Hundreds of thousands of Russians have lost their jobs since the beginning of the Ukraine war because Western companies left the country. Now there are empty Ikea branches, McDonalds restaurants and car factories in the country – and Russia doesn’t really know what to do with them.
At least the laughs were on Alexander Govor’s side. The 62-year-old Russian had built up a franchise business with 25 McDonalds branches in Siberia over the years. Then in May came his big hour. Because the US giant had withdrawn from the Russian market, Gorov bought up the remaining 822 McDonalds branches. But because he is not allowed to use the name of the chain, they are now freely translated: “Yummy. Period.” The former mine manager and later shareholder of the metal giant Evraz doesn’t care. Publicity is publicity.
The renaming of the McDonalds branches is a blessing for the employees in particular, as they will retain their jobs. McDonalds had 62,000 employees in Russia before the withdrawal. That’s just a small part of the jobs that have been hanging in the balance since more than 1,000 Western companies left the country because of the Ukraine war and fear of losses from sanctions. Ikea employed about 12,400 people in Russia, the French carmaker Renault 4,400 directly in its plant in Moscow and 32,500 at the Russian carmaker AvtoVAZ, which is majority owned by Renault. All in all, several hundred thousand jobs in Russia are at risk from the wave of boycotts.
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This is becoming a real economic and political problem for the Russian government. After all, the common Russian shouldn’t suffer much from the war and if he does, for example by losing his job, then he shouldn’t blame the Kremlin for it. Indeed, in his speech to the St. Petersburg Economic Forum last week, President Vladimir Putin did his best to blame the West and its sanctions for all the inconveniences.
But that doesn’t change the fact that the withdrawal of Western companies causes a real problem. Across the country, factories are standing still, shops are vacant and offices are deserted. Former employees are sitting around at home. So what should the state do with the assets of withdrawn Western companies? Russia has not yet found an answer to this question. However, four options emerge.
The simplest option would be to simply declare orphaned possessions state property. If you leave, you have lost all claims to your property. The state broadcaster Russia Today in particular has been keen to propagate this logic in recent months. In at least one case it happened. The Moscow Renault plant was taken over by the city government and is now producing cars of the old Soviet brand Moskvitch again. But: The Russian government does not like this option. After all, it would lead to much dissent with Western states and companies. But once the Ukraine war is over, Russia will need these companies again to invest in the country.
The Russian Trade Ministry has also confiscated Renault plants, namely those belonging to the Russian carmaker AvtoVAZ. The 68 percent stake in the manufacturer that Renault previously owned is now managed by the ministers. But: Renault has the right to buy back its shares within the next six years. And apparently the Russian Ministry also paid money for the shares. In any case, Renault’s chief financial officer, Thierry Pieton, confirmed in April that negotiations had taken place. For the French, the deal still means a loss. Russia contributed around ten percent to annual sales in 2021 and also generated 894 million euros in the first quarter of 2022. But at least the works don’t expire like that.
This option is primarily suitable for foreign chains. McDonalds, for example, doesn’t really care whether Govor or someone else owns its Russian branches. The Americans sold the oligarch all the equipment along with the shops. Should the war end and McDonalds want to re-enter the Russian market, there is no problem simply putting the appropriate logos back on all branches and renaming the chicken nuggets “McNuggets” again. All employees will also remain. Even if “Yummy. Period.” isn’t as successful as a McDonald’s restaurant, the loss for Americans is less than if they had to give up all branches.
Corresponding deals have therefore also made other chains. The Swedish furniture giant Ikea and the German hardware store chain Obi, for example, have given up their branches and Russians are now trying to continue running them without the well-known branding. Some manufacturers have also closed similar deals, such as the Finnish packaging manufacturer Enso Oyj, with its 1,100 employees.
While the sales of McDonald’s branches and Ikea stores are designed in such a way that they can easily be reversed, some companies have also said goodbye to the Russian market completely and not just temporarily. The Canadian gold mine operator Kinross, for example, sold its Russian mines to the local company Highland Gold Mining.
However, such deals have a disadvantage: due to sanctions, Russian oligarchs and companies can hardly pay for deals in dollars or euros. Kinross has already sold its mines for the discounted price of $680 million, but a Russian state commission intervened. Either Kinross (and other foreign companies selling their Russian assets) would have to accept the full sale price in rubles, or could ask for half at most and then be paid in US dollars. Kinross opted for the dollar variant, but had to plan for high losses accordingly.
From the point of view of a Russian entrepreneur, only the last option has an advantage. In the example, Highland Gold Mining got Russian mines for a ridiculous price and can now continue to operate them profitably. The company does not depend on foreign branding or know-how.
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With all other variants, Russian buyers or the state take a risk. Even if “Yummy. period.” sells the same burgers as McDonalds before, business will be worse without the golden M. The same applies to cars from the former Renault factories. And furniture can still be sold in the Ikea branches, but not Billy shelves from Sweden. Anyone who buys up or confiscates such branches is betting that the war will not drag on and that the situation will quickly return to normal. Only then can the factories, shops and offices be run profitably again or be sold back to their previous Western owners.
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