Moscow entrepreneur Anastasia Mesheryakova is scathing about the assistance from President Vladimir Putin’s government as she fights to prevent the collapse of her family-owned chain of cafes.

“All the measures they’ve announced are just a joke,” said the 43-year-old. “I’ve only got myself to rely on.”

The crisis, which could wipe more than 5% off the Russian economy this year thanks to the twin blow of coronavirus and the plunge in oil prices, may prove even more devastating for hundreds of thousands of small businesses. Long squeezed by high levels of corruption and bureaucratic harassment, the sector could shrink by as much as half, potentially costing millions of jobs, according to one forecast.

The authorities’ failure to stop the meltdown of businesses that account for a fifth of economic output could pose a political problem for the Kremlin as Putin moves to extend his 20-year rule. While the entrepreneurial class is tiny compared to the Russian leader’s core support base of state workers and pensioners, businesspeople are often more politically active, especially in Moscow.

“Putin is losing the entrepreneurial class,” said Andrei Kolesnikov, an analyst at the Moscow Carnegie Center. “The gradual erosion of the economy and the political system’s legitimacy will cause huge problems for him.”

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While wealthier European countries like Germany are paying up to 80% of workers’ salaries in firms hit by the economic turmoil triggered by the virus, Russia is covering only a fraction of wage costs while offering only delays in paying tax and rent bills. Putin promised a big increase in government economic support last week, but business groups say the measures still fall short of what’s needed. Most aid is going to big companies, many state controlled.

Small Fry

Russia's small-business sector accounts for a small share of output

Kremlin officials concede their assistance efforts aren’t enough. They say the programs will pick up in the coming weeks as the authorities have substantially increased the money available after taking a cautious approach in the early days of the epidemic. But the plunge in prices for oil, Russia’s main export, has the Kremlin leery about spending too much of its reserves now in case things get worse.

“We’re not members of the European Union and we don’t issue our own reserve currency, so there are limits to our economic policy,” Economy Minister Maxim Reshetnikov said on state television last week. The government’s latest steps will help about half a million businesses, with more than 3 million workers, he said, and there’s more to come. The authorities also say they’re suspending audits and other checks that bureaucrats often used to pressure businesses.

“The latest measures are a step forward, but not a big one,” said Alexander Khurudzhi, head of a business-support group that works closely with the government. The new monthly grants to help pay salaries, though modest at only 12,130 rubles ($164) per worker, “are the first efforts that could be more or less effective,” he said.

Those payments, which start only next month, could come too late for many companies. More than one in seven small businesses say they’re already at risk of imminent bankruptcy, according to a survey by the Center for Strategic Research in Moscow. The group forecasts the share of small businesses could drop to 18% this year from 20% last.

Oleg Vyugin, a former senior official at the central bank and Finance Ministry, says that share could drop as low as 10%. The government is willing to let small businesses go bust because it takes the “cynical view” that others will eventually take their place, he said.

Sharp Drop

Russia enters the worst economic slump since the global financial crisis

The deferrals on tax and rental payments offered by authorities are useless for Vyacheslav Mukhin, who runs cosmetics stores in 14 shopping centers -- all currently closed.

“You’ll still end up having to pay this sooner or later,” Mukhin said. “Officials live on a different planet.”

This crisis is far worse than the two previous downturns, in 2008-2009 and in 2014-2015, according to Putin’s business ombudsman, Boris Titov. The government’s latest aid is “better than no support at all but these measures aren’t enough to allow companies to survive,” he said.

Nonexistent thirty years ago when the Soviet Union collapsed, the sector was once as much as a quarter of the economy but has shrunk in recent years as behemoths in commodities and other industries have grown.

Mesheryakova started her Coffee Piu chain of seven cafes with her husband, opening the first outlet seven years ago, and reached an annual revenue of 200 million rubles. If things don’t start to get back to normal by end of May, she says she’ll have to lay off her 100 staff and liquidate the business.

“They don’t want us,” she said. “We’re a nuisance, there are too many of us and we all have our own opinion. Big companies are easier to control.”

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