The irony was not lost on some of the Muscovites who were queueing outside a McDonald’s on Tuesday evening, just after the company announced it was temporarily closing its nearly 850 locations in Russia.
“My dad once told me how he waited in a long line when McDonald’s opened when he was young. And now I ended up also queueing, but for a very different reason. History can be funny,” said Dmitry Grigoryev.
When McDonald’s opened its doors in Moscow’s Pushkin Square in 1990, a queue thousands-long formed. Inside and outside the country, the arrival of the golden arches was seen as a definite sign of the end of cold war.
Russians’ embrace of western fast food, pop culture and jeans came to signify the country’s integration into the global capitalist system. Despite rising authoritarianism under Vladimir Putin over the last decade, international brands remained eager to keep their doors open in Moscow and other big cities with a sizable middle class.
But Russia’s invasion of Ukraine on the morning of 24 February changed everything. Since then there has been an unparalleled exit of international firms, among them Toyota, Heineken, Nike, Apple, Exxon, Ford, Zara, Netflix and Ikea.
“The exodus of companies is really stunning,” said Maria Shagina, an international sanctions specialist at the Finnish Institute of International Affairs and the Geneva International Sanctions Network. “The speed at which this is happening is unknown to modern history. Russia is being completely decoupled from the global commercial, technological and banking communities.”
Shagina said western sanctions, such as the decoupling of some Russian banks from the Swift system and new export controls, would have complicated the operations of western firms.
But she said the majority of the companies that suspended their operations had done so out of reputational concerns, given how deeply unpopular the war has been in the west.
“Of course, the Kremlin expected that the west would impose sanctions, but I am not sure they expected just how toxic Russia would become. These companies are not just leaving because of sanctions, but primarily because they believe that Russia is uninvestable right now. That it is not right to do business there.”
In a sign that Russian officials might have not expected such a dramatic outflow of companies, a senior official in Russia’s ruling political party called for the operations of western companies that had left the country to be nationalised.
“This is an extreme measure, but we will not tolerate stabs in the back, and we will defend our people,” said the leader of United Russia, Andrey Turchak, in a statement posted on the party’s website. Turchak said that such a move would help prevent job losses and maintain Russia’s ability to produce goods domestically.
It is not just the mass market industry that has taken a hit. Footage on social media posted on Monday showed empty halls at Moscow’s upscale shopping centre Tsum, which is popular with Russia’s wealthy elite.
Practically all major fashion brands, including Burberry, Hermès, Gucci, Chanel and Louis Vuitton, have temporarily stopped their operations. On Monday Condé Nast said it was suspending its publishing activities.
“I think Russians are in a state of shock as their world is falling apart at lightning speed, said Katya Fedorova, who runs a widely read fashion and lifestyle blog on Telegram. “Many do not yet understand just how much the sanctions will affect them and their daily lives in the coming months.
“But the scariest part is not luxury brands exiting. It’s mass-market brands like Mothercare leaving the country, with very few Russian substitutes available. It’s absolutely insane how the Russian government has managed to destroy all the connections that were built with the international retail industry for 30 years in just 10 days.”
Analysts have offered a bleak forecast of Russia’s economic prospects. The Institute for International Finance last week predicted a 15% contraction in Russia’s GDP in 2022, double the decline from the global financial crisis. “We see risks as tilted to the downside. Russia will never be the same again,” wrote the IIF’s chief economist, Robin Brooks.
For now, McDonald’s and Ikea say they will keep their staff on the payroll. But experts like Shagina believe the scale of the foreign exodus will probably lead to an immediate rise in unemployment, even before the impact of western sanctions has been felt. “We are only [in] the second week, sanctions need time to really bite,” Shagina said.
Russia’s rouble has already fallen dramatically since the start of the war, losing half its value against the dollar and euro. The stock market has been shut since the invasion. Morgan Stanley on Monday said Russia could face a default on its debts as soon as next month.
Shagina said she expected sanctions to drive inflation higher while crippling Russia’s purchasing power. A major recession paired with the exodus of western brands could significantly alter the daily life of average Russians, Shagina said.
“Russia will be going back to the 90s, and that wasn’t a particularly stable time for most,” she said.
