How Russians are faring under (not-so-tight) Western sanctions

Big Western brands like Starbucks, Chanel and VW all withdrew from Russia after the Kremlin launched an all-out invasion of Ukraine.

But the gaps in the market they left behind have long been filled by local firms.

In Moscow’s central Evropeysky shopping mall – whose name translates as “European” – most vacancies seen briefly after the West began imposing sanctions over the Ukraine war are occupied again.

Retailers are selling fashion from Turkey, appliances from German manufacturer Miele and tech by Apple, all things that shouldn’t be here but somehow manage to get across the border after being imported from other countries without sanctions.

More than two years into the war, Moscovites like to emphasize that they are lacking nothing.

Since the all-out invasion of Ukraine on February 24, 2022, ordered by President Vladimir Putin, the war economy is running at full speed, fuelling consumption.

Reports on state television abound where presenters say that the EU sanctions imposed on Russia are doing far more harm to the people in the bloc than the Russian population. Besides plenty of oil and gas, Russia also has everything else needed to thrive, they say.

A number of Western companies, among them many familiar brands like McDonalds, Lego, Uber and Ikea, have withdrawn from the Russian market and sold their businesses in the country – usually at massive discounts.

But the majority of smaller firms continues to operate in Russia, saying they are unable to simply write off the billions invested over the years.

Corporate responsibilities

German whole-sale retailer Metro is among those continuing to operate in Russia, and argues that it carries a “responsibility for approximately 9,000 local employees” working in 98 shops across Russia.

“[We] supply many of our small and medium-sized customers – ie. restaurants and retailers – with food,” said a spokesman. Metro says it has not made any growth investments in Russia since the beginning of the invasion of Ukraine.

“We condemn the war in the strongest possible terms,” said Metro chief executive Steffen Greubel at the annual general meeting at the beginning of February.

At the same time, foreign companies that wanted to leave Russia were “forcibly expropriated,” he said, adding that was not in the company’s own interests to leave the business to Russian oligarchs allied with the government.

But the scars left by the war are clearly visible in Metro’s business, with turnover in the 2022/2023 financial year declining significantly by 7.9% in local currency. Reported sales fell even more sharply by 13.6% due to negative exchange rate effects.

Metro says it expects the negative trend to continue.

Overall trade with Russia has witness an unprecedented slump with various Western countries, and the raw materials superpower, once a crucial gas and oil supplier for Germany and other major European economies, fell to 38th place among trading partners behind Slovenia, after being ranked 14th in 2022.

German trade with Russia shrank by three quarters to €12.6 billion ($13.7 billion) in 2023 as a result of the war sanctions. “Imports, which used to be dominated by energy sources, fell by 90% to just €3.7 billion after the start of the oil embargo at the beginning of 2023,” the committee said.

However, hundreds of German companies are still represented in Russia – especially in sectors where Western sanctions do not apply in order to avoid harming the ordinary people of the world’s largest country by surface area. Examples include the food, agriculture, healthcare and pharmaceutical sectors. But overall, the situation is considered extremely unstable.

The fear of being expropriated

And yet, hundreds of German companies remain active in Russia – especially in sectors untouched by Western sanctions in order to protect the population in the world’s largest country. Examples include the food, agriculture, healthcare and pharmaceutical sectors. But overall, the situation is considered extremely unstable.

Fears that companies could be expropriated on Putin’s orders have been running high ever since Russia seized the businesses of French multinational food company Danone and Danish brewing group Carlsberg last year.

But even companies not affected by the sanctions are mulling whether it is ethical to continue operating in the country amid the suffering in Ukraine, where Western companies still active in Russia are often publicly labelled as “sponsors of the war.”

One major chocolate maker, Germany’s Ritter Sport, was initially slammed for continuing to deliver its trademark square bars to Russia. It later decided to halt investments into the market including advertisements and began donating profits from Russian business to humanitarian organizations, a significant change-of-direction considering Russia was still the company’s second largest sales market in 2023 – albeit with a slight decline in turnover.

Many Russians value Western products. “But everything has become very expensive,” complains a senior citizen in the Perekrjostok supermarket at Kiev railway station in Moscow.

Even with her comparatively good Moscow pension of around €300, she can’t afford to buy everything, she says, carrying kefir, milk and cheese from a Western dairy.

For younger Muscovites with higher incomes and other needs, however, the sanctions sometimes create hurdles. “Computer programmes, for example, cannot simply be used as they were before the sanctions,” says the young graphic designer Andrej. Besides having to use a VPN to bypass Russian restrictions, paying for software subscriptions has also become more complicated, he says.

Visa and Mastercard have shut down their systems in Russia and many banks have been cut off from the international payment system SWIFT as part of the sanctions, meaning processing payments has become more difficult.

To solve the problem, Andrej has opened an account in the former Soviet republic of Uzbekistan allowing him to buy and pay for his software online using a Visa card.

For rich Russians, however, who can afford long holidays in Dubai, Thailand and elsewhere, the sky remains the limit, regardless of how many sanctions the West hands out.

The wealthy can continue to order any model they like in Moscow’s car dealerships and also shop in luxury department stores and high-end boutiques of international designers. They always find ways to circumvent sanctions. As Putin once said, despite the punitive measures, you can still buy anything you want in Russia. It’s just a question of how much money you can spend.

Bars from German chocolate manufacturer Ritter Sport lie on the shelves of a supermarket chain in Moscow. The company was initially slammed for continuing to deliver its trademark square bars to Russia. It later decided to halt investments into the market including advertisements and began donating profits from Russian
 business to humanitarian organizations Ulf Mauder/dpaBars from German chocolate manufacturer Ritter Sport lie on the shelves of a supermarket chain in Moscow. The company was initially slammed for continuing to deliver its trademark square bars to Russia. It later decided to halt investments into the market including advertisements and began donating profits from Russian business to humanitarian organizations Ulf Mauder/dpa

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