The growth of the share taken by the five indicators with the military component in company turnovers is also noticeable when compared to last year: in October 2021 the growth stood at 15%. The turnover of manufacturing industry organisations in October was lower than last year’s performance by 6.9%. Without these five indicators, the decrease would have been 10.2%.

The lack of data does not allow a more precise assessment of the contribution of “military” indicators to the “stability” of industry. In particular, Rosstat does not provide separate data on the turnover of special clothing companies. Besides, it should be taken into account that military contracts also back up mostly “peaceful” industries, for example, by purchasing trucks for the army.

Zubarevich notes that there is no data on production of military equipment that is available to the public. Russian authorities claim that arms production has increased manyfold.

“The industry is clearly seeing the impact of mobilisation and military spending, they are only masking the decline in other civilian industries where the situation can hardly be called a recovery,” says Polevoy.

The rapid growth of military production brightened the overall picture in industry, but the “peaceful” industries are experiencing a sharp decline, nonetheless.

Transport collapse

The car production industry is one of the most affected in Russia. Only 386,000 cars were manufactured in January-October, 65.7% fewer than in the same period last year. After the Russian invasion began, Western and Japanese car brands shut down factories or joint assembly plants, such as Volkswagen, Mercedes, BMW, Renault, Peugeot-Citroën, Toyota, Mazda.

South Korea’s Hyundai and KIA, who used to lead the sales on the Russian market, have not officially closed down their factory in St. Petersburg but it has been idle since March. Media reported that their top management is considering selling the factory and leaving the Russian market altogether.

More than 10,000 car industry employees in St. Petersburg are on furlough, the local authorities said this summer. Companies have also started gradually firing people. In Kaluga, another large cluster of assembly for foreign brand cars, around 8,000 people are currently on furlough according to the governor.

Russia’s AvtoVAZ, UAZ, GAZ, and KAMAZ are also cutting back their production. AvtoVAZ was bought by the state from Renault for a symbolic one ruble and shut down its plant in Izhevsk where Vesta, the most popular model, was produced, while Largus and X-Ray models are no longer assembled in Tolyatti.

Granta is now AvtoVAZ’s key model but not all cars that leave the conveyor belt are ready to be sold. There are 9,000 cars at the plant’s parking lot that do not have another spare parts, Avtograd News reported.

Not only foreign brands are fleeing Russia. In April, the Ural motorcycle manufacturing company announced its decision to shift the assembly point from Russia to Kazakhstan. “The move is linked to the lack of certain spare parts targeted by sanctions as well as the ban on imports from Russia,” Ural CEO Ilya Khait explained. The new production was launched in August.

There’s also a question in Russia whether Chinese producers can salvage the Russian car industry. China’s Haval plant in the Tula region did reach the project capacity in the beginning of the year but the brand sales still dropped by 18% in the 10 months of 2022.

Following Renault’s exodus from Russia, the company’s Moscow plant was handed over to the city’s jurisdiction. Soon after, Mayor Sergey Sobyanin announced that the production was resuming. In late November, the plant manufactured its first car: a model by China’s JAC branded as Moskvich. However, there is no production on the facility and the plant assembly line is not being used, said editor-in-chief of Behind the Wheel magazine Maksim Kadakov who visited the plant. “Ready-made cars leave the conveyor belt in China. They are then partially disassembled. A few nodes are taken off <…>, they pack them up in containers, bring to us, unpack, and assemble the car back,” Kadakov explained.

The output of products for public and truck transport also fell sharply. Production of trucks in October fell by 39.8% year-on-year. The decrease against the previous month continued at 6.9%. Buses and minibuses in October were produced 24.7% and 26.6% less than last year, respectively.

The negative dynamics in railway transport was also noticeable. Production of electric locomotives in October was 12.9% lower than last year, diesel locomotives: by 22.2%, and freight cars: by 9.3%.

Passenger train car production in 10 months of 2022 dropped by 12.8%. In particular, Russian Railways experienced issues with Lastochka trains which Russia’s Sinara was producing jointly with Germany’s Siemens.

Moreover, 2022 will be the last year that Superjet 100, the main Russian passenger aircraft by Irkut, will be built. Deputy Prime Minister Yuri Borisov was saying this summer that 10 jets were planned to be manufactured. At the same time, the plan for 2022 was actually 18 planes. The most successful year for Superjets was 2017 when 30 planes were made, while airlines received 24 planes in 2021. However, it is not certain whether even 10 planes can be manufactured this year.

Household getting tougher

Although foreign brands dominate the Russian market of home appliances, in recent years the country still managed to set up an impressive domestic production and assembly line. In 2021, Russia produced 12 million pieces of large home appliances and imported 16.8 million. In 2017-2021, production increased by 18%. Now Russia is rapidly losing these gains.

In October 2022, there were 56% fewer machine machines produced than last year. During the 10 months of this year, production fell by 45.5% to 2.4 million units compared to the same period in 2021.

For refrigerators, the result in October was 41.3% worse than last year. The production dropped by 42.5% to 2 million pieces in the first 10 month of 2022.

Foreign producers either shut down their Russian factories or are considering moving them to other countries. Whirlpool that owns Indesit and Hotpoint brands has decided to quit Russia, while its plant in Lipetsk will be sold to Turkey’s Arcelik. South Korea’s LG is considering moving its production from the Moscow region to Kazakhstan or Uzbekistan, Kommersant reported.

Russia responded by reviving Mir, a Soviet-era refrigerator brand, similarly to its response in the car industry. “New Mir refrigerators are just as good and sometimes are even better than their Russia-made and foreign analogues,” claims the Pozis producer which is a subsidiary of Rostec.

Hidden unemployment

The decline in the manufacturing industry is affecting employees, but has not yet led to large-scale redundancies, Zubarevich said. “People are being transferred to part-time work, wages are being cut, but no one is being fired much,” she says.

This year has seen a sharp increase in the number of workers who work part-time, are on downtime, or are on unpaid leave. The latter two forms of employment are called hidden unemployment. Rosstat also separately reports data on unpaid vacations, which workers allegedly take at their own request: their number has also risen during this crisis.

In the third quarter, the number of part-time workers in the manufacturing industry rose by 33.1% over the same period last year (to 115,700), the number of laid off workers rose by 75.4% (to 157,700), and the number of workers on unpaid leave rose by 3.9% (38,800), to over one million.

According to the Rosstat data for the third quarter, almost 10 million people were employed altogether in the manufacturing industry: about 12% of the total workforce population. This is 171,000 fewer than in the same period last year. This data was not fully accounting the effect of the mobilisation that began in the penultimate week of the quarter.

Now it is impossible to predict what will happen next in manufacturing industries, Zubarevich says.

“So far everything is going on inertia, business has somehow adapted, parallel imports allow to find some components, but it gets more difficult when we talk about the new equipment, especially in the sanctioned industries. So far, everything says that the current dynamics will continue: either zero or negative. But we do not understand anything about the oil industry, about the decline of the gas industry, because the decline should accelerate, there is nowhere to sell really. We have not yet seen the effect of oil sanctions,” she says.

Export woes

A decline can also be observed in economy-crucial industries which work mainly for exports and for large consumers inside Russia.

The hardest hit this year was ferrous metallurgy. According to Rosstat, compared to last year, in October primary steel production fell by 6.0%, pig iron by 9.2%, and rolled steel by 16%.

Metallurgical companies' profits are also hit by ruble appreciation and the need for discounts in the face of sanctions, Zubarevich noted.

At the same time, aluminium production increased by 26%.

The “metallurgical production” article, which includes both the melting of metals and goods such as pipes and wire, in October was 2.4% lower than last year, for the 10 months of this year the industry is at the bare plus of 0.1% compared to this period last year, from 1 March to 1 November metallurgy dropped by 0.8%.

The different performance can be attributed to the fact that Western countries have imposed sanctions against Russia’s ferrous metallurgy but not against the non-ferrous one which includes aluminium, says Polevoy.

The largest sector among manufacturing industries — oil refining and coke production — decreased by 0.5% for the 10 months of 2022 compared to the same period last year. From 1 March to 1 November, the industry fell by 2.3%.

Next year Russia will lose access to the market of its biggest oil product buyer: the EU embargo on Russian oil products comes into force on 5 February. It will be more difficult for Russia to divert processed petroleum products to other countries than crude oil, and that is why Russian companies may eventually give up some refining for exports and switch to trade in raw materials, BCS analysts believe.

Fertiliser production and wood processing are another two industries that were hit by losing their export markets. Zubarevich notes that the process of delivering Russian fertilisers to those who agree to buy them is very complicated: companies get rejected when applying for cargo ships or insurance.

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In November, head of the Russian Central Bank Nabiullina said that the structural transformation in Russia will continue throughout 2023 and the next years. The manufacturing statistics has so far been propped up by “military” articles and the stable level of oil product production.

However, unlike the “civilian” industries that are in free fall because their development depends on citizen, business, and world market demand, the growth of “military” articles is financed by the budget. Meanwhile, there are already the first signs pointing to the fact that Russia will not be able to maintain the record-high level of military expenditure for a long time.