“Disinvestment is the longest”

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According to a Swiss academic study, less than 9% of European companies and G7 countries have left Russia since the start of the war in Ukraine in February last year. According to professors Simon Evenett, from the University of Saint-Gall, and Niccolò Pisani, from IMD Lausanne, before the start of the conflict, about 2,400 subsidiary companies, belonging to 1,400 large companies, were active in Russia. Therefore, 9% of them are still there, according to research. Companies are mainly German (19.5%), American (12.4%) or even Japanese (7%). The exodus we talk about so much won’t happen? Decryption by Ivan Samson, social science researcher at the University of Versailles (UVSQ Versailles-Saclay), specialist in Russia and Eastern European countries.

RFI: According to a Swiss university study, less than 9% of European companies and G7 countries have left Russia since the start of the war in Ukraine. How to interpret this percentage ?

Ivan Samson: Indeed, seen from this angle, 9% seems ridiculously low. And one wonders how it’s being done, with all the noise around sanctions against Russia. Why is the impact so small? But we must not lose sight of the fact that this is an evolution that happened on a scale of less than a year. Economic time is not political time. For example, when you invest or divest somewhere, there’s a whole system of laws to apply, which is quite complicated in Russia, which is very bureaucratic, both to enter and exit. Western personnel should be brought in to train local people. We have to help them find accommodation, etc. So you understand that here, we’re on the eleven moon horizon, it’s very short.

Then, if we consider other forms of presence, because investment is very heavy, namely buying and selling, foreign trade. In this case, the variation is much faster. You may need a few subsidiary companies, but it doesn’t take much crippling to make economic exchanges. However, if we look at Russia’s foreign trade, exports and imports both fell by 20%. This is huge, causing the gross national product itself to fall by 4% in 2022, and is expected to be even worse in 2023. This was also accompanied by a peak in inflation which rose to 14% and has now fallen back to 6% – but is expected to be no more low again. Finally, the stock market, the ultimate indicator of integration into the world economy, has fallen by a third since the start of the war. So these investment-related studies are very interesting, but give away some of the reality.

You are drawn to other figures who complement this vision, you say, a little “binary” from the studies of Swiss academics…

Yes, they are from the site “Leave Russia”, in French “Quittez la Russie”. This is a site devoted to NGOs hostile to Russia’s intervention in Ukraine, of course. He gave a slightly different figure. He said there were 3,000 foreign companies active in Russia, or before the outbreak of the war. This is about international investment, so the sample is larger than the first Swiss figure, which only deals with companies from the European Union and the G7. There, everything is included. Therefore we have, of these 3,000 foreign companies, a breakdown that has been made: 1,000-1,200 are still in business, which is 40%. This means that 60% is no longer active.

This loss of activity results in withdrawal from the market, meaning that these companies no longer have commercial activity, but they still exist. The legal framework, company personnel, all of this continues to function; 432 were discontinued, 714 activities were completely stopped, 313 were reduced by production and 176 were stopped by investment. That is, they trade. Basically, they sell what they have, but they don’t have very integrated activity in the Russian economy. These two studies, of course there are others, provide an overview of the commercial and production activities of foreign companies in Russia which have decreased very quickly and significantly. It is clear that disinvesting, ie selling, getting rid of all assets, is the longest.

What company is it?

The first study concerns multinational companies. At the level of G7 and EU sanctions, they rule out attacks on the food, agriculture, health and pharmaceutical sectors, so as not to have a direct impact on the population. It is clear that the subsidiaries of large multinational companies are SMEs. In the Western definition, these small and medium enterprises can have up to 500 employees, depending on the country.

If you like, Russia is like an emirate. This is a country that sells hydrocarbons, metals, and it represents about three-quarters of what they sell. That means they buy almost everything. So, it can really affect a large number of sectors. We’ve also, of course, heard of the impact on many companies who have stopped working because of missing parts, there’s no means to repair equipment, there’s a shortage of everything that keeps productive activity going. . Like you, I was surprised when I first read this report by Swiss academics, but when we look into it in more detail, we realize that in such a short time, the effect is still significant.

►Read also: The Russian economy is moving towards a war economy model

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