Many foreign companies continue to do business in Russia and give various explanations for this. And those who decide to withdraw from Russia face a lengthy and difficult procedure.
When the first MacDonald’s opened its doors in Russia in January 1990, there were stampedes of customers eager for a taste of the West. But the climate for business has now turned cold once again, and for many businesses, just one option remains: get out first.
Because Russia has begun to bring foreign companies under its control. According to the state news agency Tass, the state property agency Rosimushchestvo has announced that it will now start managing companies that are considered important to the Russian economy.
In the case of the German state natural gas importer Uniper, with its Russian power plant subsidiary Unipro, and the Finnish utility Fortum Oyj, this does not immediately mean expropriation – but management decisions will now be made by Rosimushchestvo.
Some companies that initially wanted to stay in Russia – and cited various reasons for doing so – are now deciding to back their bags more than a year after the full-scale invasion of Ukraine. But it is not that easy for companies to leave the country.
For one thing, there is a financial issue: according to a new decree, Western companies must sell their shares in Russian assets at a 50% discount and also pay a 10 per cent “voluntary exit tax” to the Russian budget.
With this money, according to government spokesman Dmitry Peskov, Russia wants to build up a compensation fund in response to “the illegal expropriation of Russian assets abroad”.
But the first hurdle is the sale itself.
Alexandra Prokopenko, a former employee of Russia’s central bank and a consultant at the German Council on Foreign Relations, told Euronews that finding a buyer is not that easy.
No trade can take place with up to 6,000 people and companies on the various sanctions lists. On top of that, the Russian state has to agree to the sale – in some cases Putin himself – and that can take time.
“If you’ve good partners somewhere in Russia, you can get lucky and withdraw your assets and even get your money back”, says Prokopenko, alluding to the companies’ connections to government circles. This is what happened in the case of Shell, which got more than a billion euros for its stake in the nationalized Sakhalin-2 liquefied natural gas project.
Other companies, including Renault, apparently have left the country empty-handed, simply to limit the damage. A symbolic rouble is what the French company is said to have been paid for its 68% stake in Russia’s biggest carmaker Avtovaz, in reports attributed to then Minister of Economy of the Russian Federation Denis Manturov, though the French carmaker does have a six-year buy-back option.
Why are companies pulling out now?
Those who found sufficient arguments to justify their activity in Russia at the beginning of the war are confronted with an increasingly uncertain situation. In addition, Western companies increasingly fear “being branded as enablers of Putin’s war”, says Prokopenko.
She believes that Putin’s new decree has also been influenced by the decision of the Federal Administrative Court in Leipzig to dismiss Russian oil company Rosneft’s lawsuit against the taking into trusteeship of two of its German subsidiaries.
The German Federal Network Agency has placed Rosneft’s German subsidiaries RDG GmbH and RNRM GmbH under trusteeship since September 2022 to ensure the maintenance of business operations and thus security of supply in Germany.
This is because insurance companies, IT companies and banks were no longer willing to work with the two Russian Rosneft refineries, according to the German government.
“This decision was seen in Russia as daylight robbery,” says Prokopenko – and a perfect “pretext” for the Putin decree.
The public opposes businesses trading with Russia while Russian drones and missiles are killing people in Ukraine, and it’s increasingly unpopular with investors, she explains.
Germany’s largest oil and gas producer Wintershall Dea, a BASF subsidiary, made a surprise announcement in January that it was pulling out of Russia, after previously rejecting the moral grounds for withdrawal.
“Russia isn’t a reliable economic partner,” the company explained to Euronews on 2 May 2023, adding that Russia had become “unpredictable in every respect”.
How quickly the complete withdrawal might be completed will depend on when various approvals from Russia and Germany are received.
What does the Kremlin want to achieve with the “compensation fund”?
Prokopenko believes the Kremlin’s main goal with the new decree is to get foreign companies to increase pressure on their governments to drop sanctions or improve the environment for Russian companies in the West.
“The problem is, neither Russia nor the West have a comprehensive strategy for stranded assets,” says Prokopenko, who sees parliaments and policy advisers as having an obligation here.
And the West must also prepare itself for the possibility that the next step might be the confiscation of private financial investments in Russia. So far, these have been safe, but if there is no solution in a tense situation, this could change, according to Prokopenko.
Under its new owner, Mcdonald’s in Russia is now called “Vkusno & Totschka” – in English: “Tasty and that’s it”.
However, the quality of the dishes is said to have suffered because the know-how for fast and tasty food left the country with the US brand – and French fries are no longer available due to a potato shortage in the country.
