More and more European and American companies are leaving Russia

 More and more European and American companies are leaving Russia

Russia's opening of a military campaign in Ukraine is reversing the wave of foreign investment in the past 30 years.

The number of companies announcing the termination of business relationships or re-evaluating their operations in Russia is increasing as many countries impose sanctions on Russia, close their airspace to Russian planes and remove some Russian banks from SWIFT. . Some companies say the financial and reputational risks are too great for them to continue operating here.

The ruble on the morning of February 28 depreciated by more than 30% against the US dollar after Washington banned transactions with the Central Bank of Russia, limiting the country's ability to use foreign exchange reserves of $ 630 billion to protect the local currency. .

For some companies, the withdrawal from Russia has ended lucrative investments over the past few decades. Energy companies have been pioneers in pouring money into Russia since the 90s. The largest foreign investor in Russia - BP - suddenly announced on February 27 that it would give up 20% of its stake in the Rosneft oil company. . This move could cost them $25 billion and 30% of their oil and gas output. BP is currently considering selling these shares to Rosneft, Bloomberg quoted a source close to said.

A Rosneft refinery in Novokuibyshevsk (Russia). Photo: Bloomberg

A Rosneft refinery in Novokuibyshevsk (Russia). Photo: Bloomberg

Shell yesterday also made a similar move. The company said it will terminate cooperation with oil and gas company Gazprom, including the Sakhalin-II gas production facility and the Nord Stream 2 pipeline project. Both projects are worth about 3 billion USD.

Equinor, Norway's largest energy company, with a majority stake in the government, also announced it would begin withdrawing from joint ventures with Russia, worth $1.2 billion. "In the current situation, we find our position difficult to justify," said CEO Anders Opedal. Currently, Exxon Mobil and TotalEnergies are the only major energy companies still operating in Russia.

"I wouldn't be surprised if I see more withdrawal announcements," said Allen Good, strategist at Morningstar. "BP is under great pressure from the UK government. But I'm not sure TotalEnergies is under similar pressure. or not, because the relationship between Russia and France is very different."

After the dissolution of the Soviet Union in 1991, foreign companies saw a huge opportunity in this market with millions of consumers, and a huge amount of minerals and oil. They have poured capital to buy and sell and cooperate with Russian companies. However, this trend is stopping. Norway's sovereign wealth fund said it would freeze Russian assets worth about $2.8 billion and planned to leave before March 15.

Several major law and accounting firms are also reevaluating their operations in Russia. Baker McKenzie announced that it would terminate relationships with some Russian customers to comply with sanctions. The company's major clients include the Russian Ministry of Finance and Russia's second largest bank - VTB (currently subject to US, UK, and EU sanctions).

Bob Sternfels, the head of McKinsey & Co, said the company will no longer cooperate with state-owned entities in Russia. However, they will not withdraw their legs completely. McKinsey has been here for nearly 30 years.

Pressure on companies selling products to Russia is also growing. Daimler Truck Holding said it will suspend its business in Russia until further notice, and may reconsider cooperation with local partner Kamaz.

Volvo Car and Volvo cease sales and production in Russia. Harley-Davidson also made a similar announcement. Europe and the Middle East accounted for 31% of motorcycle sales for this company last year. General Motors also stopped selling to Russia, due to "external factors, including supply chain problems and other issues beyond the company's control". Every year, GM exports about 3,000 vehicles from the US to Russia.

Others are seeing their share prices fall. French carmaker Renault lost 12% yesterday as investors feared sanctions would affect its business in Russia, its second-biggest market. AvtoVaz - the company Renault holds 68% of shares - produces Lada brand cars - holds 20% of the Russian market share.

Ford Motor has confirmed that there are no plans to withdraw from the joint venture in Russia with Sollers. "Our current benefits remain secure," the company explained.

Even so, consumer goods companies with operations and production in Russia are unlikely to leave easily, even if they wanted to. Before Russia's military campaign last week, Danone dairy company prepared a scenario if military tensions escalated. Chief Financial Officer Juergen Esser said it has purchased more local ingredients to produce for both markets. Danone entered the Russian market 30 years ago.

As for Carlsberg, the fact that most of the supply chain, production and customers for the Russian market are located here has helped to reduce the impact of sanctions. They have restricted imports and exports, but are not yet able to fully assess the direct and indirect impact of the sanctions. This company has 1,300 employees from Ukraine and last week had to shut down the factory to let the group return to their hometown.