If since the beginning of the Russian invasion of Ukraine, the percentage of companies that closed operations in Russia has risen sharply by mid-April 2022, in the last 7 months the ratio of those who leave or stay is virtually unchanged, although we still see a periodic increase in the share of those companies that remain in the Russian market (by adding new companies to the database). However, if to operate with the total numbers in KSE database, about 38.2% of foreign companies have already announced their withdrawal from the Russian market or suspended their activity, but another 39.1% are still remaining in the country, 16.0% are waiting and only 6.7% made a complete exit³.

At the same time, it is difficult not to overestimate the impact on the Russian economy of only 213 companies that completely left the country, since they employed 23.1% of the personnel employed in foreign companies, the companies owned about 15.8% of the assets, had 20.9% of capital invested by foreign companies, and in 2021 they generated revenue of $47.6 billion or 15.7% of total revenue and paid $3.3 billion of taxes or 13.2% of total taxes paid by the companies observed. Data on 1,400 TOP companies is presented in the table above.

As it is visible on the charts above, roughly similar % of exited is obtained based on number of companies (15%) and on share of revenue withdrawn (16%). At the same time, a totally different picture is for those who are still staying – 46% of companies represent 24% of revenue and 16% of waiting companies represent 28% of revenue generated in Russia. The conclusion could be that smaller companies with lower revenue prefer to stay and those who have higher revenue are more eager to wait, limiting their investments as an excuse (at the same time they continue to earn and reinvest their local profit).

More infographics and analytics see in the special section of our website at the link https://leave-russia.org/bi-analytics

WEEKLY FOCUS: Activities of foreign companies in Russia in the light of rejection of the values of the Free World

In response to the Russian military invasion of Ukraine in late February 2022, many countries reacted quickly to impose sanctions against Russia. The situation is developing rapidly, and throughout 2022, new measures against Russia were constantly announced.

A year has passed since the West imposed a series of financial and economic sanctions against Russia after its invasion of Ukraine. It is fair to ask the question, how did the sanctions affect Russia during 2022? For foreign companies that cooperated or still cooperate with Russia, in particular, for the governments of the respective countries, against the background of the war in Europe, a choice arises, namely, to continue the movement of development on the side of the Free World or on the side of the aggressor country and its allies?

The growth of sanctions programs in the USA, Canada, Switzerland, UK, Australia, France and the EU also rose sharply last year as authorities in those jurisdictions responded to the Russian incursion.

In 2022, sanctions against Russia led the number imposed in 2022, surpassing the next most sanctioned country, Iran, by 20 times⁴:

At the same time, many foreign companies have begun to make statements about their work in the aggressor country. For some companies, the very fact of Russian invasion of Ukraine became a red line, which crossed out the possibility of conducting business “as usual”. Some companies have been forced to suspend their activity or withdraw as they faced new logistical and economic realities. And some, on the contrary, decided to take advantage of the opportunity to gain the share of the Russian market vacated by competitors.

The sanctions currently in effect against Russia have a very wide impact on the business and financial sector, the energy sector and manufacturing. For example, the ban on the export of technology to Russia from the West has a negative impact on production as a whole, including the technology needed by the military to continue the war against Ukraine. Sanctions targeting the energy sector will continue to affect the Russian economy in 2023.

When it comes to banning the import of certain goods, for example, there are cases when third countries suddenly increase the import of these products, and there is a suspicion that they are then sold to Russia. In addition, China and India continue to import large volumes of Russian oil. Other countries also continue to trade with Russia. In the meantime, Russia has a way to offset some of the problems caused by sanctions⁵.

How to make sanctions more effective? There are attempts to make the existing sanctions more effective by eliminating relevant loopholes.

The Russian economy managed to avoid the worst effects of the sanctions, mainly by the extremely high oil and gas prices that the world has seen in 2022. Extremely high energy prices led to Russia’s total revenue from oil and gas exports rising in 2022⁶.

In the year that has passed since the Russian invasion of Ukraine, the Western alliance has united against Russia, but the world is still far from unity on the issues raised by the war in Ukraine.

US officials point out that 141 of the 193 nations at the United Nations Organization voted to condemn Russia after the invasion, and that 143 voted in October 2022 to condemn the Kremlin’s annexation of parts of Ukraine. But only 33 countries have imposed sanctions on Russia, and the same number send lethal weapons to Ukraine. As an example, India announced that since the beginning of the Russian invasion of Ukraine, its trade with Russia has increased by 400%⁷.

For reference: economically, Russia is an important supplier of mineral raw materials, diamonds, fertilizers and agricultural products for India. India actually benefits from the sanctions imposed on Russia by the West, as it gets cheaper Russian energy, diamonds and fertilizers.

Before the war, the share of oil from Russia in Indian imports was traditionally less than 1% – the country mainly received from Iraq and Saudi Arabia, but from March 2022 the share began to grow and reached peaks in June and October 2022⁸.

The trade turnover of Russia and India increased by 2.4 times in 2022 due to the growth of exports of fuel and energy products and products of the chemical industry⁹.

China has not approved of Russia’s full-scale invasion of Ukraine, but has expanded trade and other ties with Moscow since it began in February. In 2022, with the start of Russia’s large-scale military aggression against Ukraine, China’s economic relationship with Russia deepened as Russia found itself embroiled in a grueling war and its economy hit by Western sanctions. In this regard, Russia has a thousand reasons to seek better relations with China. As an example, at the beginning of the war, Chinese companies were the least active in withdrawing from Russia.

For reference: Trade between Russia and China in 2022 increased by 29.3% compared to the previous year and amounted to 190.27 billion US dollars. Exports from Russia to China for the year increased by 43.4% until 2021 and reached 114.15 billion US dollars. Imports from China increased by 12.8% to 76.12 billion US dollars¹⁰.

The trade turnover between Russia and China in January-March 2023 increased year-on-year by 38.7%, reaching $53.84 billion, the Main Customs Administration of China announced on Thursday, April 13, 2023.

The main part of the cost of goods imported from the Russian Federation to China falls on oil, natural gas and coal. Other key imports from Russia include copper and copper ore, timber, fuel and seafood. China exports a wide range of products to the Russian Federation, a significant share of which is smartphones, industrial and specialized equipment, children’s toys, shoes, vehicles, air conditioners and computers. According to Russian Ambassador to China Igor Morgulov, the Russian-Chinese trade turnover in 2023 should reach the target of $200 billion and overcome it with a large margin. He recalled that Russia is “a reliable supplier of hydrocarbons, and its cooperation with China is based on mutual respect and benefit.”¹¹.

In this context, China is not just a supplier of sensitive goods to the Russian market, but probably a supplier to Russian military industry in general, providing 57% of semiconductor supplies¹².

Austria is one of the countries most affected by Western sanctions against Russia, as approximately 80% of Austria’s natural gas demand relies on Russian imports¹³.

Austrian companies have invested heavily in Russia and are feeling the effects of Western sanctions against Russia. Austrian companies and industry feared gas shortages, but supported the sanctions policy.

For reference: the management of Austria’s Raiffeisen Bank International discussed a possible asset swap scheme with Russia’s Sberbank to receive the amount of proceeds that the RBI received in Russia in 2022 and cannot withdraw due to Russian government restrictions.

This is written by the Austrian publication Falter¹⁴with reference to a “confidential” document from the RBI board meeting. Sberbank is under sanctions, and part of its assets, for its part, have been frozen by the European authorities. According to the publication, the management of Raiffeisen Bank International discussed the idea of transferring the dividends due from its Russian business to Sberbank in exchange for the assets of its European subsidiary, Sberbank Europe, which is registered in Austria.

At the same time, according to the newspaper, we are talking about the value of assets of approximately 2 billion euro – that was the net profit of Raiffeisenbank in Russia last year. Sberbank can receive either this money, or the entire subsidiary of Raiffeisen Bank International in Belarus – “Priorbank”, the total balance of which is also about 2 billion euros, writes Falter¹⁵.

Also, the Russian subsidiary  of the Austrian “Raiffeisen Bank International”, which continues to work in Russia, paid 559 million euros to the Russian budget in 2022, which is 4.8 times more than for the whole of 2021.

This is evidenced by the financial statements of Raiffeisen Bank International published on the RBI website. In general, the Russian subsidiary provided 54% of the total net profit of Raiffeisen Bank International for 2022 and became the most profitable business of the Austrian financial group. At the same time, the bank uses the names of the Ukrainian territories illegally occupied by Russia in its official documents, and calls the war of the Russian Federation against Ukraine a “special military operation”¹⁶.

However, after the announcement of a possible asset swap with Sberbank, Raiffeisen Bank International realized that it is technically impossible to do this with a bank that is under sanctions. Also, pressure from the ECB, which forces the Austrian bank Raiffeisen to withdraw from Russia¹⁷ and the Group finally announced that Raiffeisen Bank decided to sell the Russian subsidiary or withdraw it from the Group’s perimeter¹⁸.

Despite Austria refusing any military involvement in the war in Ukraine, citing its constitutional “permanent neutrality”, Austria has signed up to the European Union’s sanctions against Russia and its financial aid regime in support of Ukraine. Also, Austrian Minister for Foreign affairs confirmed the position of the federal government regarding the need to continue the EU sanctions against Russia, which are effective and in a few months will have an “even more dramatic effect” for Russia, in particular, the course of the federal government of Austria in the matter of the EU sanctions policy against Russia is “clear and absolutely unchanging.” However, it is emphasized that in Austria there is a question of mitigating the negative consequences for the Austrian economy¹⁹. After all, the import of Russian gas in Austria is approaching the pre-war level, in particular, last December 71% of natural gas came from Russia. And such large Austrian companies as Raiffeisen Bank International and wood producers Kronospan and EGGER remain active in Russia despite the sanctions²⁰.

For its part, the Russian government is taking various measures in response to Western sanctions.

Thus, every Western company that wants to exit the Russian market and sell its assets will now be obliged to transfer a direct payment to the budget of the aggressor state. Thus, all companies that decided to postpone the decision to end their cooperation with Russia until the beginning of a full-scale invasion, will now somehow finance the Russian budget with direct payments in the event of leaving the country. Previously, companies leaving Russia could choose between a “voluntary contribution” to the Russian budget, which amounted to 10% of the sale price, or agree to defer payment from the sale for several years. “Many companies wanted to get out of Russia as quickly as possible, so they chose this 10 percent payment and got cash right away instead of the uncertainty of a deferred payment,” said the agency’s source, who was involved in a recent deal on exit from the Russian market.

Approximately 2 000 applications to exit the Russian market are awaiting approval, but it will take at least 8 years just to process them all.

The first publicized “voluntary payment” deal was made by the Norwegian company Wenaas after selling its hotels in Russia to the Russian conglomerate “Sistema”, controlled by sanctioned oligarch Vladimir Yevtushenkov. In February, “Sistema” stated that the price of the deal was “up to 203 million euros, including a 10 percent payment to the budget of the Russian Federation“²¹.

Considering the above, it is worth noting that the economic sanctions against Russia after its invasion of Ukraine are aimed at weakening its ability to wage the war. Russia is vulnerable to export restrictions on military components, many of which come from abroad. Russian imports fell significantly not only from the countries that are part of the sanctions coalition, but, surprisingly, also from the countries that refused to accept the sanctions. A reduction in Russian imports means that the sanctions are “suffocating” the Russian economy. The drop in imports across the board has caused considerable pain to the aggressor, and “unofficial data” suggests that the unavailability of foreign technology and components harms the further development of Russia and the competitiveness of its business.

Many countries imposed sanctions on Russia after its invasion of Ukraine in 2022, making it the most sanctioned country in the world, with new measures announced constantly. The sanctions have a wide impact on Russia’s business and financial sectors, energy, and manufacturing, and while some foreign companies have withdrawn, others have sought to gain a share of the Russian market, and the economy temporarily managed to avoid the worst effects of the sanctions due to extremely high oil and gas prices. China and India are continuing to trade with Russia, while the Western alliance united against it, but, unfortunately, the world is still far from unified on the issues raised by the war in Ukraine.