Western businesses backtrack on their Russia exit plans

9:42 02.06.2024 •

Western companies, including Avon Products, Air Liquide and Reckitt, have remained in Russia despite saying they planned to leave after the invasion of Ukraine, as bureaucratic obstacles increase and consumer activity rebounds, ‘The Financial Times’ informs.

“Many European companies have found themselves really between a rock and a hard place,” said one executive working with western companies in the country. “They said they’d leave. They were presented with a choice of buyers that were unacceptable to them.”

Overall, more than 2,100 multinationals have stayed in Russia since 2022, the Kyiv School of Economics has found, compared with about 1,600 international companies that have either quit the market or scaled back operations.

In 2022 scores of such groups pledged to scale back their presence in Russia as the west sought to starve the country’s economy and the Kremlin’s war coffers of foreign cash.

But Moscow has gradually raised the cost of corporate departure, imposing a mandatory 50 per cent discount on assets from “unfriendly” countries sold to Russian buyers and a minimum 15 per cent “exit tax”. It has also been increasingly hard to find local buyers acceptable both to the seller and to Moscow and whose involvement does not fall foul of western sanctions.

Air Liquide announced in September 2022 it had signed a memorandum of understanding to sell its Russia business to the team of local managers who had been running it. However, the deal never received Russian government approval, leaving the company in limbo.

Some companies no longer feel they are compelled to quit the country. Avon began a sales process for its Russian business and received offers but decided not to accept them.

“For over 135 years, Avon has stood for women wherever they are in the world, regardless of ethnicity, nationality, age or religion,” the company said.

While Reckitt announced in April 2022 that it had “begun a process aimed at transferring ownership of its Russian business”, its new chief executive Kris Licht has taken a more measured approach.

“We continue to look at options but it has become more complex, not less complex,” he told the FT last month. “The initial conversation was, do you stay or go, and businesses paying taxes…  I think we’re having a bit more of a nuanced conversation.”

Multinationals have been mindful of the travails of western companies such as Carlsberg and Danone, which had their assets seized after announcing plans to leave.

While Danone was eventually able to work out a deal to sell the assets at a steep discount, Carlsberg remains locked in a protracted legal battle with Moscow and one of the brewer’s former top executives is in a Russian prison.

Alexandra Prokopenko, a fellow at Carnegie Russia Eurasia, said that rising wages and a rosier-than-expected economic situation had fuelled a spending boom, making Russia much more appealing for multinationals, particularly in the consumer sector.

PepsiCo announced in March 2022 that it had suspended the sale and production of its flagship beverage in Russia but it continues to operate a dairy business in the country that employs 20,000 people directly and 40,000 agricultural workers indirectly.

Rival Coca-Cola has stopped sending its soft drinks syrups to Russia, but the role has been filled by the drinks giant’s bottler in the region, Coca-Cola Hellenic, in which it holds a 21 per cent stake. In August 2022 the bottler created a standalone Russian company, Multon Partners, whose Russian versions of Coca-Cola brands include Dobry Cola, which has knocked the original Coke off the top spot as the country’s best-seller.

Among the more than 2,000 companies that have said they will stay in Russia — which include consumer groups Mondelez, Unilever, Nestlé and Philip Morris — some have become more open about their plans. Mondelez’s chief executive recently told the FT that investors did not “morally care” whether groups left the country.

But there is a lack of clarity about some companies’ claimed divestments. US short seller Hindenburg Research revealed in March that Polish fashion retailer LPP’s goods were still being sold in Russia despite it announcing it had left the market in June 2022 after selling its business to an unidentified Chinese consortium.

While LPP denied wrongdoing, it acknowledged it had been benefiting from sales to “transfer agents” to help fund the cost of the transition, a practice that would not be phased out until 2025.

Austria’s Raiffeisen Bank International has also come under fire after the FT reported that dozens of Russia-based job advertisements it had posted indicated ambitious growth plans in the country, despite its pledge to quit the market.


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