Yevgeny Shumilkin returned to work this Sunday (12). To prepare, he took the famous “M” off his old McDonald’s shirt and covered the one on his jacket with a Russian flag. “It will be the same buns,” promised Shumilkin, who keeps the equipment at a restaurant in Moscow. “Just under a different name.”
McDonald’s restaurants reopened in Russia this weekend, but without the Golden Arches. After the American fast-food giant pulled out this spring in protest against the invasion of Ukraine on the orders of Russian President Vladimir Putin, a Siberian oil tycoon bought its 840 Russian stores. Since almost all the ingredients come from the country itself, he said, eateries will be able to continue serving the same food.
The gambit could work — underscoring the surprising resilience of the Russian economy in the face of one of the most intense avalanches of sanctions ever applied by the West.
With about three and a half months into the war, it has become clear that the sanctions — and the torrent of Western companies voluntarily leaving Russia — have failed to completely dismantle the economy or spark a popular backlash against Putin.
Consequences of sanctions will appear in the long term
Russia spent much of the 22 years of Putin’s rule integrating itself into the world economy. Undoing such large and intricate commercial ties, it seems, is not easy.
Undoubtedly, the impact of sanctions will be profound and wide-ranging, and the consequences are only beginning to manifest. Living standards in Russia are already on the decline, according to economists and businesspeople, and the situation is expected to worsen as import inventories dwindle and more companies announce layoffs.
Some do-it-yourself efforts by Russia may fall short of Western standards. When the first post-sanction model of the Lada Granta, a Russian sedan co-produced by Renault before the French automaker left in the spring, rolled off an assembly line at a factory near the Volga on Wednesday, it was missing air bags. , modern pollution controls and anti-lock brakes.
But the economic decline is not as intense as some experts had hoped it would be after the February 24 invasion. Inflation is still high, around 17% year-on-year, but has fallen from a 20-year high in April. A closely watched measure of factory activity, the S&P Global Purchasing Managers’ Index, showed Russian manufacturing expanded in May for the first time since the start of the war.
ECONOMY SURVIVAL STRENGTHENS PUTIN
Behind the positive news is a combination of factors that play in Putin’s favor. Chief among them are high energy prices, which are allowing the Kremlin to continue funding the war while raising pensions and wages to calm the population. The country’s oil revenues have increased by 50% this year.
In addition, the deft work of the Central Bank averted panic in financial markets after the invasion and helped the ruble to recover from its initial slump. Store shelves mostly remain stocked, thanks to ample inventories and alternative import routes established by countries like Turkey and Kazakhstan — and the fact that Russian consumers are buying less.
The survival of the Russian economy is strengthening Putin, confirming his narrative that Russia will stand firm in the face of the West’s determination to destroy it.
He met with young entrepreneurs on Thursday in a sort of assembly, in his latest effort to show that, even as he fights the war, he wants to keep the economy going and foreign trade moving. Even if the West doesn’t do business with Russia, he insisted, the rest of the world will.
“We will not have a closed economy,” Putin told a woman who asked about the impact of sanctions. “If someone tries to limit us in something, they are limiting themselves.”
For the wealthy, luxury goods and iPhones are still widely available, but more expensive, shipped to Russia from the Middle East and Central Asia. The poor have been affected by rising prices but will benefit from a 10% increase in pensions and the minimum wage Putin announced last month.
MIDDLE CLASS FEEL THE IMPACT OF THE ECONOMY
Those most affected by the economic turmoil are in the urban middle class. Foreign goods and services are now harder to come by, Western employers are withdrawing, and overseas travel becomes difficult and prohibitively expensive.
Natalya Zubarevich, an expert in social and political geography at Moscow State University, notes that many middle-class Russians have no choice but to adapt to a lower standard of living: at least half of the Russian middle class, in her estimate, works for the state or state-owned companies.
“Sanctions will not stop the war,” Zubarevich said in a telephone interview. “The Russian public will endure and adapt because they understand that they cannot influence the state.”
Chris Weafer, a macroeconomic adviser who has long focused on Russia, said in a note to clients last week that “some of our previous assumptions were wrong.” Inflation and the contraction of the economy turned out to be less severe than expected, he wrote.
His firm, Macro-Advisory Eurasia Strategic Consulting, revised its forecast to show a smaller decline in Gross Domestic Product this year, 5.8% instead of 7%, while predicting the recession will last into next year. .
In a telephone interview, Weafer described Russia’s economic future as “more dull, more debilitating”, with lower incomes but basic goods and services still available. A large juice company, for example, has warned customers that its cartons will soon be stark white because of a lack of imported ink.
“The economy is now entering an almost stagnant phase where it can avoid a collapse,” he said. “It’s a more basic level of economic existence, which Russia can maintain for a while.”
DEMAND FOR ENERGY STRENGTHENS RUSSIAN CURRENCY
On Friday (10), with the stabilization of inflation, the Central Bank of Russia reduced its basic interest rate to 9.5%, the level before the invasion. On February 28, the bank had increased it to 20% to try to avoid a financial crisis. The ruble, after weakening in the days after the invasion, is now trading at four-year highs.
One reason for the ruble’s unexpected strength is that global energy demand has increased in the wake of the pandemic. In June alone, the Russian government expects a windfall of more than US$6 billion on higher-than-expected energy prices, the finance ministry said last week.
At the same time, Russian consumers are spending less, further supporting the ruble and giving Russian companies time to establish new import routes.
Russian officials acknowledge, however, that the hardest times for the economy may still lie ahead. Elvira Nabiullina, head of the Central Bank, said on Friday (10) that while “the effect of the sanctions was not as acute as we feared at first”, it would be “premature to say that the full effect of the sanctions has manifested itself”.
“Sanctions choke the economy, which doesn’t happen all at once,” said Ivan Fedyakov, who runs Infoline, a Russian market consultancy that advises companies on how to survive under current restrictions. “We only feel 10% to 15% of its effect.”
When it comes to food, at least, Russia is better prepared. When McDonald’s opened in the Soviet Union in 1990, Americans had to take it all. Soviet potatoes were too small to make French fries, so they had to purchase their own reddish potato seeds; Soviet apples didn’t work for the pie, so the company imported them from Bulgaria.
But when McDonald’s pulled out this year, its Russian stores were getting almost all of their ingredients from local suppliers. So when McDonald’s, which employed 62,000 workers in Russia, announced on March 8 that it was suspending operations because it could not “ignore the unnecessary human suffering unfolding in Ukraine,” one of its Siberian franchisees, Alexander Govor, managed to keep its 25 restaurants open. Last month, he bought the entire Russian operation of McDonald’s for an undisclosed sum.
On Sunday, Russia’s Day, a patriotic holiday, he reopened 15 stores, including the former McDonald’s on Moscow’s Pushkin Square, where, in 1990, thousands of Soviets lined up to sample a taste of the West. The chain will operate under a new brand yet to be announced, although a new logo has been revealed, representing a hamburger and fries.
The hash browns, pancakes made of shredded potatoes, will have a Russian name, according to a leaked menu for a Russian tabloid. And since the secret sauce is patented, there will be no Big Mac offering.
Translated by Luiz Roberto M. Gonçalves
I have over 8 years of experience in the news industry. I have worked for various news websites and have also written for a few news agencies. I mostly cover healthcare news, but I am also interested in other topics such as politics, business, and entertainment. In my free time, I enjoy writing fiction and spending time with my family and friends.
