“No one who foresaw what sanctions the West could impose could think about it,” Foreign Minister Sergei Lavrov admitted in March, given the freezing of half of Russia’s $ 600 billion reserves.
Russia says it will challenge sanctions on its foreign reserves in court and also threaten to sue if it deems it has failed to pay its debt due to the asset freeze.
Meanwhile, here are some of the ways companies, industries and employees are struggling to live with the new Russian norm.
1. Redesign of Lada
The iconic Russian local car brand from the Soviet era is highly dependent on imported parts. Avtovaz, which produces Lada, is owned by French carmaker Renault, and according to Evgeny Eskov, editor-in-chief of Russia’s automotive magazine Auto Business Review, the companies share a unified parts delivery system. On March 24, in response to news that Renault was leaving the Russian market, Avtovaz revealed that it needed to quickly redesign several models to rely less on imported components.
The company did not specify which models will be produced, but said they will gradually become available in the coming months. Eskov said that the redesigned models will be simpler versions of current cars, without additional features such as ABS. “Just brutal cars from the past,” he wrote in an email to CNN Business.
2. Entice Instagrammers to Vkontakte
Until recently, Instagram was the best social network in Russia, based on monthly users, according to the social media analysis company Brand Analytics. Vkontakte, the Russian internal version of Facebook, was in second place.
After the invasion, and especially after the Russian communications regulator cut off access to Facebook and Instagram last month, Vkontakte is pulling all the stops to lure content creators to its platform.
The company waives the commission for any monetized content until the end of April and offers a free promotion on the platform for any content creator who has moved from another platform or reactivated their page from March 1. He also published a step-by-step guide to starting a business on Vkontakte.
Vkontakte’s own data show that this can work. The monthly users reached a record of over 100 million in March. According to Brand Analytics, Instagram lost almost half of its active Russian-speaking users between February 24 and April 6.
That’s not the whole story, of course. Many Russian Instagrammers are still active on the platform because they can circumvent the ban using VPN. Olga Levakova, who runs a business selling high-quality handmade fabrics in the style of tsarist Russia, said that after the initial “shock” and “panic” when Instagram was banned, she continued to use the platform via VPN to reach the highest already to her foreign clients.
Levakova was considering closing after being flooded with anti-war comments and reports in the first few weeks after the invasion. They have since disappeared, but she has removed a line in the description of her page that mentions Tsarist Russia. Now it just says “historical weaving.”
“I just couldn’t stand the flow of aggression,” Levakova admits. Orders are still arriving, but she says it is too early to say whether her business will be affected.
3. Home credit cards
Russia is preparing for financial isolation after some of its largest banks were hit by sanctions following the annexation of Crimea. In a sense, it paid off. Russia’s national payment card system and the bank card system built on it, known as Mir, have grown exponentially.
According to the Russian Central Bank, more than 113 million Mir cards were issued in 2021, compared to a total of 1.76 million at the end of 2016. Last year, about a quarter of all card payments in Russia were made with Mir cards.
Experts say that this growth was partly created by Russia. “They didn’t make it very attractive to ordinary Russians before the invasion,” said Maria Shagina, a visiting senior fellow at the Finnish Institute of International Affairs. Instead, the government has forced public sector employees, retirees and all those receiving benefits to use the Peace Card.
This meant that when Visa and Mastercard announced in early March that they were suspending transactions and operations in Russia, there was already an alternative.
But Mir is not a direct substitute. He works only in Russia and a handful of other countries, mostly former Soviet states.
This lack of global reach has also hampered Russia’s attempt to build an alternative to SWIFT, the international payment system. His own version, known as SPFS, had 400 participants last year, compared to 11,000 in SWIFT.
“The network effect is not there because foreign participants do not want to join it,” Shagina said. “If you don’t trust Russia in other respects, why would you trust this system?”
4. Workplaces in public works
Mass unemployment, according to Elina Ribakova, deputy chief economist at the Institute of International Finance in Washington, has not yet emerged in Russia, but it is one of the things the Kremlin fears most because of its potential to fuel dissent.
“The more they push the demonstrations, the more I understand that they are worried about unemployment,” she said. More than 15,000 people were arrested in Russia in the first weeks of the conflict for participating in anti-war protests, and the Kremlin effectively silenced the independent media by criminalizing what it considered “false information” in its so-called military operation “.
The city of Moscow is trying to anticipate the potential unemployment problem with a program to retrain and hire people who have worked for Western companies, many of whom have stopped or stopped doing business in Russia. Moscow Mayor Sergei Sobyanin estimates that up to 200,000 jobs are at stake.
The solution, according to a recent blog post, is to give the workers left something “useful” to do. Options he outlines include working on administering official documents such as passports and birth certificates, working in one of the city’s parks or temporary health centers, which the city has recently begun to create. $ 41 million is set aside for the creation of these jobs and retraining of workers.
For Russians who built a career at McKinsey or Goldman Sachs before the war, that would be a drastic change. But Ribakova said it probably won’t get there. She believes most foreign executives will leave the country if they have not already done so.
What next?
Russia has so far managed to withstand the initial force of Western sanctions without collapsing its financial system. This is largely due to the central bank, which immediately raised interest rates to 20% – has since lowered them to 17% – and imposed tight capital controls. But that doesn’t mean Russia is at its worst. The economy could shrink by 8.5% this year, according to the IMF. The collapse could be even greater if Europe bans Russian oil imports. And inflation is 17.5%, something that even Putin admits harms Russian citizens.
Another key risk, experts say, is Russia’s dependence on imported products – many of which are now subject to sanctions. They may find it harder to oppose the Kremlin than macroeconomic measures.
“There is a feeling, especially in the government, that they will turn the corner and then there will be a monster,” Ribakova said. “And they just don’t know exactly when this monster will eat them.”
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