Some companies are finding it difficult to leave Russia

Shortly after Russia invaded Ukraine, companies big and small began announcing their intentions to leave the Russian market with some pulling their operations out altogether while others just announced the cancellation of projects and reduction in investments. 

McDonald's and Adidas were two of the first mega-corporations to suspend operations in Russia, but more than a year on in the war, some companies have found that pulling their businesses out of the country has proved far more difficult than they anticipated. 

One of the big reasons companies are having a difficult time exiting Russia is because of the roadblocks that have been put up by Moscow for corporations that want to leave. 

The Associated Press noted that the Kremlin has required some businesses to get approval to leave the country from a government commission while others have not been allowed to leave Russia without express permission from President Vladimir Putin. 

Russia has also imposed tough discounts and taxes on sale prices for companies that were planning to leave the country, forcing them to dance between public opinion in the West and “Russia’s efforts to discourage and penalize departures” the AP reported.  

Russia recently added a 10% departure tax which went directly to the Kremlin’s coffers for businesses that decided to leave the country according to the AP, which would put many companies in a difficult position if they didn’t want to violate Western sanctions. 

Companies also face the prospect that they’d be forced to sell their assets in Russia at a 50% discount, which the country’s finance minister announced in December alongside the 10% departures tax according to a report from the Washington Post. 

“For many companies, extraction from Russia has been trickier than expected. Moscow has tied their hands, they say, by brandishing the threat of nationalization and other obstacles,” New York Times reporter Liz Alderman wrote at the beginning of March. 

Alderman also noted that some companies have justified their operations in Russia by arguing that they have a duty to their shareholders to provide a return on the billions in assets that could be seized by Moscow if they were to leave the Russian market. 

That is exactly what tobacco manufacturer Phillip Morris said in February 2023 when its chief executive officer explained that he wanted to pull out of Russia but could not since he did not have a buyer and could not abandon $2.5 billion in shareholder assets. 

“It’s their money, it’s not my money, I’m managing this for them,” Chief Executive Officer of Phillip Morris Investments Jacek Olczak said according to The Financial Times. 

“If I had a buyer who could execute the transactions, yes we would do it — but it doesn’t exist … there is no hope… So then I’d rather keep this whole thing.” Olczak added. 

Part of the reason why Phillip Morris hasn’t left Russia is due to government regulations that allow the Kremlin to determine the value of foreign companies when they’re selling their assets inside of the country according to The Financial Times. 

“When I say I’m leaving or not leaving, it’s completely irrelevant because I tried last year and the reality is I’m [stuck] with this whole thing,” Olczak explained. 

According to the Yale School of Management, there are still 1577 foreign companies operating in Russia with roughly 1000 having suspended their business or withdrawn from the country altogether. 

The rest of the companies on Yale’s list are either digging into the market in Russia, working to buy themselves time, or scaling back their operations in a desperate attempt to find a way to leave the country without incurring punishing losses.