Will Western Companies Return to Russia?

Alsharq Tribune- world News 

One of the many questions raised by discussions between Moscow and Washington on ending the war in Ukraine is whether the corporate exodus from Russia in opposition to the February 2022 invasion may be reversed.

As long as broad Western sanctions on Russia remain in place, that looks unlikely, but should US President Donald Trump’s administration seek to ease restrictions, it could open the door for some companies to return to what was once a high-growth market, CNN said in a report published on Friday.

Who exited and how?

More than a thousand companies from McDonald’s to Mercedes-Benz have left Russia in the last three years by selling, handing the keys to existing managers or abandoning assets. Others like Danone had their assets seized and a sale forced through.

Western companies have acknowledged losses totaling $107 billion, including lost revenue, according to a Reuters analysis in March 2024. Kirill Dmitriev, head of the Russian Direct Investment Fund, says US companies have lost $324 billion by leaving Russia.

When exiting, companies such as McDonald’s, Renault and Henkel agreed options to buy the assets back. France’s Renault sold its majority stake in Russian carmaker Avtovaz in May 2022 for reportedly just one rouble, but with a six-year option to buy it back.

Some food and healthcare companies, including Procter & Gamble, PepsiCo and Mondelez, say they stayed on humanitarian grounds to continue supplying Russian consumers with basic goods.

What kind of companies may return first?

After the highest-level US-Russian meeting since the start of the Ukraine war began this week, Dmitriev said, without giving further details, that he expects a number of US companies to return as early as the second quarter.

The most likely to return are those operating outside sanctions, such as retailers and food producers, rather than those in sectors such as energy and finance. Dmitriev said he believed major US oil companies that had been successful in Russia would “at some point” return.

Senior Russian lawmaker Anatoly Aksakov this week said he thought Visa and Mastercard would soon restore payment services. The two companies said their Russia suspensions remained in place.

Why would companies not return?

Hundreds of Western companies including Unilever issued statements condemning Russia’s aggression against Ukraine in the days and weeks after the invasion, framing their exit from the country or suspension of operations in moral terms. Should a deal be reached that rewards Russia with Ukrainian territory, companies that have criticized Moscow risk reputational damage by returning, the CNN report said.

What sectors are off limits?

Companies involved in supplying goods that have both civilian and military applications are bound by Western restrictions.

Boeing and Airbus, for example, halted the supply of planes and spare parts to Russia. Other examples include semiconductors, telecoms equipment and electronics. Speculation is rife on whether the US-Russia talks could yield a softening of sanctions, but no concrete proposals have yet been made.

Meanwhile, the European Union agreed Wednesday the 16th package of anti-Russia sanctions. Sanctions prohibit providing Russia with financial or energy-related services, and Russian officials’ statements that they expect Western companies to return look for now like wishful thinking.

How has the Russian market changed?

Some of the world’s most popular brands from Starbucks to Ikea and Levi’s have been replaced by Russian imitations. The more than 800 McDonald’s restaurants in Russia now operate under the brand Vkusno & tochka (Tasty & that’s it). Starbucks sold its business to restaurateur Anton Pinskiy and rapper Timati. The business is now known as Stars Coffee.

Recapturing the market may be particularly hard for Western carmakers, as Chinese competitors have gained a more than 50% market share, up from less than 10% three years ago.

It is not clear how willing Russia would be to support the return of European carmakers at the expense of Chinese ones, especially given the “no-limits partnership” between Moscow and Beijing as trade between the two countries has ballooned.