Western corporations continue to make billions in profits in Russia. But the Kremlin is blocking their payment. There is currently no solution in sight.
It’s a bet on the future: Western companies that want to continue operating in Russia will avoid the pitfalls of withdrawing, such as high price discounts when selling foreign subsidiaries. But the profits they made there remain unattainable for the time being. Last year, Moscow blocked profit distributions abroad for all companies from “unfriendly states”. This includes in particular the USA, Great Britain and the entire EU.
In 2022 alone, these profits are said to have amounted to more than $18 billion, with sales of $199 billion, according to a study by the Kyiv School of Economics, which the “Financial Times” quotes. The lion’s share of $4.9 billion goes to corporations headquartered in the United States, followed by German, Austrian and Swiss companies.
“Good behavior” is crucial?
According to data from Kiev researchers, the Austrian Raiffeisen Bank achieved the largest single profit with two billion dollars. The institution, which has traditionally been heavily involved in Eastern Europe, is the largest western lender in Russia and is currently unable to match its profits. The study puts the annual profits of the US companies Philip Morris and PepsiCo in Russia at $775 and $718 million, respectively.
In individual cases, transfers have been approved by the Russian authorities, which apparently depends on the “good conduct” of the companies concerned. An essential prerequisite is the declared intention to stay in Russia, writes the “Financial Times”. This may have enabled the Japan Tobacco International representative, for example, to make transfers abroad even after the invasion of Ukraine.
The future of the funds is currently uncertain
However, it remains unclear how Moscow will proceed with the frozen assets. While the presence of Western companies is of considerable importance for Russia, concerns about further capital outflows and a further devaluation of the ruble are high. In addition, Moscow could use the balances as a bargaining chip for the release of Russian funds frozen abroad.
For the foreseeable future, the companies remaining in Russia will remain in an unresolved dilemma. The chance of billions in profits is offset by the risks of further government intervention. But if they choose to withdraw, there is a risk of lost opportunities and high write-offs, which would only be mitigated by a gain in reputation in the West.