Made in Russia: The Kremlin’s economic rebrand

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0:44There's no shortage of buy local slogans from around the world to bolster national economies, reduce imports, or simply to promote sustainability. Not surprisingly, Russia, a country facing international sanctions, has its own patriotic consumption drive, elevating the status of the Made in Russia label.

1:09President Putin stands firmly behind the slogan POKUPAI RUSSKEY or BUY RUSSIAN and the passion for Russian has fired up plenty of followers. For Russia! Buy Russian phones and iPhones!

1:49In our previous episode, we explored a concept of national identity embraced by the Kremlin, the so-called Russian Cultural Code, and its emblem, the traditional Kokoshnik headdress. But the economy is less pliable than culture, where censorship rules. Here, market forces have the final say. Russians can buy anything they want, and they do. You might not be able to procure American tomahawks, but if you're in Moscow, you can get the Louis Vuitton bank or a Chanel bank or cars like Rolls Royce. The push for domestic spending has been infused with patriotic ideology. It's in defiance of international sanctions that were imposed after Russia launched its full-scale invasion of Ukraine.

2:39Everyone's suffering from labor shortages, there's not really any slack to be picked up. It could be that next year is the year that the wheels finally come off the militarized economy and there's no more juice to be squeezed out of it by reordering it. After Western companies retreated as Moscow attacked Ukraine, the Russian economy began to shift. We explore how international sanctions reshaped production cycles and consumer habits, and we ask the million-dollar question, can Russia sustain its war effort indefinitely?

3:20Welcome to the documentary from the BBC World Service. I'm Krassi Ivanova-Twig, and this is the global jigsaw from BBC Monitoring, where we look at the world through the lens of its media, exploring the narratives, the propaganda and the disinformation. Radio Tehran. We were not on the territory of Ukraine. Western countries are not the international community. That era has finished.

3:51The international community's condemnation of Moscow's invasion of Ukraine compelled many Western brands into retreat. Our military and economy expert Tim Bowler was tracking the moves of foreign companies in Russia's new reality. The most obvious example is that McDonald's, Coca-Cola, they stopped selling or making goods in Russia in 2022. And they recently said that neither of them have any plans to return to business.

4:27It was very good PR for them because they were under a great deal of pressure from shareholders to pull out. So they've been able to say, ha-ha, we're good guys here. We're not doing business in Russia. The last day of McDonald's was marked on state TV too, including reports about traffic jams around driving stores in Moscow.

4:51The withdrawal of Western brands didn't stop Russian consumers from buying those goods. It just meant they started getting them from grey market resellers. To give us the story from the inside is Yevgeny Pudovkin, who works in our Russia team in Tbilisi. You can still see plenty of familiar Western mass-market clothing brands being worn by the Russians, So H &M and Zara, some of these brands are supplied through intermediaries directly to Russia, so consumers can buy it with a markup. And this stuff costs you like maybe 30 % more because you have to pay some intermediary. Logistics have become more expensive.

5:30Transactions have become more expensive. It's all taking a toll on the Russian economy. Many Russians do their shopping while traveling abroad, often to nearby places like Belarus or Kazakhstan, where Western brands are still present. As the prices for imported goods climbed up, the Russian government began to steer consumers towards made-in-Russia labels. Government supports the Russian brands through fostering a so-called patriotic consumption.

6:02The Russian government offers grants and subsidies for projects that celebrate Russian heritage, like historical movies, folk festivals, what have you. Or even it may support brands of clothing that produce like a suvorotka, which is traditional male garments or kokoshniks. But this hasn't really translated into big consumer demand because the Russians, they just don't want things just because they're Russian. They have to be high quality. And the second constraint is purely economic. Russia's manufacturing base, at least as far as the civilian production is concerned, remains weak and domestic production costs are high.

6:42So in a nutshell, making complex things inside Russia often turns out to be more expensive than just importing those complex goods from abroad. How is the media treating this idea that Russia can be self-sufficient? How does it promote patriotic brand consumption? Given the reality of the market, force is still gravitating towards Western brands. Basically, it's been the same story since 2014. And the key leitmotiv is that Russia is moving towards self-sufficiency.

7:18In a few years' time, Russian software makers can replace Western companies, but Western companies' software is still being used in Russia. State TV and the officials, they urge Russian companies to step up. They urge them to produce more. They urge them to make an effort.

7:40Russian companies have been successful in replacing Western goods and services in some parts of the economy. But the high-tech goods that Russia used to purchase from the West and from China in 2010, it is still buying those goods in 2025. And the speeches that officials make and that are being amplified by state TV channels, this is mostly used as a propaganda. And there's another phrase in circulation that's got presidential approval. Import-o-zameşenie, or replacement of imports.

8:23As a signal that, look, yes, there is the sanctions, and yes, there is this isolation from the West, but we can go it alone. We have partners in different parts of the world, and we can substitute all this Western stuff with our own or the stuff from our partners. The pivot towards self-sufficiency hasn't lived up to expectations. But for the sake of optics, at least, there's been a noticeable effort at diversification of the market, something we decided to call a retail rebrand. It's actually been quite extensive. Everything from clothing to cars to restaurants has been rebranded.

9:05And even computers and laptops that Russians use, these are assembled in Russia from foreign imported components, but they're sold under local brands. They just assemble these PCs or laptops out of Chinese components, for example. And some big companies that have government connections have this obligation to purchase this Russian-branded tag. They are taking off, but it's not omnipresent. Russia couldn't realistically replace the branding on smartphones, for example, so people still use iPhones and Xiaomi's. What happened to those Western companies that had to leave in a hurry? You know, brands like McDonald's, Coca-Cola, Starbucks?

9:47Basically what happened is that Russian businessmen took over those Western assets and put them into use. McDonald's became вкусные точки, which means tasty, that's it. And Coca-Cola turned into Dobrikola, or to translate it, kind cola. But actually, if you look closely at those new brands, not much has actually changed beyond their naming. Dobrikola logo still looks almost identical to the old traditional Coca-Cola. So it's the same red label, same white script. And at вкусные точки, you can still get something called a big special. It is basically the Russian copy of the Big Mac. The Starbucks logo, they changed it from the kind of Western-looked woman in Kokosnik.

10:36And this traditional values segment in Russian branding, it does exist. So there's brands that play on folk symbols, on Soviet nostalgia. What's behind this mimicry? Is it lack of imagination on behalf of Russian businesses, or is there something more to this? The Russian owners, they understand that the majority of Russian consumers, they grew up in a global kind of market-driven economy, and they've used these Western standards. They're still on Instagram, they're still watching Hollywood movies, and they don't want to downgrade their consumer habits. So if these new Russian owners stick with the same old recipe, the aesthetics of these new Russian brands, they correspond to the old style that the Western companies created.

11:20The majority of Russian consumers may be too young to remember the Soviet days of self-sufficiency, but some of us do. The team making this podcast grew up on the wrong side of the Iron Curtain, or at least that's how we saw it. Christine Hungary, I in Bulgaria. We occasionally compare notes on what we had and didn't have. Nivea cream, what everyone had. The little metal, the flat metal one. Yeah, yeah, yeah. I remember like once a year, a small bottle of Nutella from the West. And that was my Nutella for a year. Like teeny tiny spoonfuls from time to time. You had to ration it. Absolutely. I remember for Christmas, the best thing I was waiting for Christmas was a Toblerone.

12:05And I was just so much better than a bicalche. But talking of Christmas, of course, the smell of Christmas was the satsumas. We call them mandarins. And the bananas, the very few times or maybe the only time of the year. The only time of the year. I loved bananas because they would only come in the winter. And we actually thought they only grow in the winter. I was surprised you can find them any time of the year. What about clothes? Oh, jeans, getting your hands on a pair of jeans. I mean, we had them because we were the jolliest barrack, as we were called. Everything was the same. The clothes just weren't very interesting.

12:44I remember the winter season started and then if you walk into a shop and then you had 40 of this and 35 of that and that was it. And you chose either this or that and there was not much else. Yeah, not much choice at all. I remember mum was telling me that when she was in high school, This must have been late 60s. Her father used to travel on an oil tanker and he brought her a pair of boots from Italy. They were beautiful burgundy boots. And she dared to wear them at school one day and promptly was turned away and told to go back and change into her bad shoes. Speaking of burgundy shoes, on my very first trip to Russia, I actually wore a pair of red boots.

13:28and I was stopped every step of the way and people wanted to buy a bite off my feet. The Soviet Union was tougher than us. Another reminder of how ancient we are. The era of communism and bad shoes was replaced by the influx of those coveted Western goods. But 30-odd years later, many Russian consumers are now facing a new deficit of choice. Can Russia really become self-sufficient again? You cannot put this genie back in the bottle because once the Russians have acquired this taste for firms, for goods, you can't really kind of shut down the country completely. Okay, tomorrow you will have just one brand, like it used to be the case in the USes.

14:12No, this is not going to cut it. This now will cause some consternation among the public. Russians can still travel. They can still bring stuff from other countries, basically unimpeded. When you look at the situation from the point of view of the Russian companies, you still have to compete with Western, with Asian brands for the Russian market. The consumers, they're still in sync with the global trends. They're not shut down in this kind of Russian environment and getting high on like Kokoschnik and Borscht and whatever. You gave me a giggle there with getting high on kokoshniks and borscht.

14:49But let's stay with consumers for a moment who are clearly voting with their wallets. Where do they shop? These changes that we see on the Russian markets, they have mostly affected the middle segment of the market. Because if you look at population who are just basically trying to make their ends meet, They used to buy no-branded stuff from Turkey or from China, and they're still available. They don't hunt for Louis Vuitton bags. They don't care about brands. They don't actually much care about fashion. And also, if you look at the Russian rich, their consumer habits haven't changed a bit because they still have access to Western cars, to Western clothing as well.

15:36you might not be able to procure American tomahawks or any industrial defense gear, of course. But if you're in Moscow and you have a few thousand dollars, you can get the delivery of Louis Vuitton Bank or Chanel Bank or whatever you want. The same goes for cars like Rolls-Royce. They'll get it delivered to you probably via countries like Kazakhstan or Azerbaijan. The president himself seems to have a taste for Western luxury.

16:08One puffer jacket he sported at a big Provo rally a couple of years ago earned him scorned by the tabloid press abroad. The jacket was said to be worth more than$10 ,000. The middle segment is where all the changes are noticeable. Someone who is a middle-class Russian, he sees, for example, H &M, which now costs maybe 50 % more, and he sees all these emerging Russian companies who try to kind of mimic Western-style brands, and they look stylish. Lots of Russians, they say, well, why would I pay more if I can get these new Russian-branded things? They're still quite good. And Russian jewelry producers, Russian fashion designers, they actually exist in this.

16:53And these companies see their sales go up, definitely. Linked up on TV with a regional governor recently, the president inquired about the origin of his suit and appeared satisfied when he got the right answer. Of course, all of it is Russian-made.

17:13Russia is a country of vast natural and human resources. What does it produce on its own besides suits for politicians? Russia is already producing petrochemicals, it is producing cars, it is producing agricultural goods, it can basically feed its population.

17:38And it actually can produce some basic complex goods like airplanes, which few countries can. What Russia tries to do is to specialize in particular things like energy, like petrochemicals, like agriculture, right? And it tries to invest its money strategically. It concentrates on several industries. It does that because of the experience of the Soviet Union. It produced everything in-house, but at a very poor quality. Russian companies have shown themselves to be nimble in order to attract customers. But let's turn our attention to those Western companies who had to abandon their assets in Russia for little or no compensation for no fault of their own.

18:24It has not really had much of an effect on their bottom line because Russia was not a huge market for them. The one company that's different is Pepsi. Pepsi was always much more invested in Russia than its rival Coca-Cola. It employs around 60 ,000 workers in Russia. Pepsi also announced about the exit from the Russian market. Now, Pepsi's been able to say, well, we're stopping making branded soft drinks in Russia. But those factories are still producing soft drinks. They've just been called other names, Everest and Fruestyle, for the Russian market. So for Pepsi, it's been a much more difficult decision because, of course, if you pull out of Russia, then you face punitive charges in leaving because the Russians aren't letting Western firms pull out scot-free.

19:18You have to sell off your assets at fire sale levels so you lose money. Starbucks had 130 coffee shops across Russia. It basically said, OK, we'll ditch them. But it didn't cost it that much money. For Pepsi, it would have been a much, much more significant loss.

19:39I've spent the last three decades trying to better understand money across the boardroom, the newsroom, and the trading floor. That's longer than most podcast hosts have been alive. But even though I've got questions, join me, Merrin's subset web, every week for my show Merrin Talks Money from Bloomberg Podcasts, where I have in-depth conversations with fund managers, strategists, and experts about how markets really work. And join me for a separate episode where I answer listener questions and how to make those markets work for you. Follow Merrin Talks Money on Apple Podcasts, Spotify, or wherever you listen.

20:12You're listening to the documentary from the BBC World Service. The departure of Western companies left more space for others to step into. And here comes a country that stands out for its support. China.

20:31For example, if you look at woodworking machinery, the large part of this market was occupied by Europe. Now it's almost exclusively China. Chinese cars are making up about half of the sales on the Russian market, which is huge, and which is the share that the Western cars used to have. Another kind of interesting layer to this whole rebranding story is linked to sanctions, because Russia still doesn't have the technology to make high-end products. But here is the thing. Chinese companies, they don't want to attract too much Western scrutiny or to risk secondary sanctions. They sell Chinese cars under Russian brand names.

21:16Think Lada, Volga, Moskvich. These are old names, but now they come with a new twist. One example is Moskvich. On paper, it's Russian traditional car, but in reality, its components are being sourced from China. This is a kind of workaround that allows Chinese firms not to attract too much attention and thereby reduce their chances of being sanctioned by the West. Another part of the story is that Russian firms also sometimes legally import Chinese equipment and then slap the Russian label onto it to create the impression that Russia can produce its own stuff domestically. This message plays very well with the government that wants to show that Russia is self-sufficient in the face of international isolation.

22:05Yeah, you can see it being mentioned in the media where some company just buys Chinese stuff and tries to portray it as its own production to kind of get credibility and to get recognition and possibly some financial rewards from the government. How is the media treating China, propping up the Russian economy? And how is that being talked about? Because this jars with the idea of Russian superiority, whether it's moral or otherwise, with the idea of the big brother saving Russia. That's a country in need. And both of them want to lead the global south. So what's this relationship like in the eyes of the Russian media?

22:44They portrayed as a friendship and as a partnership of equals. Of course, Russia doesn't want to mention that China is a bigger partner and is a bigger economy. What Russian TV and Russian officials are saying is that this partnership doesn't have any political strings attached.

23:10It's a win-win for everyone, and it is strictly business. On top of that, there is some thin political layer which is saying, look, China, like Russia, it has some grievances with the U.S. sanctions, with the U.S. heavy-handed approach to political issues and to economic, to trade issues. Russia and China have same interests. It's not just Russia who is kind of isolated and this mad Russian bear who just goes around and takes another country's territories. No, look, it's not just Russia. It's China, it's Brazil. Nobody is pleased with what the US is doing and we have these partners and we're cooperating with them and everything is good.

24:00We have the second largest economy who wants to trade with us. And we have all these economies across the world who still want to have good relations with Russia.