Western companies under Russia’s control: what is happening and why there is a risk that Western companies will be seized by Putin in retaliation.
Turmoil ahead for Western companies that still have branches in Russia.
A real earthquake is hitting Russian headquarters, as President Putin signed a decree in April allowing the state to assume temporary control of the assets of companies or individuals of hostile nations - including the United States and its allies - in response to similar moves, or threats thereof, by those countries.
On July 16, news of the seizures of local Danone company SA and the Russian assets of Carlsberg A/S brewery caused a sensation. Both were taken by surprise considering that they had planned to sell their assets in Russia to local companies, after pressure from their Western shareholders and governments.
Already in April, the Russian subsidiaries of German Uniper and the Finnish Fortum were taken under state control.
The Kremlin warned last week that it could take control of even more Western assets in what it sees as temporary retaliation for foreign moves against Russian companies abroad.
The Western companies are therefore in a very complex situation: what happens and what could happen with Putin’s seizures.
Western companies in Russia: how Putin’s retaliation is proceeding
Western companies still operating in Russia are aware that they could be "seized" at any moment, passing under the control of friends of Putin.
Consumer goods companies from PepsiCo and Mars to Nestlé and Reckitt Benckiser, who entered Russia decades ago, investing millions in building factories, hiring locals, and developing local brands, are at risk of losing everything.
Western goods are no longer safe in Russia according to Alexandra Prokopenko, a scholar at the Carnegie Russia Eurasia Center in Berlin: “This is a new frontier of warfare. If the Kremlin goes further, it goes back to the 90s: the redistribution of assets to more favorable owners”.
Distributing valuable resources to influential Russian businessmen and political allies could strengthen Putin’s power base after an embarrassing rebellion attempt by mercenary commander Yevgeny Prigozhin in June. “As part of Putin’s quest for power, he will share many of the economic resources that are in Russia and give them to his cronies to consolidate his political position”, said William Pomeranz, director of the Kennan Institute at the Wilson Center in Washington.
As evidence of this strategy, Chechnya’s agriculture minister was chosen as the new head of Danone. Baltika Breweries, Carlsberg’s Russian company, confirmed Taimuraz Bolloev’s appointment as its new manager. Bolloev previously ran the company for more than a decade, having founded it in 1990. By the time he stepped down in 2004, Baltika had become Russia’s leading brewer. Carlsberg then acquired it in 2008.
Bolloev is also the chairman of the Russian clothing company BTK Group, a supplier to the Russian military, and the former head of the state-owned company tasked with building facilities for the 2014 Winter Olympics held in the resort city of Sochi.
The recent moves highlight the risks for Western companies still operating in Russia, or looking to leave, as well as shifts in corporate power in the country more than a year after Moscow invaded Ukraine.
Western companies in Russia are at great risk
The April decree concretely placed new obstacles for foreign companies attempting to leave the country, marking a step forward in the economic battle that is unfolding parallel to the Ukrainian war.
Many Western companies have struggled to wrap up their operations in Russia and the latest asset seizures – and now management changes – serve as a warning to those still looking to get out.
At this point, Western firms remaining in Russia no longer have good options according to Andrius Tursa, consultant for Central and Eastern Europe at Teneo. “The window to exit the market is closing, while the option to stay carries significant operational, regulatory, and reputational risks”.
Staying in Russia brings few benefits according to some assessments. Multinationals cannot take their profits out of Russia because they need Kremlin approval to do so.
Any reduction in people or scaling back operations could attract unwanted attention from the Kremlin. Although Carlsberg said last week that the seizure of its Baltika business was unexpected, it warned investors in February of the risk that Russian authorities might nationalize a company to keep its workforce at pre-war levels if they suspect that it had instead been deliberately devalued.
This suggests that companies that have promised Western stakeholders they would scale back operations in the country could be targeted. Meanwhile, chocolate maker Alpen Gold Mondelez International Inc. says it will sell far fewer products in Russia in 2023 and volumes have declined by double-digit percentages since January. Unilever Plc reduced Russia’s volume by 15% in 2022.
Others are walking a fine line between managing public opinion and satisfying the Kremlin. Nestlé SA has stopped producing KitKat wafer bars and Nesquik chocolate milk powder in its Russian factories. However, it continues to produce and sell similar local brands in the country. Similarly, PepsiCo has stopped producing Pepsi, 7Up, and Mountain Dew sodas in Russia, replacing them with locally branded ones.
It is unclear whether the long-term effect will be beneficial. The current situation may hurt Russia if it plans to court foreign investors in the future. According to William Pomeranz, director of the Kennan Institute of the Wilson Center in Washington, the latter will have a long memory and will remember how the Russian state took control of their assets and got nothing in return. Russia doesn’t really understand the damage it is taking.
Original article published on Money.it Italy 2023-07-26 15:21:15. Original title: Aziende occidentali “sequestrate” in Russia: cosa sta succedendo
