But more than two years later, “the television and the fridge are in sync”, said Ms Kurbangaleeva.

While some 2.5 million people in Russia are working in the defence sector, many more are employed in other industries that have been boosted by the war, such as textiles.

The families of the about 1 million men sent to the front line benefit from their high salaries and compensation payouts for those killed or injured.

This effect has been most pronounced in Russia’s less wealthy areas, where military recruitment tends to be higher.

In one of the poorest regions, the Tuva Republic in eastern Russia, an estimated 160 men have been killed per 100,000 inhabitants, compared with four per 100,000 in Moscow, according to political scientist Ilya Matveev.

Ms Solanko said bank deposits had grown the fastest in such regions, with high mobilisation rates leading lots of families to receive the hefty military payouts. But she argued that the impact of the payouts might be insignificant in the long term; they were likely to be “just an ad hoc money transfer that gets consumed and evaporates in the form of new TV sets or cars”.

Ms Zubarevich said the impact of defence spending in regions such as Chuvashia should not be overstated. They had “inched up”, but from a very low starting point, and the effect of the war would be temporary.

Several workers in Chuvashia said they did not expect the wartime boost to last, but for now, they would make the most of it, with one adding: “we have to work while the opportunity is there”.

— Copyright The Financial Times Limited 2024