Many companies and governments to continue business with Russia despite increasing sanctions on the country

Amid increasing sanctions and calls for exiting or scaling back businesses in Russia by many global enterprises, some companies and countries have decided to continue their business relations with the country. Russia has drawn up plans to seize the assets of western companies leaving the country as the Kremlin pushes back against sweeping sanctions and the exodus of international businesses since its invasion of Ukraine.

The country’s economic ministry said it could take temporary control of departing businesses where foreign ownership exceeds 25%. The cryptocurrency exchanges such as Coinbase and Binance have decided not to ban Russian users from their platforms. As believed by many, cryptocurrency platforms such as these could be used as a way to bypass the sanctions to shield the sanctioned Russian entities against economic and financial isolation.

This would undermine the steps taken to make Russia face consequences through non-military means for its invasion of Ukraine. Chinese mobility company, DiDi, after coming under domestic pressure, reversed its previous decision to close down its operations in Russia. In contrast, Nike, Puma, Adidas, Inditex (through its brand, Zara) and Fast Retailing, have all decided to temporarily suspend their operations in Russia.

Puma generates about 5% of its total revenue from Russia and Ukraine, while Adidas expects the Russia-Ukraine conflict to put approximately €250 million business at risk. Inditex derives about 8.5% of its global operating profit from Russia.

Another case is the French food company, Danone, which has decided to suspend its investments in the country but to continue manufacturing and distribution activities. The company generates about 6% of its total revenue from Russia. The government of Bangladesh has asserted to continue doing business with Russia, which is building a nuclear power plant (Ruppur Nuclear Power Plant) in the country with financing 90% of the $13 billion project.

With Russia out of the SWIFT system, the government has started to look for alternate options for carrying out financial transactions. Hungary, citing its economic interests, intends to continue its cooperation with Russia as the lion’s share of its gas supply is imported from Moscow. Any disruption could lead to detrimental effects on its industry and a decline in economic growth. Hungary is in a 15-year contract with Gazprom for a supply of 4.5 billion cubic meters of natural gas annually and seeks to increase this to a greater volume.

The goal of calling out the companies is to pressure them to work in concert with the U.S. government and its allies that have imposed economic sanctions against Russia. As per Global Data, “For Russia, these continued relationships will keep the state-owned enterprises afloat in what are becoming increasingly difficult overseas market conditions.”

S Mohini Ratna, Editor, VARINDIA