More than a year after the Ukraine invasion, it’s clear: Leaving Russia was not as simple as the first announcements might have made it seem for global companies.
Though companies’ stories vary, a common theme is having to thread a needle 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 still trickling in informally through third countries despite the corporations’ stated decisions to exit.
For consumers in Moscow, what they can buy hasn’t changed much. While baby products store Mothercare became Mother Bear under new local ownership, most of the items in the Evropeisky Mall shop in Moscow still bear the Mothercare brand.
That’s also what student Alik Petrosyan saw as he shopped at Maag, which now owns Zara’s former flagship clothing store in Moscow.
“The quality hasn’t changed at all, everything has stayed the same,” he said. “The prices haven’t changed much, taking into account the inflation and the economic scenarios that happened last year.”
Kremlin responded with departure tax
The initial exodus from Russia in the weeks after February 2022 was led by big automakers, oil, tech and professional services companies. BP, Shell, ExxonMobil and Equinor ended joint ventures or wrote off stakes worth billions. McDonald’s sold its 850 restaurants to a local franchisee, while France’s Renault took a symbolic single ruble for its majority stake in Avtovaz, Russia’s largest carmaker.
Since the initial wave of departures, some companies are struggling to shed assets and others are attempting to conduct business as usual, 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.
The Kremlin keeps adding requirements, recently a “voluntary” 10 per cent departure tax directly to the government, plus an understanding that companies would sell at a 50 per cent discount.
Russian President Vladimir Putin recently announced that the government would take over the assets of Finnish energy company Fortum and Germany’s Uniper utility, barring a sale with an eye to offsetting any Western moves to seize more Russian assets abroad.
More than 1,000 international companies have publicly said they are voluntary curtailing Russian business beyond what’s required by sanctions, according to a database compiled by Yale University.
Jeffrey Sonnenfeld of Yale said leaving was the only valid business decision, citing research showing company share prices rising afterward.
“The companies that have pulled out have been rewarded for pulling out,” he said. “It is not good for shareholders to be associated with Putin’s war machine.”
Leaving a ‘complex process’
Danish brewer Carlsberg announced its intention to divest its Russia business — one of Russia’s largest brewing operations — in March 2022, but faced complications clarifying the impact of sanctions and finding suitable buyers.
“This is a complex process, and it has taken longer than we originally hoped for,” said Tanja Frederiksen, global head of external communications, adding that it is “almost completed” now.
She called the Russia business a deeply integrated part of Carlsberg. Separating it has involved all parts of the company and more than 100 million Danish kroner ($19.6 million Cdn) in investment in new brewing equipment and IT infrastructure, Frederiksen said.
WATCH | Sanctions impact in Russia appears mixed:
Russian President Vladimir Putin has bragged that Western sanctions have failed to slow the economy, but experts say their impact is beginning to show and that the strain will become more obvious as the year progresses.
Another beer giant, Anheuser-Busch InBev, is trying to sell a stake in a Russian joint venture to Turkey-based partner Anadolu Efes and has forgone revenue as a result.
Sanctions challenge
Companies are lost in “a Bermuda Triangle between EU sanctions, U.S. sanctions and Russia sanctions,” said Michael Harms, executive director of the German Eastern Business Association.
They must find a partner not sanctioned by the West, said Harms.
In Russia, major business figures are often people who are “well connected with the government,” Harms said. “For one thing, they have to sell at a large discount or almost give assets away, and then they go to people whom politically we don’t like — people who are close to the regime.”
The 10 per cent exit tax mandated by Russia is particularly tricky. American companies would have to get permission from the Treasury Department to pay it or run afoul of U.S. sanctions, said Maria Shagina, a sanctions expert at the International Institute for Strategic Studies in Berlin.
Hundreds of companies quietly decided not to leave.
In a rare, frank explanation, Steffen Greubel, CEO of German cash and carry firm Metro AG, said at this year’s shareholder meeting that the company condemns the war “without any ifs, ands or buts.”
However, the decision to stay was motivated by a responsibility for 10,000 local employees and is “also in the interest of preserving the value of this company for its shareholders,” he said.
Germany’s Bayer AG, which supplies medicine, agricultural chemicals and seeds, argues that doing some business in Russia is the right move.
“Withholding essential health care and agriculture products from the civilian populations — like cancer or cardiovascular treatments, health products for pregnant women and children as well as seeds to grow food — would only multiply the war’s ongoing toll on human life,” the company said in a statement.
Meanwhile, shelves are just as full as before the war at Globus superstores, a Germany-based chain with some 20 locations operating in Moscow.
Globus says it has “drastically” cut new investment but kept its stores open to ensure food supply for people, noting that food has not been sanctioned.