On Thursday, June 16, 2022 at 2:59:48 PM UTC+8, David P. wrote:
> McDonald’s Is Back, Moscow Style, as Russian Economy Stumbles On
> by Anton Troianovski and Ivan Nechepurenko, June 10, 2022, NY Times
>
> Russia spent much of Putin’s 22 years in power integrating into
> the world economy. Unraveling business ties so large and so
> interwoven, it turns out, is not easy. To be sure, the effects of
> the sanctions will be deep and broad, with the consequences only
> beginning to play out. Living standards in Russia are already
> declining, economists and businesspeople say, and the situation is
> likely to get worse as stocks of imports run low and more companies
> announce layoffs. Some do-it-yourself efforts by Russia may fall
> short of Western standards. When the first post-sanctions model of
> the Lada Granta — a Russian sedan co-produced by Renault before the
> French automaker pulled out this spring — rolled off an assembly line
> at a plant near the Volga on Wednesday, it lacked airbags, modern
> pollution controls or anti-lock brakes. But the economic decline
> is not as precipitous as some experts had expected it would be after
> the Feb. 24 invasion. Inflation is still high, around 17 percent on
> an annual basis, but it has come down from a 20-year peak in April.
> A closely watched measure of factory activity, the S&P Global
> Purchasing Managers’ Index, showed that Russian manufacturing expanded
> in May for the first time since the war began. Behind the positive news
> is a combination of factors playing to Putin’s advantage. Chief among
> them: high energy prices, which are allowing the Kremlin to keep funding
> the war while raising pensions and wages to placate ordinary Russians.
> The country’s oil revenues are up 50% this year.
>
> In addition, deft work by the Central Bank prevented a panic in the
> financial markets after the invasion and helped the ruble recover
> from its initial crash. Store shelves, for the most part, remain
> stocked, thanks to ample inventories and alternative import routes
> being established through countries like Turkey and Kazakhstan — and
> the fact that Russian consumers are buying less. Even the new Lada
> Granta is less of a clunker than observers predicted: Despite shortages
> of foreign components, it will still come with power steering and
> power windows. “Everything is not as bad as expected,” a Russian
> car website proclaimed.
>
> The Russian economy’s survival is strengthening Putin’s hand by
> bolstering his narrative that Russia will stand tall in the face of
> the West’s determination to destroy it. He met with young entrepreneurs
> on Thursday in a town-hall-style event, his latest effort to show that
> even as he waged war, he was keen to keep the economy functioning and
> foreign trade moving. Even if the West won't do business with Russia,
> he insisted, the rest of the world will. “We aren't going to have a
> closed economy,” Putin told a woman asking about the effects of
> sanctions. “If someone tries to limit us in something, they are
> limiting themselves.”
>
> For the rich, luxury goods and iPhones are still widely available,
> but more expensive, ferried into Russia from the Middle East and
> Central Asia. The poor have been affected by rising prices, but they
> will benefit from a 10% increase in pensions and the minimum wage
> that Putin announced last month.
>
> Those most affected by the economic upheaval are in the urban middle
> class. Foreign goods and services are now harder to come by, Western
> employers are pulling out and travel abroad is becoming difficult and
> prohibitively expensive. But Natalya Zubarevich, an expert in social
> & political geography at Moscow State U., 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, she estimates, works for
> the state or for state-owned enterprises. “Sanctions are not going to
> stop the war,” Zubarevich said in a phone interview. “The Russian public
> will bear it and adapt because it understands that it has no way to
> influence the state.”
>
> Chris Weafer, a macroeconomic consultant who has long focused on
> Russia, published a note to his clients last week, saying that “some
> of our previous assumptions were wrong.” Inflation, and the economy’s
> contraction, turned out to be less severe than expected, the note said.
> His firm, Macro-Advisory Eurasia Strategic Consulting, revised its
> forecast to show a smaller decline in gross domestic product this year
> — 5.8% rather than 7% — while also forecasting a recession lasting
> into next year.
>
> In a phone interview, Weafer described Russia’s economic future as
> “more dull, more debilitating,” with lower incomes, but with basic
> goods & services still available. A major juice company, for instance,
> warned customers that its boxes would soon all be white because of
> a shortage of imported ink. “The economy is now moving into almost
> a stagnant phase where it can avoid a collapse,” he said. “It’s a
> more basic level of economic existence, which Russia can continue
> for quite some time.” On Friday, with inflation stabilizing, Russia’s
> Central Bank reduced its key interest rate to 9.5% — the level before
> the invasion. On Feb. 28, the bank had raised it to 20% to try to head
> off a financial crisis. The ruble, after plummeting in value in the
> days after the invasion, is now trading at 4-year highs.
>
> One reason for the ruble’s unexpected strength is that global energy
> demand surged coming out of the pandemic. In June alone, the Russian
> government is expecting a windfall of more than $6 billion because
> of higher-than-expected energy prices, the Finance Ministry said
> last week. At the same time, Russian consumers have been spending less
> — further propping up the ruble and giving Russian companies time to
> set up new import routes.
>
> Russian officials acknowledge, however, that the most difficult times
> for the economy may still be to come. Elvira Nabiullina, the central
> bank head, said on Friday that while “the effect of sanctions has not
> been as acute as we feared at the beginning,” it would be “premature
> to say that the full effect of sanctions has manifested itself.”
> For example, it remains unclear how Russian companies will be able
> to obtain microchips used in a wide variety of goods. At Putin’s meeting
> with entrepreneurs, one developer said he was “very concerned about
> our microelectronics.” Putin cut in: “Me too. Honest.”
>
> The ties binding Russia’s economy to the West, now coming undone, go
> back decades — sometimes more than a century. Aeroflot, the national
> carrier, acquired scores of new Boeing and Airbus jets and styled
> itself as a convenient transit airline for people traveling between
> Europe and Asia. In the Ural Mountains, a factory worked with Siemens,
> the German manufacturing giant, to produce modern trains to replace
> rusting Soviet stock. Banned from using European airspace, Aeroflot
> is now focusing on domestic routes and working to switch to Russian
> planes — a process that will take years. Siemens, which built telegraph
> lines across the Russian Empire in the 1850s and helped bring the
> country into the industrial era, announced last month it was pulling
> out of Russia. “Sanctions suffocate 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 the current
> restrictions. “We have felt only 10-15% of their effect.”
>
> But when it comes to food, at least, Russia is more prepared. When
> McDonald’s opened in the Soviet Union in 1990, the Americans had to
> bring in everything. Soviet potatoes were too small to make fries,
> so they had to acquire their own russet potato seeds; Soviet apples
> did not work for the pie, so the company imported them from Bulgaria.
> But by the time McDonald’s pulled out this year, its Russian stores
> were getting almost all of their ingredients from Russian suppliers.
> So when McDonald’s, which employed 62,000 workers in Russia, announced
> in March that it was suspending operations because it could not “ignore
> the needless human suffering unfolding in Ukraine,” one of its Siberian
> franchisees, Aleksandr Govor, was able to keep his 25 restaurants open.
> Last month, he bought the entire Russian business of McDonald’s for an
> undisclosed sum.
>
> On Sunday — Russia Day, a patriotic holiday — he will reopen 15 stores,
> including the former flagship McDonald’s on Pushkin Square in Moscow,
> the place where, in 1990, thousands of Soviets famously lined up for a
> taste of the West. The chain will operate under a still-to-be-disclosed
> new brand, though the new logo has been unveiled, said to represent a
> hamburger and French fries. The hash browns will go by a Russian name,
> according to a menu leaked to a Russian tabloid. And, since the secret
> sauce is proprietary, there will be no Big Mac on offer.
>
> https://www.nytimes.com/2022/06/10/world/europe/russia-economy-mcdonalds.html