how the hostilities affect business in the Russian border regions
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Fighting near the borders of the Belgorod, Kursk, Bryansk and Voronezh regions, as well as incidents within the regions, which have intensified since the end of spring, have forced more than 6 million local consumers to change their habits. They go to restaurants, fitness clubs and shops less often, and it has become extremely difficult to sell an apartment in some locations. Local businesses also have to adapt to the changing rules of the game. He had difficulties with logistics and a shortage of personnel.
In recent months, hostilities between the Russian Federation and Ukraine have been increasingly seizing the Russian border regions. The authorities of the Belgorod, Kursk, and Bryansk regions regularly report shelling, attempts to attack infrastructure, downed drones, casualties, and destruction.
The situation directly affects the economy of the regions. According to Oleg Malakhov, head of Delovaya Rossiya in Kursk, some enterprises have been forced to stop working or significantly reduce production due to a shortage of employees who are not ready to take risks. But the indirect effect is even more noticeable.
“The morale of the residents is far from ideal, and it is difficult to expect maximum return from them at work when they are more concerned about their safety,” emphasizes Mr. Malakhov. Potential investors, he clarifies, are skeptical about investing money in these territories, which “has already led to the transfer of a number of large projects to other regions.” The governments of the Belgorod, Kursk, Bryansk and Voronezh regions did not provide comments to Kommersant.
According to State Duma deputy Vladimir Koshelev, in addition to regular attempts to destabilize the situation, real material damage, and the outflow of labor, there are added difficulties with logistics and increased security costs. As a result, large businesses “have noticeably narrowed their planning horizon,” notes Aleksey Zakharov, president of the Superjob job search service: “A week instead of three years, sometimes even a day or two.”
Food difficulties
One of the pillars of the economy of the regions of the Central Black Earth Region is agribusiness, which is explained by good grain harvests and proximity to large markets, including Moscow and St. Petersburg. In the Belgorod region, for example, the third broiler meat producer in Russia, Prioskolie, is one of the ten largest pork producers of the Agro-Belogorye Group of Companies.
Along with the Bryansk region, this is one of the main regions of presence for ABH Miratorg, a key producer of pork and beef. There are assets in the Central Chernozem region and another major supplier of meat – the Cherkizovo group, its competitor GAP Resurs, as well as the milk producer GK Ekoniva. These companies did not comment on the impact of hostilities on production.
A Kommersant source on the market notes that the enterprises of many large agricultural holdings are located far from the border with Ukraine, therefore they are less susceptible to direct damage. In April, it became known about a fire after shelling of part of the Miratorg poultry complex near Bryansk.
In the notorious Shebekino, the factory of the pasta manufacturer SI Group (brands Shebekinskie, Maltagliati) has suspended its work. The general director of the company, Andrey Gurov, says that the factory provided 10-12% of the group’s production, and after the situation in the city stabilizes, the enterprise will be launched. According to him, “direct damage, especially in comparison, is rather insignificant, and indirect damage is difficult to predict.”
Another Kommersant source says that in the border regions, railway lines and wagons are actively used for military purposes, which complicates the transportation of agricultural products, including grain. Orders on the collection of special equipment with drivers are also often sent to these regions, and local authorities redirect them to local companies, which disrupts business processes, the source of Kommersant explains. A Kommersant source among food manufacturers confirms that there is an acute shortage of “generalists”, which cannot be compensated “even by raising salaries to the Moscow level.”
JSC Russian Railways assured Kommersant that “in general, there are no difficulties with the delivery of goods by rail to the regions in the south-west of the country.” Despite the large volumes of passenger traffic on the Black Sea coast, Russian Railways accepts all applications for the carriage of goods and delivers almost 100% on time. They added that they are “constantly in contact with shippers and regional authorities.”
A number of analysts noted that the increase in wholesale prices for poultry meat in May could be caused precisely by problems with shipments from certain suppliers in the border regions. According to Kommersant’s data, by the end of May, the average wholesale cost of a broiler carcass exceeded 180 rubles. for 1 kg, fillet – 295 rubles. per 1 kg, but now the prices are falling. According to a Kommersant source, in the spring there was a rush increase in orders from networks. Some manufacturers are having trouble keeping up with higher orders, and suppliers are now facing penalties for underdeliveries, he rages.
The Ministry of Agriculture told Kommersant that “due to the operational situation in the border regions of the Russian Federation,” they propose to provide for the prolongation and deferment of payments on preferential short-term loans to agribusiness affected by the shelling. The Ministry of Industry and Trade added that the affected business is receiving assistance under the programs of the Industrial Development Fund.
Safe settlement
The fighting has also had a serious impact on the real estate market, and the direction of change is not always obvious. “Regions near the border are seen from Moscow as a zone of instability, but on the ground the situation can be very different, as can be seen from the dynamics of real estate markets,” says Alexei Popov, head of Cyan.Analytics. According to him, for example, “Voronezh now looks like a reasonable option for the relocation of residents of the Belgorod or Kursk regions.”
According to Cyan.Analytics, in June the average cost of secondary real estate in Voronezh increased by 3.45% year-on-year, to 90 thousand rubles. for 1 sq. m, in Bryansk – by 2.74%, up to 75 thousand rubles. In both regions, supply decreased slightly. But in the Belgorod region, the number of affordable housing, on the contrary, increased by 32% year-on-year, although the average cost decreased by only 4%, to 95 thousand rubles. for 1 sq. m. In Kursk, secondary housing fell by 2.4%, to 80 thousand rubles. for 1 sq. m.
For new buildings, according to Cyan.Analitiki, prices in Belgorod and Kursk have slightly decreased, in Voronezh and Bryansk they have increased. “This is due to the obligations of developers to banks for project financing. They are not ready to significantly reduce prices,” explains Alexei Popov. The expert notes that real estate has not fallen in price even in Shebekino, where the average declared offer price has not changed over the past three months, and it has even decreased: “But it is not easy to make a deal there anyway.”
It is not easy to objectively track the dynamics of demand for housing due to the volatile market conditions. Leading analyst at Etazhi, Alexander Ivanov, says that sales in all border regions are “stable and better than last year’s figures.” But then the entire real estate market in the country faced a sharp decline, the expert clarifies.
But there are no doubts that operating organizations have problems. The president of the Association of Real Estate Companies, Nikita Chulochnikov, speaks of a significant amount of vacant housing stock in the affected regions. Residents who left, according to him, do not see the need to pay utility bills during their absence: this debt is problematic to collect, and the Criminal Code and Homeowners’ associations do not have the resources to prepare facilities for the winter or carry out scheduled repairs: “In the midst of cold weather, this can lead to a surge in accidents.”
Decline in Consumer Power
Even more clearly the reaction of consumers is felt in the service sector. The president of the National Fitness Society, Elena Silina, calls the mood of visitors to Belgorod sports clubs decadent, whose sales have halved. In Kursk, she said, citizens “take the situation a little easier.” In the Voronezh region, according to the estimates of the Association of Fitness Industry Operators, “there is no negative impact on the performance of sports clubs yet.”
Alexei Nebolsin, Vice President of the Federation of Restaurateurs and Hoteliers, notes a reduction in traffic and revenue for restaurants in all affected regions. The general director of the Dolphin tour operator, Sergey Romashkin, speaks of a drop in the number of interregional tours to the Belgorod region, calling it “the second Crimea.” The expert clarifies that the majority of vacationers in these regions are local residents and they do not use the services of tour operators.
There were fewer buyers in shopping centers. If in Moscow the traffic of visitors in April-June was 17% lower than in the same period of 2019, then in Voronezh, Bryansk, Belgorod and Kursk the gap was 22-24%, Focus Technologies notes.
CEO Mr. Doors Sergey Shikhov says that in his company, sales in the affected regions in January-May decreased by 20-30% year-on-year. Director of S.O.Ts. Pharmacy” Oksana Mantulina notes that in Belgorod there was a decrease in the number of visitors, now it is growing: citizens are buying sedatives. The situation does not yet greatly affect the business of grocery chains, says the interlocutor of Kommersant in this market. The only problem he calls periodic closures and damage to individual stores due to shelling.
Negative sentiments and the general recession of the economy naturally do not stimulate the development of new projects. Franshiza.ru noticed a decrease in interest in purchasing franchises in January-June in Voronezh by 28%, in Belgorod – by 29%, in Bryansk – by 21%, in Kursk – by 26%. At the same time, they emphasize that “franchise owners are loyal to partners in the border regions and in most cases offer to restart the business in another territory.”
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