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 8 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 37.3% of foreign companies have already announced their withdrawal from the Russian market or suspended their activity, but another 39.6% are still remaining in the country, 15.8% are waiting and only 7.2% made a complete exit³.

At the same time, it is difficult not to overestimate the impact on the Russian economy of only 233 companies that completely left the country, since in 2021 they employed 27.5% of the personnel employed in foreign companies, the companies owned about 17.0% of the assets, had 14.2% of capital invested by foreign companies, and in 2021 they generated revenue of $55.1 billion or 18.2% of total revenue and paid $3.7 billion of taxes or 14.6% 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 based on data for 2021 above, roughly similar % of exited is obtained based on number of companies (16%) and on share of revenue withdrawn (18%). At the same time, a totally different picture is for those who are still staying – 45% of companies represent 26% of revenue and 16% of waiting companies represent 27% 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).

KSE Institute has already collected and analyzed data on revenue, capital, assets and net income (profit or loss) in 2022 for 1356 companies (about 80 companies the data of which we have collected previously have not provided their reporting yet) and provides below the first ever available analysis (as far as we know, this kind of data is being made public for the first time), more details will be provided soon, once we get full information.

As you can see from the charts above, companies which fully exited Russia were able to generate 2% less of revenue in 2022 (16.2% from total volume) than in 2021 (18.2% from total volume, which is clear as most of them left the country before the year-end). Leaving companies also generated much less (-9.4%) revenue in 2022 (19.7% from total volume) than in 2021 (29.1% from total volume). Also, the group of the companies with KSE status “leave” is the only one which became loss-making in terms of net income received in 2022. At the same time, staying companies were able to generate much (+7.2%) more revenue in 2022 (33.1% from total volume) than in 2021 (25.9% from total volume). Also, companies with status “wait”⁴ also gained a higher share (+4%) of revenue in 2022 (30.9% from total volume) vs 26.9% from total volume in 2021. So the key conclusion is that money matters for those companies who are still tied with its local business in Russia.

Here is a list of TOP-10 companies with KSE statuses “stay” and “wait” in terms of revenue generated in 2022:

1. Philip Morris – $7.888bn

2. Japan Tobacco International – $7.358bn

3. Pepsi – $4.663bn

4. Auchan – $3.463bn

5. Metro AG – $3.405bn

6. Danone – $3.002bn

7. Mars – $2.646bn

8. Procter & Gamble – $2.234bn

9. Chery Automobile – $2.154bn

10. Cargill – $2.130bn.

As Leroy Merlin and Nestle (they are also one of the biggest revenue gainers in Russia based on data for 2021) have not provided their financial reporting in the RF yet – but we believe that they also generated a very high amount of revenue but will be able to confirm it once we receive their financials.

Summarizing the first results of new data received for 2022 and comparing it with 2021 we can see the positive trends in terms of significant revenue and capital decline. Only assets have not almost changed ($275.6bn in 2022 vs $288.3bn in 2021) and will be even probably increased once we receive remaining reporting for ~80-100 companies. KSE Institute will shortly present a more detailed analysis of the key findings as announced above, please check our news for the special issue of the research study that will be published soon.

Current progress of Exiters vs others is the following:

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

WEEKLY FOCUS: Changing the geography of financial and economic cooperation with Russia, which leads to the leveling of Western sanctions

In the spring of 2022, due to the invasion of Ukraine, Russia found itself under powerful collective Western sanctions imposed by a coalition of more than 40 countries. The sanctions regime against Russia was truly unprecedented. For the first time in the last half century, restrictions of an extraordinary scale were introduced against a large world economy (with a GDP of 1.78 trillion US dollars in 2021)⁵. The Russian economy is widely embedded in global communication networks and is the most important supplier of energy resources in the world.

A total of almost 13 000 sectoral economic restrictions have been imposed on Russia. The Russian economy has a simplified structure for the extractive sector, working mainly for the export of industrial and energy raw materials, which is the source of the formation of significant international currency reserves and the majority of the revenue part of the budget. At the end of 2021, Russian share of global gas exports was about 25%⁶.

On the face of it, Western sanctions appear to be effective: the Russian economy has shrunk, many Russian banks and companies are cut off from international financial and trading systems, and EU and US technology sanctions have weakened key industries and undermined their ability to innovate. However, statistics show that the actual impact of the sanctions in a number of areas is still lower than expected, and Russian imports have almost returned to the “pre-war” level of 2020. In some cases, exports of dual-use technologies that could be used in a war with Ukraine jumped “from virtually zero to tens of millions of dollars”⁷.

However, the situation that developed in the Russian economy last year can be considered unique – the expansion of the trade balance surplus (according to the results of the year, it increased from 190.3 billion US dollars to 308 billion US dollars) against the background of the rise in world prices for energy resources, which supported the ruble exchange rate and the budget. This significantly restrained the expected decline in the economy.

Russian oil exports have been largely unaffected by the sanctions, with Russian exporting roughly the same amount of oil as it did before the war, with supplies that used to go to the USA and Europe now going to Asia, Africa and the Middle East. It is worth noting that the share of the US dollars in trading on the Russian stock exchange has sharply decreased – in February 2023, the Chinese yuan accounted for almost 40% of the total volume of trades in major currencies, the US dollar – 38%, and the euro – 21.2%. Last year in February, the US dollars accounted for 87.6%, the Chinese yuan — 0.32%, the Euro — 11.9%⁸.In 2022, there was a surge in exports to countries neighboring Russia. This indicates that prohibited products could enter Russia through a “backdoor”.

As an example, the official Lamborghini dealer Russian “Avtodim” opened a mono-brand salon of the brand in “Moscow-City”, although the supply of new cars of this brand to the country was stopped in the spring of 2022. The salon is replenished with cars from parallel imports. In fact, these are new cars with low mileage, but not bought from an official importer⁹.

Trade statistics show that exports of certain goods to third countries, which had remained stable for years, suddenly rose sharply after the outbreak of war or the imposition of sanctions. It can’t just be a coincidence¹⁰. It can be argued that Russian trade at this time became focused towards Asian countries.

While Western countries unite to arm the Ukrainians to continue their fight against Russia, their own technology is being used by Russia to fight back.

As an example, direct sales of chips to Russia from the USA and its allies have dropped to zero. From 2017 to 2021, Russia purchased an average of 163 million US dollars worth of advanced chips and integrated circuits from the EU, the USA, Japan, and Great Britain. In 2022, this indicator decreased to 60 million US dollars. But it was possible to fill this deficit due to supplies from Turkey, Serbia, UAE and other countries¹¹.

Trade data shows that other countries have stepped in to provide Russia with some of what it needs. After a sharp drop immediately after the invasion of Ukraine, Russian imports of microchips have started to rise again, especially from China.

For reference: in 2022, Armenia imported 515% more chips and processors from the USA and 212% more from the EU than in 2021. Then Armenia exported 97% of these products to Russia¹². In this context, China is not just a supplier of sensitive goods to the Russian market, but probably also a supplier of them to the Russian military industry, providing 57% of semiconductor supplies¹³.

In 2022, Kazakhstan sent 3.7 million US dollars worth of advanced semiconductors to Russia. At the same time, in 2021, this indicator was only 12 thousand US dollars¹⁴.

There are at least six sanctions evasion schemes that Washington believes the Kremlin is using to acquire semiconductors and other electronics that are central to Russian production of guidance systems for its missiles, drones, tanks and other military equipment. Most of this technology is dual purpose, meaning it could also be used in making regular consumer products like cell phones, radios, printers and washing machines. In some cases, Russia appears to be buying these sorts of goods, then stripping them for their high tech parts¹⁵.

In February 2023, the European Bank for Reconstruction and Development published a report¹⁶, according to which, after the introduction of the first sanctions in March 2022, exports from the EU and Great Britain to Russia more than halved, and exports from Europe to Armenia, Kazakhstan and Kyrgyzstan suspiciously jumped by 15-90%. Also, the “suspicious boom” on German goods in Central Asia drew attention in Germany. The income of German companies from trade with Kazakhstan in 2022 increased by 210% compared to 2018-2020, with Kyrgyzstan by 1 157%, respectively. The export of goods from the Netherlands to Kyrgyzstan increased by 142%, and from Kyrgyzstan to Russia by 233%. Countries bordering Russia are buying more and more goods from Europe and undermining the Western sanctions regime by reselling them to Moscow. At the same time, tracking the entire supply chain is sometimes very difficult¹⁷.

The German authorities believe that it may be about supplying Russia with parallel imports to circumvent sanctions, especially within the framework of the Eurasian Economic Union. In Berlin, this is considered unacceptable. According to Bild, the EU special representative for sanctions, David O’Sullivan, has already drawn attention to this. In general, according to the calculations of the Eastern Committee of the German Economy, in 2022 the export of cars and auto parts from Germany increased (to Kazakhstan – by 507%, to Armenia – by 761%), chemical products (to Kazakhstan – by 129%, to Armenia – by 110 %), electrical equipment (to Uzbekistan – by 105%, to Armenia – by 344%), metal products (to Kazakhstan – by 137%) and clothing (to Kazakhstan – by 88%)¹⁸.

In 2022, the US Treasury stated that at least 18 countries were helping Russia circumvent sanctions. Among them were Armenia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan¹⁹.

In Washington, they made it clear that Russian key partners in the region are being offered a choice: “remain connected to the world economy or provide material support to Russia and lose access to the most important world markets.” In other words, the USA threatened secondary sanctions for organizing the re-export of prohibited products to Russia. The stated goal is to “deprive Russia of the resources and equipment it needs on the battlefield and limit the revenues that the Kremlin relies on.

Turkey was the first of Russia’s major “friendly” trade partners to close the possibility of transit of sanctioned goods to Russia as a result of the EU’s pressure on Turkey regarding the transit of European goods. In 2022, Turkey became the largest transport hub for sanctioned goods destined for Russia, including parallel imports. The monthly transit of goods through Turkey amounted to 200-400 million US dollars²⁰.

An additional confirmation from our side of the fact that countries “friendly” to Russia help it circumvent sanctions can be the fact that almost half of the new companies added to the KSE database in 2023 were headquartered in Asian and Middle Eastern countries, namely: China and Hong Kong: +54 companies, UAE: +17 companies, Turkey: +8 companies, India, Iran and Japan: +6 companies each, Uzbekistan: +3 companies, Kazakhstan: +2 companies. On the other hand, it is unfortunate to observe that the so-called countries of the “sanction coalition” are also not far behind and continue to enter Russia’s toxic market, for example, the USA: +38 companies, Great Britain: +17 companies, Germany: +10 companies, France: +8 companies. Of course, we could not identify some companies earlier, but the general trend cannot but be alarming.

In this regard, it should be noted that in 2023, the European Union adopted the tenth package of sanctions against Russia in response to Russia’s full-scale invasion of Ukraine, in particular, the strengthening of sanctions compliance is expected, which is becoming increasingly important²¹.

Considering the above, it is already clear that the Western sanctions did not lead to a severe crisis in the Russian economy, although it caused considerable damage to it.

Implementation of sanctions was slow and ineffective. Western leaders initially poorly articulated their ambitions — from “degrading and destroying” Russia’s supply chains to “shaking” the foundations of its economy.

But, unfortunately, the loopholes in the sanction “nets” turned out to be still significant and numerous. The behavior of many countries has been mixed at best, and at worst has led to further profits from providing opportunities to circumvent Western sanctions for the Kremlin and its proxies. But there is much more that can be done, starting with better domestic enforcement of sanctions in allied countries and more active diplomatic engagement to reverse the progress Russia has made in countering international support for sanctions. There is no doubt that Ukraine’s allies have learned from their weak sanctions response to Russia’s annexation of Crimea in 2014 and have come a long way from their earlier start last year. But as the Kremlin adapts and disguises its supply chains and financial ties, the West will need to assess and adjust its activities accordingly²².

In this regard, the EU plans to approve the eleventh package of sanctions against Russia. Unfortunately, the permanent representatives of the member states of the European Union at a meeting on Friday, May 12, 2023, were unable yet to agree on the eleventh package of sanctions against Russia, but another meeting is scheduled for the next week²³. Currently, there is an urgent issue of introducing secondary sanctions in relations with those countries that help Russia circumvent the existing restrictions. One of these measures is the introduction of a general sanctions regime for all Western and Asian countries²⁴. An example of this is the growing interest in the CIS markets, when it was necessary to establish logistics chains for parallel imports to Russia, which already exceeded 20 billion US dollars²⁵.

Nevertheless, in the matter of monitoring compliance with sanctions, there is still more hope for the US, which is trying to partially stop the flow of parallel imports using secondary sanctions. Turkey’s sudden stop in the transit of sanctioned goods to Russia is indicative in this regard²⁶.