Foreign Companies Exiting Russia: China and Former Soviet Republics Fill the Void
New Companies Filling the Gap
Since Russia’s invasion of Ukraine almost two years ago, Western companies have been leaving Russia in large numbers. However, new companies from alternative markets, particularly China and former Soviet republics, are stepping in to take their place. In 2022 and the first 10 months of 2023, nearly 10,000 companies with foreign involvement exited Russia, according to a report by Vedomosti. Despite this exodus, the number of new companies in Russia with co-owners from China and former Soviet republics has increased significantly.
The Rise of Companies from China and Former Soviet Republics
According to Vedomosti’s report, companies with co-owners from former Soviet republics, including Belarus, Kyrgyzstan, and Kazakhstan, accounted for 59% of all new companies established in Russia in 2022. Companies with co-owners from Turkey and India accounted for 3% and 2% of new registrations, respectively. Notably, companies with co-owners from China constituted 25% of new companies established in Russia in the first 10 months of 2023.
New Entrants Not Fully Compensating for Departures
Despite the increase in new companies, they have not fully compensated for the number of firms that have left Russia. As of late 2023, there were 116,400 legal entities with foreign involvement registered in Russia, down by over one-third from the peak of 185,000 foreign-affiliated entities recorded in 2017. The head of Russian ratings agency ACRA, Mikhail Nikolayev, explained that Western sanctions have impacted the number of foreign-affiliated companies in Russia, but the country’s realignment of trade and supply chains towards the east has helped boost registrations from alternative markets.
Russian Businesses Returning Home
In addition to new companies entering Russia, many Russian businesses overseas are also moving their assets back home. The pressures of Western sanctions, coupled with a push by President Vladimir Putin’s regime, have led to this shift in assets. Notably, approximately 3% of companies registered in Russia in 2022 were from countries deemed “unfriendly” by the Kremlin, a significant decrease from the 14% recorded in 2021.
Hurdles for Exiting Companies
Russia has made it increasingly difficult for foreign companies to exit the country. The government has introduced various hurdles, such as demanding donations to the state and requiring assets to be sold at a steep discount before companies can leave. Additionally, companies operating in strategically important sectors, like energy and resources, need Putin’s approval for asset sales.
A Promised Exit Yet to Be Fulfilled
Despite early promises from numerous international companies to exit the Russian market, only around 350 have successfully completed their exits, according to the Kyiv School of Economics. Another 1,606 international firms continue to operate as usual, while 1,741 are in the process of pausing their investments or operations in Russia. The combination of challenging exit requirements and strategic sector restrictions has resulted in a large number of unfulfilled promises by Western countries.
