The war in Ukraine and sanctions forced hundreds of foreign companies to leave Russia. However, some have decided to stay or are forced to do so by the Kremlin despite the price they pay. Will they run their businesses?
The EU and USA imposed sanctions on Russia, causing western companies and international corporations to withdraw. So every day, we learn about more and more companies ‘leaving’ Russia. For example, Sony Music, one of the biggest music publishers, made this decision yesterday.
The company’s assets and Russian author’s copyrights will be overtaken (Moscow publishers will take over?)by one of Moscow’s publishers. The biggest streaming platforms, such as Apple Music, YouTube Music and Spotify, had blocked their activity:
At the beginning of September, Electrolux decided to sell its company (business) in Russia. The Swedish company didn’t produce anything in Russia and, after the beginning of the war, decided to stop service activities.
However, the initial closing down of the Swedish company in Russia will be severe because Electrolux, together with Zanussi or AEG, supplied and serviced professional equipment to restaurants, hotels and even government institutions. The leading German producer of coffee, Tchibo, sold its business in Russia. The are many similar examples.
There are companies that do not want to leave Russia and try to find reasons to stay, for example, Phillip Morris, cigarettes producer, or Auchan network. There are some that Putin wants to keep by force in Russia (in Russia by force). This proves that sanctions are effective. Even if the results of the business isolation of Russia are not immediate, step but step, they distance Putin’s country from the world’s markets and prepare the ground for economic collapse.
Not only business
From the begging of Russian aggression, the Ukrainian government and people pressed world businesses to leave Russia. Some companies were not happy to leave.
Some of them simply declared their intention to stay in Russia. Others tried to find reasons for staying, yet others pretended that nothing wrong was going on and tried to justify their stay by providing symbolic help for fighting Ukraine.
“Philip Morris says that they gave 8 mln dollars to Ukraine, while their profit from the Russian market is 1,8 bln dollars, which is 200 times more than the amount of money for help for Ukraine. In this way, they try to improve their image, but they still do business secretly with Russia,” said Viktor Berezenko in Karpacz, a Ukrainian expert and sociologist from Kyiv.
American tobacco producers transferred to the Russian budget about 3 bln dollars in the form of tax, for which you can purchase 450 missiles to bomb Ukraine. Those words are understandable. In March, Serhij Marchenko, Ukrainian Finance Minister, and Ukrainian parliamentarians appealed to western tobacco companies to leave Russia.
Mykola Kniazhytskyi, in his open letter to Polish Prime Minister Mateusz Morawiecki, pointed out that Philip Morris is the biggest foreign company in Russia. The ‘Ukrainian Pravda’ wrote that 4,8 bln dollars paid to the Russian budget could buy 68 Iskander missiles. Thirty-five million Russians smoked, and the state profits from taxes and excise. The most significant Ukrainian tobacco companies cannot work because of the war, and the cigarettes are imported from Romania and other countries. At the same time, Phillip Morris factories in Russia still work.
According to Philips Morris Chief general Jacek Olczak’s comments on Bloomberg, the company will finally do its best to leave Russia. However, no date was given; what is more, the company intends to work in Russia next year. How long are they going to do business in Russia? It will occur. Similarly, Auchan is still reluctant to leave Russia because, as they say, they have the moral duty of supplying Russians with cheap and good-quality food. The French think about the future and hope that they will keep their dominant position in the Russian market when the war is over. But the Kremlin knows the fears of the French company and plays them.
Putin in the factory
Rosstat reported that in the first six months, the Russian GDP went down by 0,4 percent, which is not much for the country in a state of war. The west expected that the Russian economy would quickly collapse. What helps Russia to keep its economy at such a high level is that they sell oil and other natural resources.
In the first six months of 2022, Germany paid Russia twenty billion euros for energy resources which is fifty percent more than one year ago. Other countries, including Poland, pay more significant sums. Moscow started the war with outstanding money reserves. Even if the west had already locked up half of over 600 billion euros of Russian money reserves, there was still a lot to spend on the economy and expensive war. However, it was not enough to make Kreml look ahead with optimism. The future of the Russian budget will depend on income from oil and gas export and internal demand. But the presence of western companies influences internal demand.
That is why in August, Putin issued a decree forbidding the withdrawal or selling of assets by Western energy companies without permission. In this way, the sale of assets of the Finnish company Fortum was locked up. Fortum owns ten heat and power plants in Ural and Siberia. BP, Uniper, Total Equinor, and Exxon Mobil had discussed going out of Russia earlier. Putin does not agree to use the left model, which is the sale of assets very often for small amounts to management or any Russian companies willing to buy them from other companies.
Putin wanted the companies to be hostage and gave hope for so-called ʼbusiness as usualʼ in the future. Staying in Russia under pressure will be extremely expensive because modern factories or infrastructure need the services of other western companies and subcontractors, especially in power engineering. And those activities are blocked because of sanctions. Also, Russian industry and foreign investments in Russia are getting into more and more trouble. At the beginning of September, the French concern Air Liquide, a producer of very important technical gasses, announced its withdrawal. There are more such examples. Foreign companies that decided to stay and do business in Russia may soon have to leave Russia because of the supply chain collapse.
Michał Kacewicz/belsat.eu
The opinions and thoughts expressed in the text reflect only the author's views.
