Western Firms Face Uncertain Future in Russia

Business and financial crisis in Russia

Despite making grand announcements about pulling out of Russia after its unprovoked invasion of Ukraine, many Western firms are still operating there. Big names like BP, TotalEnergies, Unilever and P&G are among those maintaining a presence, according to the Financial Times. Smaller companies like the UK’s Smiths Group are still in the game as well.

According to Reuters, companies that have exited Russia have suffered total losses exceeding $100 billion. Meanwhile, those that stayed behind reported record profits in 2023. For example, PepsiCo’s revenue in Russia hit $4.2 billion, Mars made over $2.8 billion, and Nestlé raked in more than $2 billion.

However, the future for Western companies maintaining business in Russia appears dire. With escalating geopolitical tensions, these firms face significant risks, including the potential for operations to be frozen and assets to be nationalized, as was the case with Danish brewer Carlsberg.

Initially, Western companies left Russia due to moral, ethical and reputational concerns. Now, the list of reasons has expanded. The EU has imposed 13 rounds of sanctions, forcing companies to spend large sums on legal services to stay compliant. These sanctions are here to stay and will only get tougher, making it easier for many firms to leave than to deal with the complex regulations.

Sanctions have also wreaked havoc on supply chains, restricted access to financial markets, and made critical components and technology scarce, making it increasingly difficult to continue operations in Russia.

To make matters worse, Russian authorities are considering labeling goods from “unfriendly” Western countries with “the manufacturer of this product sponsors terrorism.” This could severely hit sales of products like P&G detergents and Mars chocolates.

The Kyiv School of Economics notes that at least 40 international companies have fully exited Russia since the beginning of 2024. This includes major players like Exxon, HSBC, Bank of Cyprus, Vestas, Deezer, and Inditex, the parent company of Zara and Bershka, and the list is expected to grow.

Companies Likely to Exit Soon

With recent US sanctions halting dollar and euro trading on the Moscow Exchange, European and American banks remaining in Russia may also be in question.

Among them are Austrian Raiffeisen Bank, Italian Unicredit Bank, Hungarian OTP Bank, and US Citi Bank. Together, they earned more than $3.5 billion in Russia in 2023, according to Kyiv School of Economics estimates. The European Central Bank has ordered Raiffeisen Bank and Unicredit to significantly reduce their business operations in Russia. 

Raiffeisen Bank has already announced plans to reduce its lending activities in Russia by 65% as part of an effort to comply with the European Central Bank’s (ECB) directive to Raiffeisen Bank International (RBI) group. In addition to this measure, the lender will stop paying interest on savings accounts in Russia starting from July 1.

Another candidate for an imminent exit is Israeli clinic Hadassah, which opened its Moscow branch in 2018 with a $15 million investment. Hadassah Medical Moscow treats about 20,000 people a year and employs more than 100 doctors, many of whom initially were from Israel. Amid deteriorating relations between Russia and Israel, Israeli media have called on Hadassah to cease operations in Moscow. Additionally, it was revealed that despite an official ban by the Israeli Ministry of Health on treating Hamas militants, a member of the terrorist group was treated in the Moscow branch of Hadassah.

Hadassah Medical Moscow was initially designed to offer advanced medical treatments through experienced Israeli doctors, adhering to international protocols and utilizing top-tier international medicines, including those not certified in Russia. However, current developments show a shift away from this model, with Israeli doctors visiting the clinic only sporadically for short periods. Hadassah Medical Moscow no longer adheres to its founding vision of providing cutting-edge medical care through continuous collaboration with Israeli medical professionals, so many observers believe it is indeed in the process of exiting the Russian healthcare sector, pivoting away from its initial business model and reducing its footprint in the country.

As Western companies contend with these escalating pressures, the landscape of international business in Russia remains volatile. More exits are likely as firms weigh the rising costs against an increasingly hostile geopolitical backdrop.

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