CNBC: "The risk of leaving Russia may be greater than staying, for Western companies"

A wave of Western companies left Russia immediately after the invasion of Ukraine by the Moscow-led military, and those that have not yet are scrambling to leave because of the financial and reputational damage they are suffering. But as time goes on, the prospect of leaving is increasingly difficult, writes CNBC.

Nabi Abdullaev, partner at strategic consulting firm Control Risks and former editor of the Moscow Times, said: "Some companies are deciding to stay because, at least at this point, the risk of leaving Russia is greater than the risk of staying."

That's because the Russian government frequently changes the rules for multinationals that want to leave the country, making the process practically harder. Companies that opt for a "cut-and-run" approach put their assets at risk, which can be seized by the state. They also risk their Russian staff being prosecuted, Abdullaev told CNBC last month.

In July, the Russian operations of Carlsberg and Danone were seized by Russian President Vladimir Putin, with the keys to both businesses subsequently handed over to some of his closest allies. The companies planned to sell their Russian assets before they were taken over. In fact, Russia has become a dangerous market for Western companies, and as the possibilities of departure diminish, they risk being caught in a geopolitical crossfire, the American publication also writes.

"The expropriation of Danone and Carlsberg was a significant move because it made the Russian government's actions towards the remaining companies unpredictable. It sent a clear signal that even non-strategic companies can be targeted," said Maria Shagina, senior researcher at the International Institute for Strategic Studies.

Companies still operating in Russia include Unilever, Nestle, Philip Morris, UniCredit, Raiffeisen and PepsiCo. According to studies, about 500 Western companies remained in the country, writes CNBC.

Some of these companies have committed to finding buyers, exiting or downsizing. But while still operating in Russia, they must pay taxes to the government in Moscow, which has drawn strong criticism. For example, the Ukrainian government has labeled Unilever an "international sponsor of war".

For its part, Unilever stated that it will no longer invest capital in Russia and will not profit from its presence in the country.

Heineken's struggle to leave Russia demonstrates the difficulties that similar companies have to face, writes CNBC.

The beverage company had 1,800 employees at its Russian facility and was unable to exit the country quickly. In a recent statement in which Heineken committed to exiting Russia, company officials stated that "recent events in the summer of 2023 (including the nationalization of major Western companies) demonstrate that it is even more difficult for companies to obtain approval to exit Russia ".

Also, the representatives of Heineken categorized as "uncomfortable" the prospect of the Russian state benefiting from potentially illegally appropriated commercial assets.

On August 25, more than a year after announcing the exit plan, Heineken sold its Russian operations to Russian group Arnest for one euro. Last year, Heineken's revenue in Russia amounted to $613 million, according to the Kyiv School of Economics.

Basically, companies that want to leave Russia face strict restrictions imposed by the government in Moscow, as well as the fear of expropriation, after the takeover of Carlsberg and Danone. On the other hand, those that remain can continue to do business because, despite the sanctions, many transactions and activities are still authorized.

"As part of the 'smart' approach to sanctions, the civilian and humanitarian sectors are not targeted, and many Western companies continue to operate in these sectors," Shagina told CNBC. In comparison, sanctions against Iran and North Korea make for a much harsher environment in which to operate for Western companies.

In all this context, in Russia, the corporate environment - and the economy - is changing, and the market share of non-Western companies is increasing, in the conditions of the massive reduction of the presence of large Western companies.

"The combined effect of international sanctions and the departure of hundreds of Western companies will likely have negative consequences on Russia's economic productivity. Over time, this may further limit Russia's economic growth potential and make the country even more dependent on China," Andrius Tursa, an adviser at consultancy Teneo, told CNBC.