The news article discusses the challenges faced by western businesses operating in Russia. Despite tensions between western countries and Russia, some brands are choosing to continue operating in the country. However, they are facing an increasingly restrictive regulatory environment and are grappling with the moral dilemma of participating in Russia’s wartime economy. Additionally, the Kremlin has imposed a ban on dividends to businesses from countries deemed “unfriendly,” making it difficult for companies to access their profits. The article highlights that the Russian government holds control over who receives their money and has the power to decide the fate of companies in strategic sectors. Western companies that remain in Russia may find themselves stuck with significant profits they cannot repatriate and should not expect a more flexible approach from the Russian leadership in the foreseeable future.
According to estimates, western companies from the US, UK, and EU countries accumulated $18 billion in Russian profits and $199 billion in revenues in 2022 alone. With the stringent conditions imposed by the Kremlin, companies hoping to withdraw from Russia cannot extract much value from their assets. The government must approve any sale of companies in strategic sectors and imposes a minimum 50% discount on asset values, as well as a 10% “voluntary” contribution to the state budget. In some cases, the government confiscates assets to hand them over to loyalists of the regime. This puts western companies at a significant disadvantage and leaves them with no recourse to recoup their investments.
Agathe Demarais, a senior policy fellow at the European Council on Foreign Relations, suggests that it would have been more prudent for western firms to leave Russia immediately rather than adopt a wait-and-see approach. In hindsight, it is clear that the Russian market poses significant challenges and uncertainties for these businesses. Moreover, the recent proposal to use frozen Russian sovereign assets worth $300 billion to fund the rebuilding of Ukraine could potentially lead to further difficulties for western groups in Russia. If the Kremlin seizes these assets, it would bolster the argument for corporate seizures in the country. Overall, western companies holding out hope for recouping their investments in Russia may find themselves mistaken, as the situation appears unlikely to improve.