Sanctions on Russia Increase the Poverty Rate
Since Russia’s invasion of Ukraine in February 2022, many countries and entities have placed sanctions on Russia in support of Ukraine. Beginning on February 22, 2022, the United States began placing sanctions on Russia in order to increase pressure on the country to end the war in Ukraine.
Since the fall of the Soviet Union in 1991, U.S. businesses opened up firms in Russia. The economy improved, especially in recent years. In 2018, Russia’s poverty rate according to the national poverty line stood at 12.6%, and it reduced slightly to 12.1% in 2020. The World Bank projects “that the poverty rate under the US$5.5 poverty line will decrease to 3.5[%] in 2021.”
But, with the sanctions in place, Vladimir Putin’s former chief of economics, Andrei Illarionov, predicts that the poverty level in Russia will increase. In April 2022, Illarionov said to the BBC, “We’ll probably see doubling on the number of those people, maybe even tripling.”
Companies Halting Business in Russia
In March 2022, U.S. companies like Coca-Cola and McDonald’s made decisions to temporarily stop business in Russia in response to increasing pressure on global companies to take a firm stance against Russia’s invasion of Ukraine.
Business activities in Russia equated to about 2% of Coca-Cola’s “operating income and revenue.” Similarly, Coca-Cola’s rival, Pepsi, which has a bigger presence in Russia, announced it will “stop production and sale of Pepsi,” but it will continue to produce and sell essential products like milk and baby food.
Along with Coca-Cola and Pepsi, Starbucks announced a decision to halt business activities in Russia and stop shipments of Starbucks products to Russia, but it will continue to pay its employees.
The Impact on the Russian Economy
In 2018, Putin put in place a goal to reduce the national poverty rate by 50% over the following six years. However, due to the detrimental consequences of the COVID-19 pandemic, in July 2020, Putin adjusted this target date to 2030.
However, recent events in Ukraine and the sanctions on Russia are expected to erase about 15 years of economic growth in Russia. The Institute for International Finance predicts that the Russian economy will plummet by about 15% in 2022.
Because of the sanctions on Russia, inflation in Russia could increase by 20% or more by the end of 2022. Meanwhile, inflation will increase between 5% and 8% in the West.
Impact on the Russian People
According to the World Bank, more than 17,000 Russian people live in poverty as of 2020. Due to the sanctions on Russia, the rate will only increase as more people lose their jobs. Illarionov explained to the BBC that it would be nearly impossible for Russia to look toward a positive future if the current situation continues.
Professor of economics and dean at the School of Business Administration at Cedarville University, Dr. Jeffrey Haymond, told The Borgen Project that “The sanctions in Russia will proportionally hurt Russia more than other countries, especially since Russia is a very unbalanced economy, producing very little outside of its expansive natural resources.”
Chief Executive and Officer of Pepsi Ramon Laguarta told the BBC, “As a food and beverage company, now more than ever, we must stay true to the humanitarian aspect of our business. That means we have a responsibility to continue to offer our other products in Russia, including daily essentials such as milk and other dairy offerings, baby formula and baby food.”
Meanwhile, McDonald’s rival, Burger King, announced in March 2022 that it will keep its restaurants open in Russia. However, it allocated $3 million for the support of Ukrainian refugees, further stating that Ukrainian refugees in European nations can receive Whopper meal vouchers at no cost. Restaurant Brands International, the company that owns the Burger King brand, told the BBC that it would “redirect its profits from more than 800 franchised operations in Russia to humanitarian efforts.”
Despite the sanctions on Russia, brands like Pepsi and Burger King continue their humanitarian efforts to ensure that the Russian people do not suffer due to an invasion in which they play no part.
– Chris Karenbauer