If companies leave Russia, their assets could be confiscated | nation

From The Associated Press

The Evropeisky shopping center in Moscow was once a symbol of a Russia integrated into the global consumer economy, with atriums named after cities such as London, Paris and Rome.

But now much of the seven-story mall has gone silent after Western brands from Apple to Victoria’s Secret have shuttered their Russian stores in the two weeks since the country invaded Ukraine.

Hundreds of companies have similarly announced plans to limit ties with Russia, with the pace accelerating over the past week as deadly violence and the humanitarian crisis in Ukraine deepens and Western governments tighten economic sanctions.

Russian President Vladimir Putin responded Thursday that he supports a plan to “bring in external management and then hand those companies over to those who want to work” if foreign companies stop manufacturing in Russia.

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A draft law could allow Russian courts to appoint external administrators for companies that go out of business and are at least 25% foreign-owned. If the owners refuse to resume operations or sell them, the company’s shares could be auctioned off, the ruling United Russia party said, calling it “the first step towards nationalization”.

Chris Weafer of Macro-Advisory, a consulting firm specializing in Russia, said the Russian government “takes a carrot-and-stick approach to foreign deals,” with talk of nationalization offset by state aid for those who stay. Weafer said the Kremlin’s desire is to avoid mass unemployment.

“When it comes to social pressures or possible public backlash, I think they understand that people don’t take to the streets because they can’t buy a Big Mac,” Weafer said. “But they could take to the streets if they don’t have a job or an income.”

White House press secretary Jen Psaki has slammed “any lawless decision by Russia to seize the assets of these companies,” saying it will “ultimately lead to more economic pain for Russia.”

“It will reinforce the clear message to the global business community that Russia is not a safe place to invest and do business,” she said in a tweetadding that “Russia can also bring legal claims from companies whose property is being confiscated”.

Even before invading Ukraine, Russia was attempting to domesticate its food supply following the sanctions it imposed on the European Union in 2014. With little or no fresh food imported from these trading partners, Russia has focused more on domestic food and its imports from friendlier countries like Turkey.

Companies like French food giant Danone, which is ceasing capital investment in Russia but continuing production there, are “essentially Russian companies” with local employees and supply chains, and can operate more or less independently of foreign owners, Weafer said.

But keeping businesses afloat in Russia will not be easy, even with government intervention. Because the conditions that prompted foreign companies to leave Russia are still in effect: international sanctions, supply chain disruption and pressure from customers in Europe and North America.

The auto industry is particularly hard hit by its reliance on foreign-made electronics. Companies that have stayed in Russia, such as French carmaker Renault, majority owner of Russian manufacturer Avtovaz, have also had to temporarily halt production.

Without imports, companies like furniture maker Ikea or many fashion retailers couldn’t function and would likely have to exit the Russian market altogether, Weafer said.

Some foreign companies ceasing Russian operations, such as McDonald’s and cigarette maker Imperial Brands, have stressed that they will continue to pay their employees even after their workplaces are closed. That can’t last forever, and Weafer predicts companies will have to decide by the end of the summer whether to resume operations or go out of business altogether.

One voice opposed to the seizure of foreign company assets is billionaire metal magnate Vladimir Potanin, who likened it to the 1917 Russian Revolution when the communists took power.

“It would take us back 100 years to 1917, and the consequences of such a move — global investor distrust of Russia — would be felt for many decades,” he said in a statement Thursday on social media for his company, Nornickel.

Follow AP’s coverage of the Ukraine crisis at https://apnews.com/hub/russia-ukraine

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