After more than a year of the Russian military campaign in Ukraine, foreign companies are much less eager to leave the Russian market than it was announced. If the «exodus» was quite active in the first months of the conflict, then it stalled. In addition, some companies began to cautiously return to the market. One of the reasons for this is that in many cases the work of foreign companies was stopped not so much for moral reasons as for technical ones, which are now partially solved, explains expert Oleg Khlevnyuk.
After February 24, the scale of the departure of foreign companies from Russia became the subject of controversy and study. Several databases have been created, the most cited of which is maintained by a group of economists led by Jeffrey Sonnenfeld, a professor at the Yale School of Management. Another similar project is the Leave Russia database of the Kiev School of Economics. Finally, a study was conducted by Swiss economists Niccolo Pisani and Simon Evenett, who analyzed the Orbis database, which contains information about 400 million legal entities from around the world.
Despite the difference in the methods and results of the calculation, these studies combine the conclusions that the percentage of companies that left Russia is quite modest. So, there are about 1400 companies in the Sonnenfeld register, of which more than 1000 have left the market or reduced their activity in Russia. According to the Leave Russia registry, only 7% of companies have left completely, less than 40% are preparing to leave and 15% have reduced activity. Finally, according to Pisani and Evenett, only 8.5% (120 Western companies) have sold or closed their subsidiaries in Of Russia.
One of the reasons for such a slow departure of foreign companies may be artificially created bureaucratic difficulties created by the Russian authorities. According to The Financial Times, now there are about two thousand companies in the queue for the exit, that is, about 18%.
"The government Commission for Monitoring the Implementation of Foreign Investments, which approves such transactions, meets only three times a month and considers no more than seven applications in one meeting. For example, the Spanish company Inditex found a buyer in October, and received approval for the transaction in April, that is, almost six months later", the author notes.
In addition, sometimes transactions cannot be agreed upon. When selling foreign assets, two conditions must be met: the relevant department should have no objections, and the transaction amount should be at least 50% lower than the last estimate of the company's value or should not exceed three annual EBITDA indicators (earnings before interest, taxes and depreciation). In addition, from the end of 2022, the seller is required to pay 10% of the transaction amount to the budget.
Some companies, when selling their assets, have left for themselves options for a quick return in case of a change in the situation. So, for example, did the owners of the McDonald's chain, who, at the conclusion of the transaction, provided for a buyback option. The same way did the departed from Russian automakers (Ford, Renault, Mercedes-Benz and Mazda).
In addition, some foreign companies, in fact, staged their departure, changing the "unfriendly" jurisdiction to a "friendly" one: legal entities from the UAE, Turkey, Kazakhstan and China appeared among the new owners of Russian offices of Western companies.
Finally, some companies announced their departure, but later changed their minds. So, the American oilfield services company SLB promised to "immediately suspend new investments and deployment of technologies," but in fact it remained and even increased its business due to orders left by competitors. It is reported that Microsoft and Intel support have recently started working in limited access — both companies left the Russian market after the outbreak of hostilities.
According to Oleg Khlevnyuk, what is happening today indicates two trends.
Firstly, the symbolic effect that the simultaneous departure of a large number of foreign companies produced at the beginning of 2022 has already come to naught. Foreign goods are now supplied through parallel import channels and their prices often do not differ significantly from the previous ones. The frequency of the boycott leads to the fact that not only Russian, but also their Western colleagues who decided not to leave come to the place of the departed companies.
Secondly, the suspension of the activities of foreign companies last year was largely due not so much to their moral position, but due to objective factors: high uncertainty, risks, sanctions bans preventing the import of products, difficulties with calculations, volatility of the exchange rate, logistical failures, as well as shortages of raw materials and components. As some of these problems are solved, Western companies are resuming their activities.
Source — RE:Russia
