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Thursday, 14 February, 2002, 09:41 GMT
Russia's retail growth
Recording reward - electronics, TVs and video are popular choices when it comes to spending extra cash
Buying imported goods is now second nature
By James Schofield in Moscow

Saturday morning in Moscow, and like families all over the world, Julia and Boris are out shopping.

Together they earn over $1,000 a month: not a fortune by western standards but a great deal of money in Russia, and they have just bought a new video machine from Japan.

Of course we prefer to spend money... we absolutely can't trust our banks because during the crisis a lot of people lost their money

Moscow shopper
"If we have any extra money we prefer to buy something," says Julia.

"I don't know, perhaps like some electronics, clothes or perhaps to travel somewhere."

Though not rich, Julia and Boris have few financial headaches.

Like many Russians they have no mortgage to worry about as they inherited their apartment from the state following the end of communism.

Household bills are not a problem either. Gas, electricity and heating are all still heavily subsidised, so Julia and her husband feel they can afford some of life's little luxuries.

Bank mistrust

But if buying imported goods is now second nature, saving for the future is still a foreign concept to many here and spending is high.

That trend has helped Russia's economy grow almost 20% since since the dark days of the financial crisis of 1998 when banks collapsed and the nation's savings were wiped out.

The 1998 bank collapse in Russia wiped out the nation's savings, while people fought crushing queues to get at their money
Battling to get at savings
Continuing mistrust of the banking system means many prefer to spend money now rather risk losing it once again.

During the financial crisis of 1998, Russia's savings were wiped out when the government defaulted on domestic debt and devalued the currency.

The financial system collapsed and for those who kept their money in cash, the value of the rouble collapsed in just a few days.

It is no wonder therefore, that few people here want to risk losing their money again.

"Of course we prefer to spend money," says Julia unpacking her new video at home, "we absolutely can't trust our banks because during the crisis a lot of people lost their money."

According to a recent report, people in Moscow spend 94% of their monthly official income, while in St. Petersburg, the figure is a staggering 98%.

It is a trend that is proving good news for retail business in Russia.

Reversal of fortune

The last 12 months have seen a flood of new shop openings by international brands such as Ikea and Benetton, while sales of foreign cars like BMW and Renault have more than doubled.

Retail sales jumped by 10% last year, partly reflecting a widespread feeling here that Russia's impressive economic growth is more stable than in the past.

Khaled Jamil arrived in Moscow in the 1980s to import textiles from Syria. Now he runs a chain of clothes shops importing labels from Levi to Christian Dior and Hermes.

Although competition is tougher than ever, he says, there has never been a better time to do business in Russia.

"Since the latest reforms business is becoming more sustainable. There is more judicial security for investors and I think it's very good for a foreign investor to come here."

But faith in the future is not the only reason for the spending surge.

Trouble ahead?

Whatever the cause, the current spending spree is good for the Russian economy.

But the rampant refusal to trust the banks means that their coffers are emptier than many would like.

Without deposits, they cannot lend to new businesses and without that, Russia's economic growth will suffer.

But in the shops of Moscow at least no one today seems too concerned about that.

James Schofield in Moscow
"It is clear that the current spending spree is good for the Russian economy"
See also:

04 Jan 02 | Business
A tale of two defaults
01 Feb 02 | Europe
Russia launches fast-track visas
06 Feb 02 | Business
Russia grows amid high inflation
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