Western companies backtrack on plans to leave Russia

Western companies such as Avon Products, Air Liquide and Reckitt have remained in Russia despite saying they planned to leave after the invasion of Ukraine, as bureaucratic obstacles increase and consumer activity recovers.

The Natura-owned cosmetics brand, the French industrial gas producer and the UK consumer group that produces everything from painkillers to condoms are among hundreds of Western groups that have remained in the country since the large-scale invasion. 2022 scale.

“A lot of European companies have really found themselves between a rock and a hard place,” said one executive who works with Western companies in the country. “They said they would leave. “They were presented with a choice of buyers that was unacceptable to them.”

In total, more than 2,100 multinationals have remained in Russia since 2022, the Kiev School of Economics has found, compared to about 1,600 international companies that have left the market or reduced their operations.

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Shortly after the 2022 invasion of Ukraine, dozens of these groups pledged to reduce their presence in Russia as the West sought to starve the country’s economy and the Kremlin’s war coffers of foreign money.

But Moscow has gradually raised the cost of corporate exit, imposing a mandatory 50 percent discount on assets from “hostile” countries sold to Russian buyers and a minimum 15 percent “exit tax.” It has also been increasingly difficult to find local buyers acceptable to both the seller and Moscow and whose participation is not subject to Western sanctions.

Air Liquide announced in September 2022 that it had signed a memorandum of understanding to sell its business in Russia to the team of local managers who ran it. However, the deal never received approval from the Russian government, leaving the company in limbo.

A woman walks in front of a Raiffeisen bank branch in Moscow
A Raiffeisen branch in Moscow. The Austrian bank has come under fire after the Financial Times revealed its ambitious hiring plans in Russia. © Maxim Shipenkov/EPA-EFE

Some companies no longer feel obliged to leave the country. Avon began a sales process for its Russian business and received offers but decided not to accept them.

“For more than 135 years, Avon has stood up for women everywhere, regardless of their ethnicity, nationality, age or religion,” the company said.

While Reckitt announced in April 2022 that it had “commenced a process aimed at transferring ownership of its Russian business,” its new CEO, Kris Licht, has taken a more measured approach.

“We are still looking at options, but it has become more complex, not less complex,” he told the Financial Times last month. “The initial conversation was: are you staying or are you going? And companies pay taxes. . . “I think we’re having a little more nuanced conversation.”

Multinationals have been aware of the problems of Western companies such as Carlsberg and Danone, which had their assets seized after announcing plans to leave.

While Danone was eventually able to reach a deal to sell the assets at a deep discount, Carlsberg remains locked in a protracted legal battle with Moscow and one of the brewer’s former top executives is in a Russian prison.

Alexandra Prokopenko, a non-resident fellow at Carnegie Russia Eurasia, said rising wages and a more optimistic-than-expected economic situation had fueled a spending boom, making Russia much more attractive to multinationals, particularly in the consumer sector. .

Prokopenko said a recent wave of nationalizations targeting both foreign groups and local actors remained “the biggest risk for foreigners in Russia,” adding: “So if they see this risk as manageable, why don’t they stay? “.

PepsiCo announced in March 2022 that it had suspended the sale and production of its flagship drink in Russia, but continues to operate a dairy business in the country that employs 20,000 people directly and 40,000 agricultural workers indirectly.

“As a food and beverage company, now more than ever we must remain true to the humanitarian aspect of our business. That means we have a responsibility to continue offering our other products in Russia,” CEO Ramon Laguarta wrote in an email to employees in September 2022.

Rival Coca-Cola has stopped shipping its soft drink syrups to Russia, but the role has been taken by the drinks giant’s bottler in the region, Coca-Cola Hellenic, in which it owns a 21 per cent stake. In August 2022, the bottler created an independent Russian company, Multon Partners, whose Russian versions of Coca-Cola brands include Dobry Cola, which has unseated the original Coca-Cola from the top spot as the country’s best-seller.

“Dobry Cola is an extension of an existing brand on the market, produced and distributed by Multon Partners. “It has no connection with The Coca-Cola Company or its brands,” the bottler said.

Dobry Cola on sale in Russia
Dobry Cola ousted the original Coca-Cola from first place as the country’s best-seller © Maxim Shipenkov/EPA-EFE

Among the more than 2,000 companies that have said they will remain in Russia – including consumer groups Mondelez, Unilever, Nestlé and Philip Morris – some have become more open about their plans. Mondelez’s chief executive recently told the Financial Times that investors did not “morally care” if groups left the country.

But there is a lack of clarity about the alleged divestments of some companies. US short seller Hindenburg Research revealed in March that Polish fashion retailer LPP’s products were still being sold in Russia despite announcing it had exited the market in June 2022 after selling its business to an unnamed Chinese consortium.

While LPP denied any wrongdoing, it acknowledged that it had profited from sales to “transfer agents” to help finance the cost of the transition, a practice that would not be phased out until 2025.

Austria’s Raiffeisen Bank International has also come under fire after the Financial Times reported that dozens of Russian job ads it had posted indicated ambitious growth plans in the country, despite its promise to exit the market.

A second executive who works with Western companies in Russia said there had been a notable shift in sentiment.

While companies that left in the first weeks after the invasion saw it as a moral imperative to do so, he said, “the current wave is more about whether to really leave. Do you want to go? Some of these companies have built four or five factories in 30 years. “They are not going to sell it at a 90 percent discount.”

Activist investor and Unilever board member Nelson Peltz told the Financial Times this year that he had pressured the consumer goods group, which has explored options for a sale, not to leave.

“If we withdraw from Russia, they will keep our brands. I don’t think it’s a good trade,” Peltz said, emphasizing that rivals such as P&G and Colgate-Palmolive had not left the country. “Why the hell should we?”

Additional reporting by Sarah White in Paris and Max Seddon in Riga

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