EU companies slowly quit Russian market due to government pressure

Global corporations reacted quickly to Russia’s invasion of Ukraine. Some said they would leave Russia right away, while others announced they would stop importing or making new investments. Factory, energy, and power plant assets worth billions of dollars were written off or put up for sale, along with vehement protests against the conflict and declarations of support for Ukraine. 

It is obvious, more than a year later, that leaving Russia was not as easy as the initial pronouncements might have suggested. Russia is increasingly making it difficult for businesses to leave by imposing difficult discounts and taxes on sale prices, as well as mandating approval by a government commission and, in some cases, President Vladimir Putin personally. 

Though companies’ stories vary, a common theme is having to thread an obstacle course between Western sanctions and outraged public opinion on one side and Russia’s efforts to discourage and penalize departures on the other. Some international brands such as Coke and Apple are trickling in informally through third countries despite a decision to exit. Many companies are simply staying put, sometimes citing responsibility to shareholders or employees or legal obligations to local franchisees or partners. Others argue that they’re providing essentials like food, farm supplies or medicine. 

One is Italian fashion chain Benetton, whose store at Moscow’s now ironically named Evropeisky Mall — meaning “European” in Russian — was busy on a recent weekday evening, with customers browsing and workers tidying piles of brightly colored clothing. At Italian lingerie retailer Calzedonia, shoppers looked through socks and swimwear. Neither company responded to emailed questions. What Moscow shoppers can purchase hasn’t changed all that much. The majority of the merchandise in the Mothercare shop at the Evropeisky Mall still bear the Mothercare trademark, despite the fact that Mothercare changed its name to Mother Bear under new local ownership. 

Big automakers, oil corporations, IT firms, and professional services firms led the early exodus from Russia, with BP, Shell, ExxonMobil, and Equinor abandoning joint ventures or writing off holdings worth billions

While France’s Renault took a symbolic one ruble for its controlling ownership in Avtovaz, Russia’s largest automaker, McDonald’s sold its 850 stores to a local franchisee. Since the initial wave of departures, other groups have developed: businesses waiting it out, those struggling to sell off assets, and others trying to carry on as usual. According to a database maintained by Yale University, over 1,000 multinational corporations have declared publicly that they are voluntarily restricting their business with Russia beyond what is needed by sanctions. However, the Kremlin keeps adding conditions, most recently requiring businesses to sell at a 50% discount and paying a 10% “voluntary” departure tax straight to the government. Putin recently declared that the government would acquire the assets of the German utility Uniper and the Finnish energy company Fortum, barring a sale, in order to thwart any Western attempts to seize further Russian assets overseas. The largest brewing plant in Russia, owned by the Danish brewer Carlsberg, announced its desire to sell it in March 2022, but it had trouble determining how sanctions would affect it and identifying potential purchasers. 

No free business

They need to look for a mate who is not accepted by the West. Major corporate personalities in Russia are frequently “well connected with the government,” according to Harms. “For one thing, they have to sell at a significant discount or almost give assets away, and then they go to people we don’t like politically — people who are close to the regime,” the author said. Russia’s 10% exit tax requirement is extremely challenging. According to Maria Shagina, a sanctions specialist at the International Institute for Strategic Studies in Berlin, American businesses would need clearance from the Treasury Department to pay it without breaking American sanctions.