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 13 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, 43 were added in October 2023). However, if to operate with the total numbers in KSE database, about 34.5% of foreign companies have already announced their withdrawal from the Russian market or suspended their activity, but another 41.8% are still remaining in the country, 15.5% are waiting and only 8.1% made a complete exit³.

At the same time, it is difficult not to overestimate the impact on the Russian economy of only 288 companies that completely left the country, since in 2021 they employed 33.7% of the personnel employed in foreign companies, the companies owned about 20.3% of the assets, had 21.4% of capital invested by foreign companies, and in 2021 they generated revenue of $77.3 billion or 25.1% of total revenue and paid ~$4.8 billion of taxes or 19.0% of total taxes paid by the companies observed. Data on 1,510 TOP companies is presented in the table above.

As it is visible on the charts based on data for 2021 above, % of exited is obtained based on number of companies (19%) and on share of revenue withdrawn (25.1%). At the same time, a totally different picture is for those who are still staying – 44% of companies represent 31.2% of revenue and 16% of waiting companies represent 20.3% 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 ~1420 companies (about 90 companies the data of which we have collected previously have not provided their reporting) and provides below the detailed analysis, more details will be provided further, once we have complete information.

As you can see from the charts above, companies which fully exited Russia were able to generate 1.9% less of revenue in 2022 (23.2% from total volume) than in 2021 (25.1% from total volume, which is clear as most of them left the country before the year-end). Leaving companies also generated much less (-7.4%) revenue in 2022 (16.0% from total volume) than in 2021 (23.4% from total volume). At the same time, staying companies were able to generate much (+13.1%) more revenue in 2022 (44.3% from total volume) than in 2021 (31.2% from total volume). Companies with status “wait”⁴ gained a lower share (-3.8%) of revenue in 2022 (16.5% from total volume) vs 20.3% 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.

Summarizing the 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 almost not changed ($325.0bn⁵ in 2022 vs $329.9bn in 2021) and will probably even increase once we receive remaining reporting for ~90-100 companies (until companies decide not to disclose it). KSE Institute has published before a large-scale study “How the income of foreign businesses in the Russian Federation has changed in 2022 and why so many companies still do not leave“. You can familiarize yourself with the English version by downloading the report at the following link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4453963.

In July 2023, the KSE Institute jointly with the B4Ukraine coalition partners published a new research entitled “The Business of Staying: a closer look at multinational revenues and taxes in Russia in 2022”, you can download its full text in English using the following links: https://kse.ua/wp-content/uploads/2023/07/The-Business-of-Staying-1.pdf and https://b4ukraine.org/pdf/BusinessOfStaying.pdf. Also, in September 2023, the KSE Institute jointly with the B4Ukraine coalition partners published another research entitled “The Business of Leaving: How Multinationals Can Responsibly Exit Russia”, you can download its full text in English here: https://b4ukraine.org/pdf/B4Ukraine_Business_of_Leaving_report.pdf 

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

Key updates from the latest Russian news:

The Ministry of Economic Development proposed a “Chinese membrane” to solve the problem of the ruble exchange rate

25.09.2023 | An analogue of the “Chinese model” could become a solution to the problem with the ruble exchange rate, says Minister of Economic Development Maxim Reshetnikov. The head of the Ministry explained that it is necessary to track “how many rubles are circulating abroad, how they get there, how the flows are going.” Reshetnikov said that the Ministry is waiting for proposals from the Central Bank.

https://www.rbc.ru/economics/25/09/2023/651125db9a794725d9880e05 

Forbes: Leroy Merlin topped the ranking of the largest foreign companies according to Forbes

02.10.2023 | Forbes has compiled an annual list of the 50 largest foreign companies in Russia based on the results of 2022. The rating has been updated by almost half – 22 companies dropped out due to the sale, suspension or closure of business in Russia, their place was taken by new participants – primarily from China, Turkey and even Belarus. Companies from the USA retained the largest representation in the ranking.

https://www.forbes.ru/biznes/497011-lerua-merlen-vozglavila-rejting-krupnejsih-inostrannyh-kompanij-po-versii-forbes 

https://www.forbes.ru/biznes/497010-50-krupnejsih-inostrannyh-kompanij-v-rossii-2023-rejting-forbes 

The government has increased the tax on companies leaving Russia: the contribution of companies leaving the Russian Federation will be increased to 15%

03.10.2023 | Director of the Department of Financial Policy of the Ministry of Finance Ivan Chebeskov reported that the government commission, which allows foreign enterprises to leave the Russian market, raised the amount of voluntary contributions to the budget from 10 to 15% of the market value of assets. A 10% fee was applied for transactions with a discount of more than 90%. If the discount is less, then the payment amount is at least 5% of the market value of the organization’s assets. The commission is increasing fees in order to fulfill the 2023 budget—receipts to the state treasury from fees from leaving companies should amount to 114.5 billion rubles.

https://iz.ru/1582815/mariia-stroiteleva/po-dobroi-dole-vznos-ukhodiashchikh-iz-rf-kompanii-uvelichat-do-15 

In 2023, foreign investors won about half of the disputes with the Federal Customs Service and the Federal Tax Service

05.10.2023 | According to the Chairman of the Supreme Court of the Russian Federation Vyacheslav Lebedev, “in the first half of 2023, the courts of the Russian Federation satisfied 52% of the claims of foreign entities to challenge the actions of customs authorities and 74% of claims for compensation for damage caused by customs authorities. In disputes with tax authorities, foreign legal entities won in 49% of cases.” https://tass.ru/ekonomika/18916113

Indian company Sentro Group acquired a controlling stake in the Russian bank “Mir Privilege”

05.10.2023 | Indian Sentro Group acquired 50.001% of the Russian bank “Mir Privilege” (or “The World of Privileges”). The group said it aims to simplify transactions between India and Russia. According to the Press Trust of India (PTI), the future work of Sentro Group and the Russian bank is to support payments for travelers from Russia and India.

https://frankmedia.ru/142048 

RBC: a record number of foreign brands came to Russia in four years

05.10.2023 | From January to September 2023, 16 new foreign companies entered the Russian market in the clothing, footwear and household goods segment, according to the consulting company NF Group (formerly Knight Frank Russia). The figure has become a record for the last four years.

https://www.kommersant.ru/doc/6253703 ; https://www.rbc.ru/business/05/10/2023/651d4ba69a7947f63e85ef14 

Labor productivity in Russia fell for the first time since 2015

09.10.2023 | Rosstat reported a decrease in labor productivity in the Russian Federation in 2022 by 3.6%. This is the biggest drop since 2009, when labor productivity fell 4.1%.

https://www.moscowtimes.ru/2023/10/09/vlasti-konstatirovali-padenie-proizvoditelnosti-truda-v-rossii-a109280 

Russian businesses are hiring teenagers en masse due to staff shortages

09.10.2023 | Russian employers have begun to hire teenagers more often due to a growing shortage of personnel. The number of vacancies for candidates aged 14 to 17 years in the summer of 2023 increased by 454% compared to last year, Vedomosti writes, citing data from the job search service HeadHunter.

https://www.moscowtimes.ru/2023/10/09/rossiiskii-biznes-massovo-nanimaet-podrostkov-iz-za-defitsita-kadrov-a109310 

Putin obliged exporters to sell foreign currency earnings to stabilize the ruble

11.10.2023 | Russian President Vladimir Putin signed a decree “On the implementation of the mandatory sale of proceeds in foreign currency received by individual Russian exporters under foreign trade agreements.” The decree applies to 43 groups of companies that belong to the fuel and energy complex, ferrous and non-ferrous metallurgy, chemical and forestry industries, and grain farming. Measures have been taken to stabilize the ruble exchange rate. According to the decree, mandatory repatriation and sale of foreign currency earnings on the Russian market is introduced for certain companies for a period of 6 months. https://www.kommersant.ru/doc/6268009 

Trade turnover between Russia and China over the nine months increased by 29.5%, to $176.4 billion

13.10.2023 | During the reporting period, China imported goods worth $81.4 billion to Russia, which is 56.9% more than year-on-year. Supplies from Russia to China increased by 12.7%, to almost $94.9 billion. This was reported by RIA Novosti with reference to data from the PRC Customs Administration. https://www.kommersant.ru/doc/6268798 

The authorities will create a monitoring system for the withdrawal of currency from Russia in order to control the ruble exchange rate

13.10.2023 | Faced with the reluctance of large businesses to sell foreign currency earnings, the government decided to create a system for monitoring foreign exchange transactions that would allow monitoring the outflow of capital from Russia, a senior official told Kommersant. According to him, constant monitoring of the withdrawal of currency from the country should become a strategic measure to control the ruble exchange rate. Work on creating such a system is already “underway,” he added. https://www.moscowtimes.ru/2023/10/13/vlasti-sozdadut-sistemu-monitoringa-vivoda-valyuti-iz-rossii-chtobi-kontrolirovat-kurs-rublya-a109931 

The government disclosed the parameters for the sale of foreign currency earnings by exporters

13.10.2023 | Exporters will have to return at least 80% of foreign currency earnings to the country, and sell 90% of the foreign currency received into Russian accounts. 

https://www.forbes.ru/finansy/498387-pravitel-stvo-raskrylo-parametry-prodazi-valutnoj-vyrucki-eksporterami

WEEKLY FOCUS: Russia’s loss of its own human capital as punishment from Western sanctions and the war started

Human resource, along with land and other assets, is one of the factors of production, with the help of which the country’s GDP is formed. Human intellectual capital is a key component of the production cycle, without whose participation the functioning and very existence of economic processes is impossible. Intellectual human capital is the main catalyst of economic development and is able to create innovations, which is necessary for the industrial development of the country.

In 2014, 203,600 people emigrated from Russia as a result of the imposed Western sanctions against Russia, after the Russian annexation of Crimea. Western sanctions against Russia already in 2014 limited Russian companies’ access to foreign capital, and many Russian entrepreneurs and investors decided to work outside Russia.⁶

After February 24 2022, when Russia launched a full-scale war in Ukraine, many Russians decided to leave Russia amid increased Western sanctions. For some, this is a temporary solution. Others realize that they may never return to their country. As a result, Russia is experiencing the fastest population outflow since the Bolshevik Revolution of 1917, when millions of wealthy citizens and intellectuals fled the country. Such a loss of human capital by Russia threatens a crisis for a number of sectors of the Russian economy – from state media to the aerospace industry. After all, emigration is a strong social and economic indicator.

Mobilization, the flight of hundreds of thousands of Russians abroad as a result of Western sanctions turned out to be a shock for the real sector of the Russian economy, in particular, all this leads to the deterioration of Russian economic dynamics associated with both demand and supply shocks in the labor market. At the same time, the number of jobs in the labor market is decreasing due to the exit of foreign companies from the Russian market. In particular, the reduction of supply on the labor market is felt both due to the departure of highly qualified labor and the outflow of migrants, which was complicated by remittances in Russia. The rapid migration of intellectuals is capable of undermining a number of sectors of the Russian economy.

For reference: before the beginning of Russian large-scale aggression against Ukraine, there were about 2 million Russians in foreign business directly, and another 4 to 6 million people were indirectly associated with foreign business (buyers/suppliers).⁷

The population of Russia has been decreasing since 2018, in 2022 it fell by 533,000 people and on January 1, 2023 it amounted to 146.45 million people.⁸

Against the background of Western sanctions, in response to the large emigration of its own citizens from Russia, in May 2023 the President of Russia introduced changes to the Concept of Russia’s migration policy for 2019-2025. In particular, the requirement to take “additional measures to create attractive financial, social and other mechanisms for preserving human capital, reducing the outflow of the Russian population abroad” was added. Simplification of obtaining Russian citizenship is indicated for those who permanently live in the country and have one parent with a Russian passport, as well as Russian-speaking foreigners (citizens of Belarus, Kazakhstan, Moldova, Ukraine, etc.)

Taking this into account, an acute crisis was avoided: unemployment (at least officially) at the end of last year and at the beginning of this year was at record low levels. But in 2023, the labor market is waiting for active adaptation to the existing conditions. First, the effects related to labor migration will become more apparent. Secondly, the structure and model of employment on the labor market will change as the economy transforms, which will enter an active phase this year. In particular, the shortage of personnel is a key problem in 2023 for the Russian labor market – an acute shortage of qualified personnel. Indirectly, this problem is evidenced by the record low level of unemployment. In November 2022, this indicator updated the historical minimum and decreased to 3.7%.⁹

For reference: the biggest shortage of personnel in 2022 was recorded at light industry enterprises – 70%, in mechanical engineering – 35% and in food production – 25%.¹⁰

Also, it is worth noting that for earners from Central Asian countries in Russia, the conditions for converting their Russian earnings into US dollars and national currencies have deteriorated significantly. At the same time, the outflow of labor migrants is associated with the economic situation that has developed in Russia

For reference: the total number of earners from the countries of Central Asia in Russia reached from 4 to 6 million people, and in 2023 their earnings in Russia collapsed by at least 20%. 

It should be noted separately about the lack of qualified personnel in the Russian IT industry, which is from 500,000 to 1 million people and may increase to 2 million specialists by 2027, respectively.¹¹

The manufacturing industry in Russia also faced a record shortage of personnel, according to a study by the Gaidar Institute. A July survey showed that 42% of enterprises are experiencing a shortage of personnel. At the time of the previous survey in April, 35% of companies reported a lack of employees. It is noted that a similar level of personnel shortage has become the maximum since 1996.¹²

At the same time, the official unemployment rate in the Russian Federation in July reached a historic low of 3%, Rosstat said (but everyone understands that recently they are simply “drawing” the data needed by the authorities). According to the agency, salaries in the Russian Federation in June rose by 10.5% in real terms after a jump of 13.3% in May.¹³

According to analysts, wage growth is supported by a labor shortage. The incomes of workers in manufacturing industries increased the most — by 15.9% year-on-year. On average, the highest median salaries were among workers engaged in mining (86,000 rubles), in the finance and insurance sector (68,900 rubles) and for IT & communication specialists (68,100 rubles). The lowest salaries are in the field of administrative activity (39.8 thousand rubles). Website hh.ru noted that after a significant devaluation of the ruble, salaries in Russia have increased by 46% since the beginning of the year. The main factor is also the shortage of workers against the background of record low unemployment.¹⁴

As for labor productivity in Russia, it fell for the first time since 2015. Rosstat reported a decrease in labor productivity in the Russian Federation in 2022 by 3.6%. This is the biggest drop since 2009, when labor productivity fell by 4.1%. Good economic indicators, which officials juggle, mask serious problems. Labor productivity in Russia decreased by 3.6% in 2022, Rosstat reported on Friday, October 6, 2023 (these data are published with a long delay). This is the biggest drop since 2009, it was worse (-4.1%) only during the strongest post-Soviet economic downturn in 2009. In the next crisis, in 2015, productivity decreased by 2.3%.

Many experts say that sustainable economic growth is impossible without increasing productivity. Back in 2019, Central Bank analysts noted that the extensive factors that ensured rapid GDP growth in Russia in the 2000s (recovery after the transformational recession and a favorable external environment) had exhausted themselves and now acceleration of growth “is possible only on the basis of intensive factors, all productivity growth”.

The productivity and quality of the manufactured products will most likely decrease due to the transition to alternative supplies, reflected the chief analyst of the Radkombank Nataliya Vashchelyuk, but the consequences for the mass consumer may become noticeable, rather, in a few years. Limiting Russia’s access to global markets, skilled human capital and productivity-enhancing technologies makes medium-term growth rates uncertain, a recent World Bank report said.¹⁵

However, Russia may not get a million professional workers. The reason is the reduction of costs for the “Professionality” project, which finances secondary vocational education.¹⁶

Russian business also massively hires teenagers due to a shortage of personnel. Russian employers began to hire teenagers more often due to the growing shortage of personnel. The number of vacancies for candidates aged 14 to 17 in the summer of 2023 increased by 454% compared to last year, Vedomosti writes¹⁷ with reference to data from the HeadHunter job search service.

According to HeadHunter, in the summer of 2022, only 1.8 thousand vacancies were available for teenagers applicants, and in the summer of 2023 there were already 10 thousand. About 29% of Russian schoolchildren got a job during the holidays, according to a study by the Maximum Education company and the Robota.ru service. More than 370,000 teenagers have been employed through the employment service since the beginning of the year — 6% of the total number of minors in the country, Mykhailo Kirsanov, director of the employment department of the Ministry of Labor, said in July.

In August of this year, according to HeadHunter, the majority of offers for teenagers fell on the position of courier — about 1,200 vacancies. This was followed by vacancies for sellers, promoters, call center operators and packers. They also actively recruited employees from 14 to 17 years of age for fast food chains and cafes, said Andriy Tarasov, director of the employment service for the population in Moscow.¹⁸

According to the latest analysis of KSE Institute, foreign companies reduced their staff in 2022 compared to 2021 by more than 230 thousand persons. About 500,000 more employees were partly dismissed or their salary conditions significantly changed due to the exit from the country of 288 foreign companies and the change of their owners to local legal entities and private individuals.

Considering the above, it is worth noting the following. The prospects for the return of Russian specialists to Russia directly depend on the further actions of the Russian leadership. However, it is already clear that the mass departure has a strong impact on the state of the Russian economy. As long as key experts continue to leave Russia, Russia’s technological lag behind the West amid Western sanctions will only increase. At the same time, one of the triggers for the outflow of Russian specialists was the outflow of foreign specialists from Russia, which leads to the destruction of Russia’s economic, production, logistics, and technological ties with a significant part of the world.

The effect of Western sanctions will be long-term for the Russian economy. The mass departure of Russian specialists abroad, along with the direct victims of the war, will reduce the already small cohort of Russian citizens at the peak of working age, because the main problem is not the loss of workers, but the leakage of qualified personnel. People who go tend to be better off and better educated. After all, you can’t run away with an empty wallet.