Moscow Many young Russians have fled the country as a result of sanctions that have largely isolated the country from the world economy. For Viktoria Shelanova, a 37-year-old social media executive in Moscow, it was an opportunity to start a business selling water sports clothing.

The exodus of foreign brands after the Russian invasion of the Ukraine it has caused a shortage of goods in practically all areas. When Viktoria’s sister Julia, a wakeboarding enthusiast, had trouble finding a neoprene vest, the two set out to find a manufacturer in China, which has friendlier relations with the Kremlin.

They located a factory in Guangdong province that makes sportswear for several major American companies and requested samples through the Chinese news service WeChat. Less than two months later, they received a shipment of 20 vests.

The two sisters plan to initially order the neoprene vests in lots of 100 and sell them to water sports parks in Moscow, which have sprung up with the rise in popularity of wakeboarding in recent years. “We think there will be a lot of demand, and at the moment there is no competition,” Viktoria says by phone from Moscow.

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Many commentators compare Russia’s current economic isolation to Soviet times. But the situation is more reminiscent of the 1990s, when the collapse of communism left huge gaps in supply chains. Consumers and business owners have been forced to find creative ways to shut them down.

New supply chains emerge: Kremlin talks of “mobilization economy”

The Avito advertising website is full of people offering to import foreign branded clothes from abroad: who after gucci searches, receives 173,000 offers. In this way, iPhones and other technological devices are becoming popular in the former Soviet states. Russia inserted.

Franchisees counter the departure of multinationals by selling products with similar packaging and logos but slightly different names. Krispy Kreme donuts are now called Krunchy Dream, starbucks is Stars Coffee and Pizza Hut it’s now called Pizza N (a nod to the fact that Cyrillic N looks like a Latin H).

coffee stars

The logo of the coffee shop chain is very reminiscent of the Starbucks motif.


(Photo: Reuters)

A Russian national, who asked not to be named, has set up a company in Dubai that has a license to import gold. Russian companies buy bullion and deliver it to you. He, in turn, sells them to jewelry manufacturers in the United Arab Emirates. After pocketing 40 percent of the profits, he uses the proceeds to buy auto parts or other necessary goods, which are then shipped to Russia.

Maximum freedom for Russian entrepreneurs

It’s all part of what Kremlin officials call the “mobilization economy.” In a speech delivered in March, shortly after the first sanctions came into force, the Russian president said Vladimir Putin: “There is only one way out of the situation we find ourselves in now, and that is to allow maximum freedom to people who do business.”

The rules that prohibited so-called parallel imports, that is, importing branded products without the consent of the brand owner, have been repealed. The ministry’s website promotes economic development, soft loans for entrepreneurs in certain industries and moratoria on inspections.

>> Read also: All developments about the Ukrainian war on our live blog

However, the sanctions are having an effect. Used Toyotas and BMWs fetch higher prices than when they were new. More than a quarter of the planes of aeroflot they were phased out because they were cannibalized as spare parts for aircraft that were still running.

A Bloomberg Economics study comparing Russia to South Africa in the 1960s and 1990s, when the country was sanctioned by apartheid, concludes that the economy faces “significant and growing stress as restrictions on trade and trade movement of capital stifle competition and lead to inefficiency. The Russian economy contracted 2.7 percent last year and will collapse another 2.5 percent by 2023.

The Russian statistical office has not published any detailed trade data since the invasion of Ukraine. According to the central bank, imports fell about 23.5 percent last year from $380 billion in 2021. Deputy Prime Minister Denis Manturov predicted in September that the value of parallel imports would reach at least $20 billion by the end of 2022.

Foreign companies cease operations and stop investments

Up to a million Russians fled the country in 2022 to escape economic hardship and the threat of conscription to the front. For the rest of Russians, everyday life is slowly changing as many of the big global brands withdraw their businesses from Russia.

So far, only about 5 percent of international companies operating in Russia before the war have been completely dismantled, according to a database compiled by the Kyiv School of Economics. But more than half have reduced their activities or halted new investment.

Some multinationals like Apple Y indexthe parent company of zara, quickly withdrew after the invasion. Others, such as the manufacturer of consumer goods Reckitt Benckiserwhose portfolio includes products such as Enfamil baby food and Durex condoms, and british american tobaccoCigarette makers “Dunhill” and “Pall Mall” have announced withdrawal plans but have not implemented them to date.

In some product categories, Chinese brands are filling the resulting gap. xiaomi was Russia’s best-selling smartphone maker in 2022, making it samsung dethroned. According to M.Video-Eldorado Group, Russia’s largest consumer electronics retailer, three of the top five best-selling brands were Chinese.

The market for designer clothing and accessories is booming

The designer clothing and accessories market is thriving despite sanctions. After the European Union banned the export of luxury items over 300 euros each to Russia in March, sales increased at stores in Dubai and Turkey, two countries that have direct flights to Russia, Claudia D’Arpizio said. , a Bain partner.

The consultancy estimates that in 2021 Russians bought some 7,000 million euros in personal luxuries, both at home and on trips abroad. This corresponds to up to 3% of the global luxury market.

The Shelanova sisters do not intend to limit themselves to neoprene vests. They are considering expanding into wetsuits and want to get closer to the Chinese factories that produce for the big American brands.

“We have already found the factory that makes wetsuits for Roxy, but we are also looking at other companies,” says Julia. “We would like to create our own brand.”

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