Will the return of Western brands benefit the economy? Experts disagree

In essence

Western companies may return to Russia, but on a "competitive basis." This was stated on February 17 by the press secretary of the President of the Russian Federation Dmitry Peskov. He added that this competition should be in the interests of consumers. Representatives of the Western brands themselves are in no hurry to make statements. However, both domestic and foreign press writes about the prospects of their return. For example, information has appeared that South Korean companies are assessing the losses from leaving Russia. They recall, for example, that Hyundai Motor Company sold its assets in our country for a symbolic sum, but left the opportunity to return within two years. There were reports that in a closed chat belonging to the Japanese company Uniqlo, it is claimed that this clothing brand may show interest in returning to our country.

The day before, the Union of Shopping Centers of Russia appealed to Inditex Group (which owns the Pull&Bear, Zara, and Massimo Dutti brands. — MK ), Uniqlo, and H&M to return. However, it is already known that the Swedish clothing chain H&M, which left the premises of domestic shopping centers in 2022, hastened to dispel rumors, emphasizing that it has no plans to return to Russia. The media suggested that due to Sweden's uncompromising position in the Ukrainian conflict, one should not expect IKEA to resume operations soon either. But American PepsiCo, Coca-Cola, and McDonald's may return to our country by the end of the year if they do not encounter resistance from domestic producers. And such a scenario is quite realistic, at least for companies selling soda. A number of Telegram channels have already reported that domestic cola producers are ready to form an alliance against American giants in order to prevent Western companies seeking to return to the Russian market from taking their former place here.

The State Duma suggested that the Visa and MasterCard payment systems, which once occupied the lion's share of the Russian financial market, would like to return to Russia. The Central Bank of the Russian Federation, however, noted that it was premature to talk about such a possibility. According to the head of the regulator, Elvira Nabiullina, these payment systems have not approached the Bank of Russia on the issue of a possible return to the domestic market.

And yet, what will happen if Western brands, primarily American ones, want to return to our country? The experts interviewed by MK had different opinions.

Not just payment: Visa and MasterCard

Venera Shaidullina, Associate Professor of the Department of Global Financial Markets and Fintech at the Plekhanov Russian University of Economics:

"As for the return of the international payment systems Visa and Mastercard, the situation looks quite complicated. During their absence, a fairly stable alternative infrastructure was formed in Russia based on the national payment system "Mir". Russian banks have significantly improved their technical solutions, and the population has adapted to the new conditions. In this regard, even with a hypothetical improvement in the international situation, a full return of these payment systems seems unlikely. A more realistic scenario is a partial return through partnership programs with Russian banks or in a limited presence format."

Vladimir Chernov, analyst at Freedom Finance Global:

"The return of foreign financial companies to Russia is quite likely after the US begins to ease sanctions and lift restrictions on Russian banks' work with the SWIFT cross-border money transfer system. I think that Visa and Mastercard will be among the first international companies to return to the Russian market, since they are losing income because of this, and the decision to leave Russia was actually politicized. Visa reported a loss of $60 million in revenue in 2022 due to leaving Russia, and Mastercard - $67 million."

Sofia Glavina, Associate Professor, Faculty of Economics, RUDN University:

"The return of financial companies such as Visa and Mastercard to Russia depends on the political situation and the conditions that will be offered for their work. If the sanctions are lifted or softened, this may open the door for their return, which will affect the domestic market, improving citizens' access to international payment systems and increasing competition. And this may already lead to lower prices for services and improved quality of service. Of course, Visa and MasterCard are very convenient tools, especially when it is necessary to make payments in countries where the Mir card from NSPK is not accepted. However, you have to pay for this pleasure.

Many do not think about the fact that when using these cards, Russian retailers are forced to share part of their income with banks and the brands themselves. This adds several percent to the cost of goods and, accordingly, affects overall inflation. In this regard, the Mir card looks more attractive, since the fees are lower. In addition, the question arises: why can Visa and MasterCard work in Russia, but Mir is still not allowed in a number of countries where these American brands operate?

Ivan Petrov, professor of the Department of Industry Markets at the Financial University:

"The mechanism of unprecedented sanctions adopted against Russia is protected from the possibility of their rapid cancellation. Since the policy of Donald Trump and his administration is focused on the interests of American business, they will use targeted measures for individual projects to allow financial activity for their companies in Russia and work with our administrative structures to obtain the appropriate permits.

Should we expect the return of Visa and Mastercard after this? Of course, the new American administration will allow these payment systems to return, since this is a profitable business for the American economy, but there will be restrictions for banks and individuals under sanctions. For Russian citizens and the banking system, this is a popular financial product, and Russian businesses are interested in the ability of foreign tourists to use bank cards in Russia without restrictions. How will this affect the domestic market of the Russian Federation? This will provide an incentive for its growth."

Moscow Exchange and dedollarization

Alexander Razuvaev, member of the supervisory board of the Guild of Financial Analysts and Risk Managers:

"I am sure that the sanctions will be lifted from the Moscow Exchange, and we will get a normal, liquid market for the dollar, as it was before June 12, 2024. But American investors will not be able to return to Russia as long as the US authorities keep Russian international reserves frozen. Even taking into account that a significant part of them is in Europe, their "unfreezing" should obviously be an important step for the further development of bilateral relations. So, I believe that first Russian international assets will be unfrozen, and then American investors who want to work on the Moscow Exchange will be able to return to our market."

Venera Shaidullina:

"The situation regarding the lifting of sanctions from the Moscow Exchange and dollar trading may develop more optimistically. A gradual easing of restrictions is likely, although a complete lifting of sanctions in the short term is unlikely. Dollar trading may resume, but in a significantly modified format.

It is important to note that the process of de-dollarization of the Russian economy has become systemic and part of a long-term state strategy. Many of Russia's trading partners have already switched to settlements in national currencies, and this trend will likely continue even if sanctions are eased."

Vladimir Chernov:

"So far, everything is moving towards the fact that sooner or later, American sanctions will be lifted from the Moscow Exchange. At least, the representative of the American delegation at the negotiations in Riyadh openly stated that this is necessary in the event of a peace treaty between Russia and Ukraine. If these sanctions are lifted, trading in the US dollar on the Moscow Exchange will resume, which will slow down the process of de-dollarization of the Russian economy. Russia has already switched almost entirely to settlements in national currencies with Iran, a high share of such settlements has been achieved with China and even with India, so I do not expect this process to be completely zeroed out, but a slowdown will definitely follow."

Ivan Petrov:

“As a result of sanctions against the Moscow Exchange, American citizens also suffered, so restrictions on a number of transactions and assets will be partially lifted based on bilateral decisions by American and Russian financial regulators.

And de-dollarization is a headache for Trump. He intends to stop this process, and his administration will lift sanctions on the use of dollars in our country. What then should we do with the de-dollarization of the economy, which everyone was happy about? The measures taken to switch to settlements on foreign trade transactions in national currencies will remain. But both dollars and euros will forever remain a toxic resource. I believe that they will not be used in the system of gold and foreign exchange reserves and bank accumulation."

SWIFT and company

Venera Shaidullina:

"Full restoration of Russia's access to the SWIFT system is unlikely in the near future. During the period of restrictions, the Russian financial messaging system (SPFS) has significantly expanded its international presence and established interaction with the payment systems of many countries. Partial restoration of access to SWIFT for individual Russian banks is possible, especially those involved in critical international settlements. However, this will not have such a significant impact on the Russian economy as before."

Ivan Petrov:

"Sanctions on the use of SWIFT will be gradually lifted for individual transactions, provided that they are carried out in dollars and, first of all, when purchasing unsanctioned products from the United States. This will have little impact on the domestic market, but will have a positive effect on foreign economic activity."

Vladimir Chernov:

"Representatives of the Russian and US delegations at a meeting in Saudi Arabia agreed to restore economic cooperation, which in one way or another implies increasing the turnover of foreign trade relations between the countries, and this is almost impossible to do with the ban on Russian banks using the SWIFT cross-border money transfer system. Therefore, in the distant future, I expect sanctions to be lifted from them, at first, perhaps partially.

The lifting of restrictions on SWIFT will untie the hands of importers and reduce their additional costs of circumventing these sanctions, which should have a positive effect on the domestic market of the Russian Federation in terms of inflationary pressure. However, against this background, the volume of imports to the Russian Federation should also increase, which will increase the demand for foreign currency and cause an increase in its cost, and this factor is already pro-inflationary, and it will offset the reduction in costs for currency transfers for importers."

Sofia Glavina:

"Resumption of access to the SWIFT system will depend on political decisions and the conditions that will be offered. If access is opened, this will significantly simplify international financial transactions for Russian companies and improve their integration into the global economy. This can also increase confidence in Russian financial institutions and attract foreign investment, which will have a positive effect on the domestic market. If this happens, we do not expect a significant impact on the financial results of banks. Rather, we are betting on the speculative component.

But we must also remember the actions of the EU. And according to reports from there, the European Union plans to disconnect another 13 Russian banks from the SWIFT system as part of the 16th package of sanctions. Currently, 95% of the Russian banking system is under Western sanctions. The tightening of sanctions is happening against the backdrop of negotiations between Russia and the United States on Ukraine, which is a signal of support for Kyiv."

Oil and gas without discount

Venera Shaidullina:

"In the oil and gas sector, the most likely scenario is a gradual easing of sanctions, which is explained by the interest of Western countries, especially the United States, in stabilizing the global energy market. High volatility in energy prices has a negative impact on the global economy. However, even with the easing of sanctions, the Russian energy sector will likely continue to diversify export flows towards Asian markets, as this direction has shown its promise and sustainability."

Vladimir Chernov:

"I think that lifting sanctions on the Russian oil and gas industry will be one of the conditions for concluding a peace treaty between Russia and Ukraine, so I expect them to be lifted after the conclusion of a global "deal". This will have a very positive effect on the Russian economy, since the country will stop selling its oil at a significant discount (today the discount to the benchmark Brent grade reaches 9%), as a result of which it will increase its budget oil and gas revenues, and its deficit will begin to shrink, which, in turn, will also lead to a decrease in the growth rate of Russia's domestic debt."

Ivan Petrov:

"Sanctions in the oil and gas sector will be lifted in a targeted manner (for specific purposes) - only for projects that are beneficial to the United States. That is, where funds from American corporations are invested or cheap oil products are supplied to American consumers. In general, sanctions will remain in place in this sector."

Trade, catering and other sectors of the economy

Sofia Glavina:

"The brands left under threat rather than coercion. This could mean they could return if the situation changes.

Some companies may start demanding compensation for their losses, and it is worth being prepared for this. As for consumer choice, it is important to remember that Russians' incomes do not depend on foreign brands, but on the development of domestic production. Russia should support its producers and not rush to open its doors to foreign companies.

We should not repeat the mistakes of the 90s, when foreign business had priority, and Russian remained in the shadows. It is important to remember that then foreign brands received significant advantages, and not to allow this situation to repeat itself. Now, when talk about the return of brands is becoming relevant, it is worth considering whether we will find ourselves in the same situation again."

Venera Shaidullina:

"The return will be selective. Many niches are already occupied by Russian companies or brands from friendly countries. For example, McDonald's place is occupied by a domestic brand, local beverage producers are developing. That is, it will simply be difficult for American brands to compete in the conditions of the changed economy in Russia.

"There is no need to expect any drastic changes, since during the sanctions period new economic ties and mechanisms have been formed that have already proven their viability. In addition, many Russian companies and financial institutions have adapted to work in the new conditions and built alternative business processes that they will not rush to change even if the international situation improves."

Dmitry Yanin, Chairman of the Board of the International Confederation of Consumer Societies (ConfOP):

"The discussion about the return of large Western brands was initiated in Russia and was not based on the positions of the owners of transnational companies. One of the first to announce the possible return of clothing brands was the Union of Shopping Centers. Shopping centers are currently experiencing enormous pressure due to increased interest rates on loans. Many of them were built with borrowed funds and they are at risk of being unable to service their debts due to the departure of brands that regularly paid rent - those Western clothing and shoe brands that have now left, which had previously worked in Russia for a long time and were in demand among consumers. We estimate the likelihood that these large brands will soon return to the Russian market as low."

Vladimir Chernov:

"The return of foreign brands will directly depend on the political position of their managers and the authorities of the region where they are registered. For example, it is reported that the Japanese clothing manufacturer Uniqlo is already considering options for returning to Russia. Apparently, the company expects the Japanese sanctions to be eased immediately after the US. And the Swedish clothing store H&M, on the contrary, has already announced that it is not considering options for returning its business to the Russian Federation, which, in principle, may also be related to the political position of the authorities of this country.

The return of beverage and other food producers to the Russian market will increase competition, which is rather positive for the economy, since the higher it is, the lower the cost of similar goods and, as a consequence, the inflation rate in the country. But for domestic producers of similar goods, the return of competitors to the market will increase the risks of a drop in their sales volumes and profits, which cannot be called a positive moment."