You can’t run away from the country – Newspaper Kommersant No. 10 (7455) of 01/20/2023

At the end of 2022, the share of foreign companies that completely left the Russian market was about 8.5% of the 1.4 thousand relatively large enterprises from the G7 countries and the EU operating in Russia as of April 2022. This is the main conclusion of the published work of economists from the Swiss Institute of IMD and the University of St. Gallen. Although, like previous assumptions, this is essentially a “bottom-up” rather than “top-down” estimate, an increase in this figure to 20-25% in 2023 is still considered unlikely and due to restrictions on the repatriation of capital from Russia, established its Central Bank and the government, and due to the lack of buyers: there is not much capital in the Russian Federation, and “non-Western” business among foreigners in the Russian Federation is surprisingly weak.

A preprint of work by Simon Evernett from the University of St. Gallen and Niccolo Pisani from the IMD business school, published in December 2022, became one of the most discussed materials on the “Russian” topic in the world media yesterday. The article, titled rather bluntly — “Less than 9% of Western companies have left Russia” — is the first fully non-activist assessment of the scale of the phenomenon in the summer-autumn of 2022. Although “private sanctions” (as defined by Oliver Hart and his colleagues; see Kommersant of December 28, 2022) are already the subject of study by economists as a phenomenon unique at least in recent decades (only a boycott of the apartheid regime in South Africa before its crash in 1994), there is, in fact, only one basic estimate of this phenomenon in numbers – the database of the Yale University group, created under the leadership of Jeffrey Sonnenfeld: the work on it was published in July 2022, but the project itself (like the one based in including a later project of the Kyiv School of Economics, KSE) is largely conducted on a voluntary basis. Sonnenfeld’s work has been heavily criticized. Evernett, who has experience in the structures of the World Bank, and Pisani, who works at the IMD business school with the top management of the largest European companies, generally compare their estimates with those of KSE, confirming the main conclusion: the mass exit of foreign companies from the Russian market affected their minority , a significant part of foreigners in this jurisdiction have reduced their operations, while the majority takes a wait-and-see attitude after the start of the Russian military operation in Ukraine. The article does not actually discuss the reasons.

Evernett and Pisani used the ORBIS database as the data for analysis, the most cited source for this kind of quantitative research: it tracks data on the activities of about 400 million companies with operating income of more than $1 million per year in most jurisdictions of the world. In this case, the sample consisted of about 36 thousand companies operating in the Russian Federation at least in 2017-2021, of which 3.4 thousand are subsidiaries of foreign companies, of which 2405 are companies from the EU and G7 countries. Evernett and Pisani estimated the number of real companies (taking into account Cypriot holdings with Russian owners, multiple legal entities, etc.) at 1,404 companies as of November 2022. Note that these calculations give an estimate of companies from “friendly” countries operating in the Russian Federation, in reality, at several hundred – this is a very small figure.

The number of Western companies estimated using this methodology, which shortly before the end of 2022 liquidated their assets in the Russian Federation, is 8.6%. In the entire sample of “unfriendly” companies, in 2021 they generated 6.5% of the total pre-tax profit, owned 8.6% of movable property, 8.6% of assets, created 10.4% of operating profit. Employment in them was above average – we are talking about 15.3% of all employed in “unfriendly” firms in 2021. The geography of the “already gone” (“exit”, as Evernett and Pisani specifically note, was often accompanied by agreements on the possibility of repurchase of assets) is shifted towards the United States – 18% of American companies have implemented such a solution, the exit rate is higher for Finnish companies, relatively lower for companies from Great Britain, the Netherlands and France, which, according to Evernett and Pisani, were under stronger pressure from “their” governments on this issue. The authors’ observation about the relatively low profitability of foreign businesses already liquidated in the Russian Federation, however, may well be due to sectoral characteristics: it was apparently higher in industry and lower in services, agriculture and mining. Note, however, that the figures of Evernett and Pisani, contrary to the title of the article, are an estimate “from below”, and not “from above”: some of the “unfriendly” investments in the Russian Federation, especially in raw materials, were managed through offshore companies, which can distort the statistics.

Among the companies of “unfriendly” countries “remaining” in the Russian Federation (if we consider all business from Cyprus in the Russian Federation by default to be Russian), about a quarter are German, 10% are Italian and Japanese, about 15% are companies from the USA. The prospects for their departure are not obvious, the authors implicitly doubt them: “if the share of leaving foreign companies does not grow significantly within a year or two, this will call into question the willingness and ability of many Western firms to leave jurisdictions if their governments consider it necessary for geopolitical reasons ”(according to the KSE project, which is not completely comparable with the data of Evernett and Pisani, a quarter more foreign companies in the Russian Federation announced their intention to completely withdraw from the Russian Federation than they had already left, however, most of them “frozen” operations, but did not liquidate investments). This worries Evernett and Pisani, in particular, in the context of a possible strong deterioration in relations between Western countries and China: they remind that for every dollar of foreign direct investment in Russia, the same companies invested eight dollars in China. We also recall that a full-fledged “exit” of a foreign company from the Russian Federation is greatly hindered by the restrictions of the Central Bank and the government, and Russian interest in their assets is much lower than before March 2022.

Dmitry Butrin