Foreign business remains in Russia, but with a reservation

As a result, the range and quality of goods is reduced.

The speaker of the State Duma Vyacheslav Volodin expressed encouraging information: 75.9% of foreign companies retained their presence in Russia. That is the absolute majority. And this means that they believe in good prospects for the Russian economy and they are satisfied with our business climate, the parliamentarian noted.

At the end of 2021, 1,382 large foreign companies were operating in our country, the Chairman of the State Duma said. According to him, the vacated niches are filled by domestic enterprises: growth was shown, in particular, by clothing manufacturers (by 42%) and medicines (by 15%). “It is important that business be nationally oriented, that the funds earned remain in the country and be used for its development,” Volodin’s thesis is hard to disagree with. Another thing is that in the current conditions it hangs in the air.

The mass exodus from the Russian market of foreign companies (IKEA, H&M, Mercedes, Ford, Toyota, Lego, Nokia, Electrolux and others) began immediately after the start of the CBO in Ukraine in February 2022. Some brands, like the American chain McDonald’s, have handed over the business to local partners and continue to operate under new signs. Others are negotiating the sale of all assets. The largest manufacturers of machinery and electronics have left the Russian Federation, but their products are supplied as part of parallel imports. In a similar regime, cars are imported into the country.

“Many companies really remained in our country – someone transferred the business to Russian management (but the brand was preserved), someone changed the name (and the business still exists and works), – says Artem Deev, head of the analytical department at AMarkets. “It is difficult to estimate their number, since statistics have been closed since March last year, you have to rely on data that periodically appear in the media or on industry websites.”

For example, according to the Center for Strategic Research (CSR), as of September 2022, 34% of the largest foreign companies limited their activities in the Russian Federation, 15% decided to leave the country, transferring the Russian division to a new owner, and, finally, 7% announced their complete withdrawal from the market without selling the business. But we are talking about the “biggest” brands. Such TsSR counted 600 firms with annual revenues of 5.7 billion rubles. Apparently, Deev argues, there will be no comparable surge in 2023: those representatives of Western business who considered it necessary to leave Russia for political and reputational reasons have already done so despite serious commercial losses. The rest will try to strengthen their positions here.

“The very wording “retained presence” sounds extremely vague,” notes Nikita Maslennikov, a leading expert at the Center for Political Technologies. — De jure, Western companies can be present in the Russian Federation in various forms. Let’s say that some part did not physically disappear, but suspended its activities or even turned into an empty legal address. It is clear that no one is left in the oil and gas sector, in particular in the well drilling segment. The same Shell withdrew from the Sakhalin-2 project. In turn, the departure of IT giants (Microsoft, IBM, Oracle, Cisco) leads to a break in technology transfers and, ultimately, to a technological simplification of the economy, its inevitable primitivization, which the Central Bank has repeatedly warned about.”

So there are very few grounds for optimism, but there are enough risks, Maslennikov concludes. In his opinion, the foreign business remaining in the Russian Federation will be guided not by political, but by other circumstances: if companies see that they are becoming more and more uncomfortable to work, that the investment and legal climate is deteriorating, and profits are falling, nothing will stop them from leaving.

“The main problem is that high-tech companies have left the market, largely ensuring the use of modern equipment, materials and components for the development of production,” says Mark Goykhman, chief analyst at TeleTrade. — This is a long-term factor contributing to the ever more obvious lag of the Russian economy from global trends, to a decrease in its growth rates. Labor productivity is falling, the range of products manufactured in the country is decreasing, the quality of goods and services is deteriorating.

Published in the newspaper “Moskovsky Komsomolets” No. 28946 dated January 10, 2023

Newspaper headline:
See who’s gone