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Why do so many western companies continue to do business in Russia?

A former McDonald's outlet in Bolshaya Bronnaya Street in Moscow, Russia, on June 12, 2022
A former McDonald's outlet in Bolshaya Bronnaya Street in Moscow, Russia, on June 12, 2022 Copyright Dmitry Serebryakov/AP
Copyright Dmitry Serebryakov/AP
By Alexandra Leistner
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Many foreign companies continue to do business in Russia and are giving various explanations for this. Those who decide to withdraw from the country face a lengthy and difficult procedure.

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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.

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 pack 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.

On one hand, 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% "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".

If you've good partners somewhere in Russia, you can get lucky and withdraw your assets and even get your money back
Alexandra Prokopenko
Consultant, German Council on Foreign Relations

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 the 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 got 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, have apparently 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 taking into trusteeship 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 secure 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 Moscow 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.

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"Russia isn't a reliable economic partner," the company explained to Euronews on 2 May, adding that Moscow had become "unpredictable in every respect".

How quickly the complete withdrawal will take place will depend on various approvals from Russia and Germany.

A press release on the company's withdrawal from Russia also says that the company's joint ventures have been "de facto economically expropriated".

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 has a comprehensive strategy for stranded assets," says Prokopenko, who sees parliaments and policy advisers as having an obligation here.

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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.

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