After Russia's attack on Ukraine, many Western companies announced that they would leave Russia. But less than 10 percent of them actually did it, according to one study.
At the beginning of the war, over 1000 companies announced that they would voluntarily limit their activities in Russia beyond the minimum required by international sanctions. However, whether they actually do it is another question.
Withdrawing is not the same as withdrawing?
Namely, current research by the University of St. Gallen and the IMD School of Economics shows that out of 1404 companies from the G7 group of countries and the European Union, 8,5 percent of them actually withdrew from Russia. Before the war, 2405 representative offices of Western companies were active in Russia. Why such a difference between words and actions?
"First of all, the important question is how to define withdrawal from Russia," says Holgar Gerg, president of the Institute for the World Economy from Kiel. He explains that in the indicated research, we are talking about companies that have completely closed their representative offices. But withdrawal can mean the suspension of deliveries or the cessation of new investments. He says that one of the reasons is that the ORBIS database only contains data on larger companies.
Moscow wants to prevent the departure of investors
An additional explanation is the legal obstacles for non-Russian concerns that want to withdraw from Russia.
"The list of foreign companies that want to leave the country is getting longer every day. However, the Russian Government is doing everything to prevent that process and is increasingly tightening the conditions", emphasizes Michael Harms, the first man of the Eastern Committee of the German Economy. He explains that investors currently need "the permission of the institutions, partly even the permission of the president himself".
Additionally, in December of last year, a regulation was passed according to which the sale of shares in the company is allowed only at a price equal to 50 percent of the market price. The Russian state makes good money from such sales because it takes ten percent of the purchase price for itself.
"Therefore, it should come as no surprise that the vast majority of Western investors have reduced their volume of work, but that only a small part of foreign firms have actually left the market," says Harms.
An example is Volkswagen, which suspended its production in the Russian city of Kaluga in March 2022, but could not sell the production facilities, so it is still legally present in Russia. There is a belief in business circles that in the meantime there is little chance for a company to achieve a good price when liquidating its operations in Russia. The French car manufacturer Renault sold its Russian branch for one ruble and now has to write off a loss of two billion euros. In addition, the demand for these companies outside of Russia is low, so the market price of foreign representative offices has fallen.
Leaving Russia is not only a moral issue
"The sanctions of the EU and the United States of America refer to very specific industries," explains Gerg, adding that most of the companies still operating in Russia are not affected by the export ban, as the sanctions refer to such products as semiconductors or chemicals that can be used in the production of weapons. "It is above all a question of morality, but not only that."
In June 2022, the Institute for the World Economy found in a study that there are still small and medium-sized companies operating in Russia that sell most of their products in Russia. "Those companies would have to suffer considerable losses when leaving Russia," says Gerg.
Possible consequences for the employees there
In addition, the economist warns of the shutdown of numerous jobs in Russia. This is how the trading concern Globus explains its stay in Russia - responsibility for 10 employees in 000 Russian branches. In addition, the concerns are threatened by other consequences. Globus is afraid of forced support of the company and legal consequences for the management and workers there. And the German company SAP announced in April 19 that it must be careful with the suspension of business with Russian customers, because people in their Russian branches may suffer the consequences.
Gazprom emptied the bank accounts of three joint ventures in Russia for the German energy company "Wintershall Dea", as the management announced a complete withdrawal from Russia.
Some companies have partially good arguments, for example humanitarian aspects. Four German companies from the healthcare sector such as Fresenius, Siemens Healthineers, Braun and Stada operate in Russia and intend to stay there. Siemens said access to medical care is a "human right." Fresenius also issued a statement: "We cannot simply leave our patients there in the lurch."
Especially a lot of German companies in Russia
According to research by the University of St. Gallen, 1284 companies from the group of the most developed industrial countries, the G7, as well as from the European Union, are still active in Russia. Germany is in first place with about 250 companies, which is 19,6 percent of the total number. Cyprus (16,4 percent) and the United States of America (12,4 percent) follow.
Gerg believes that this is not a surprise: "Germany is one of the biggest investors in Russia and one of the closest partners". He explains that countries have connections with other economies independent of politics.
"That's why Germany has a larger number of companies there than other countries, but also a large number of companies that are withdrawing". Of the 120 large companies that left Russia, Germany, with 11,7 percent, is in third place after the United States of America and Finland.
"There is still room for improvement"
According to data from the Eastern Board of German Economy, exports to Russia have significantly decreased, German deliveries last year were at a level that was not so low since 2003.
Compared to the year before, exports fell by 45 percent. It is stated that "there is still room for improvement". "The longer the Russian invasion lasts, the more companies will decide to withdraw from Russia," believes the president of the Institute for the World Economy from Kiel. He says that in the West, companies that stay in Russia are not helping their image and thus their turnover.
Bonus video:
