For foreign companies, leaving Russia is not so easy

When Russia invaded the Ukraine, foreign companies responded quickly, announcing that they would abandon Russia immediately and that they would reduce their imports or their investments. Large numbers of factories, energy properties and power plants were closed or sold amid strong condemnations of the war and expressions of solidarity with Ukraine.

More than a year has passed, and this has become clear: leaving Russia is not so easy. Russia has placed obstacles to the exit of companies, which require the approval of a government commission or in some cases President Vladimir Putin himself, amid deep discounts or onerous taxes on property sales.

While each company has its own experience, there is usually a common thread: they are torn between Western sanctions and global opprobrium towards Russia, on the one hand, and Russia’s efforts to prevent or penalize the corporate exodus on the other. Some companies such as Coca Cola and Apple have begun to return informally, through third countries, despite the official decision to leave Russia.

Many companies have simply stayed, citing liability to shareholders and employees, or legal obligations to franchisees or local partners. Others argue that they are providing essential products such as food, agricultural products or medicines. Others are silent.

One of them is the Italian fashion house Benetton, whose store in a Moscow mall on a recent day was packed with watching customers and workers assembling the colorful outfits. At the Italian womenswear store Calzedonia, customers were browsing tights and swimsuits. None of those companies responded to questions sent by email.

For the common consumer in Moscow, not much has changed in the products available to buy. Although the Mothercare Baby Store has changed ownership and is now called Mother Bear, most of the products on sale still carry the Mothercare brand.

That’s what student Alik Petrosyan saw while shopping at Maag, which now owns the former Zara clothing store in Moscow.

“The quality has not changed at all, everything is the same”Petrosyan said. “Prices have not changed much, if inflation and the economic situation that occurred last year are taken into account.”

“In general, Zara, I mean Maag, had competition”commented Petrosyan, correcting himself, “But I wouldn’t say there is a store now that competes equally, because the competitors that stayed are at a higher price level and don’t have the same quality.”

The business exodus began with auto, oil, technology, and professional services companies. BP, Shell, ExxonMobil and Equinor have canceled billions of dollars in joint ventures and investments. McDonald’s sold its 850 restaurants to a local franchise, while France’s Renault symbolically accepted a ruble for its majority stake in Avtovaz, Russia’s largest auto company.

Since that initial exodus, other companies have followed various strategies. Some are waiting to see what happens, some are struggling to get out, and some are trying to keep going. More than 1,000 international companies have publicly said they are reducing their business in Russia beyond what is required by the sanctions, according to a Yale University database.

However, the Kremlin continues to put obstacles in their way, such as a tax “volunteer” of 10% for leaving the country, to be paid directly to the government, plus an understanding that companies will have to sell properties at a 50% discount.

Putin recently announced that the government would seize the assets of the Finnish energy company Fortum and Germany’s Uniper, preventing the sale in order to compensate any push in the West to expropriate more Russian assets abroad.

Danish brewer Carlsberg announced its intention to exit its business in Russia — one of the country’s largest brewing ventures — in March 2022, but faced complications by seeking clarification about the impact of sanctions and the difficulty in finding buyers.

“This is a complex process that has taken longer than we thought” but what “it is almost complete”said Tanja Frederiksen, the company’s director of external communications.

He described the company’s business in Russia as a highly integrated part of Carlsberg. The separation has involved all the company’s departments and an investment of 100 million Danish crowns ($14.8 million) for new equipment and technological infrastructure, Frederiksen said.

Another brewer, Anheuser-Busch InBev, is trying to sell its stake in a joint venture with Russia to Turkish company Anadolu Efes and has written off the profits it would have made from doing so.

Sanctions are lost “in a Bermuda Triangle between EU sanctions, US sanctions and Russian sanctions”, said Michael Harms, CEO of the East German Business Association.

Companies have to find a partner who has not been sanctioned by the West. In Russia, the main businessmen are usually people “very linked to the government”, Harms explained. “On the one hand, they have to sell at a deep discount or almost give away their assets, and on the other, they have to turn to people we dislike politically, people who are linked to the regime.”

The tax of 10% to leave the country is particularly complicated. American companies have to get approval from the Treasury Department to pay it, or else they would violate sanctions, said Maria Shagina, a sanctions expert at the International Institute for Strategic Studies in Berlin. Hundreds of companies have quietly decided to stay.

In an unusual and frank explanation, Steffen Greubel, CEO of German financial firm Metro AG, told the shareholder meeting that the company condemns the war “without hesitation or conditions or exceptions.”

However, the decision to stay in Russia is due to the responsibility towards 10,000 local employees and “in the interest of preserving the value of this company for its shareholders”he assured.

Metro takes approximately the 10% of its annual sales from Russia, that is, more than 2.9 billion euros (3.1 billion dollars).

Meanwhile, the shelves are just as full as they were before the war at Globus stores, a German chain with some 20 branches in Moscow.

Closer examination reveals that most Western brands have disappeared from Russia and that many cosmetic brands are priced between fifty% and 70% greater. There are more vegetables from Russia and Belarus, which cost less. Procter & Gamble products abound even after the company said it would only sell its core products in Russia.

Globus says it has reduced “drastically” its investments in Russia, but that it has kept its stores open to guarantee the provision of food for the population, noting that food products are not under sanctions and citing “the threat of confiscation of assets of considerable value through forced nationalization, as well as severe criminal consequences for our local management.”

Similarly, Germany’s Bayer AG — which supplies medicines, agricultural chemicals and seeds — argues that doing some business in Russia is the wisest thing to do.

“Depriving the civilian population of essential agricultural or medical products — such as treatments for cancer or cardiovascular disease, health products for pregnant women and children, and seeds to grow food — would only increase the effects that war is already having on lives. human”the company said in a statement.

Jeffrey Sonnenfeld, director of the Yale University database, said leaving Russia is the only valid decision, citing research showing that company shares subsequently rise.

“Companies that have exited have been rewarded for exiting”, he pointed. “It’s not good for shareholders to be associated with Putin’s war machine.”

Marianna Fotaki, professor of business ethics at the Warwick School of Business Administration, says that doing business “It shouldn’t be just looking at monetary gains… You don’t want to be an accomplice to what is a criminal regime.” Even if there are competitors staying, he added, “follow that example to the end” is not the answer.

Source: AP