Western companies still paying for Russia's war

During the year of full-scale war - between March and December 2022 - Russia purchased $20.3 billion worth of military equipment components, which is only 15 percent less than in the "pre-war" 2021. Despite unprecedented international sanctions and internal challenges, Russia manages to keep its economy stable and healthy enough to finance domestic needs and its military machine.

How is this effect achieved?

On February 24, 2022, when Russian missiles, planes, and tanks crossed the border into Ukraine, there were 2,405 subsidiaries in Russia owned by 1,404 EU and G7 companies.

At the end of 2022, a study conducted by Simon Evenett, professor of the University of St. Gallen, the Foundation for Prosperity through Trade (SGEPT) and coordinator of Global Trade Alert (GTA), and IMD professor Niccolò Pisani, found that only less than 9% of this pool of companies had sold at least one subsidiary in Russia. Moreover, while at the beginning of the invasion the number of Western corporations leaving the Russian market was growing rapidly, in the last quarter of 2022 this figure was virtually stagnant. The trend continued in 2023.

The study also shows that the profits of companies that have withdrawn from Russia account for only 6.5% of the total profits of all EU and G7 companies that continue to operate in Russia; in terms of other indicators, this is 8.6% of fixed assets; 8.6% of total assets; 10.4% of operating income and 15.3% of total employees.

These data indicate that companies that "exit" the Russian market have lower profitability and a larger number of employees than those that stay in Russia.

No mass exodus of Western companies from Russia occurred

The vast majority of corporations headquartered in the EU and G7 work for the Russian military economy, paying taxes and supporting Russia's internal stability. The vast majority of these Western companies manage to successfully ignore pressure from governments, media, and non-governmental organizations, both international law and the fact that Russia is killing citizens of a sovereign European state daily, waging the bloodiest and most expensive war on the continent since World War II.

According to Yale University, about 1,000 companies have announced the suspension of their activities in the Russian market, but few have actually done so.

Since the beginning of the invasion of Ukraine, KSE has been tracking open data on the Western companies' activities in Russia. Thus, 1,717 or 56% of international companies with connections to Russia at the beginning of 2022 continue to operate in the country. Among the companies that had a local Russian subsidiary at the beginning of the full-scale invasion of Ukraine, only one in ten has completed the liquidation or sale of their Russian business.

Here are some of those who stayed:

Leroy Merlin, France, is one of the largest European DIY retailers, selling home and gardening products in Europe, Asia, South America and Africa. The group is represented in Russia by Leroy Merlin Russia. Having the largest network of DIY stores and beinga leader in terms of revenue per square meter of retail space, the company's revenue for 2021 amounted to $482 million. High profitability allows the company to maintain its leadership in filling the Russian budget. The company is one of the largest taxpayers in Russia.

On March 11, 2022, Leroy Merlin announced that it has no plans to reduce its operations in Russia, where it runs 143 stores. On March 17, 2022, the corporation disconnected the Ukrainian office from corporate communications and announced an increase in supplies to the Russian Federation. Later, however, it was announced that new investments in the company's Russian divisions would be suspended. However, Leroy Merlin Russia continued to operate in Russia. On March 24, 2023, the central office announced its intention to transfer control of Leroy Merlin Russia to local management.

Raiffeisenbank, a universal Russian bank, a subsidiary of the Austrian banking group Raiffeisen Bank International, is included in the list of systemically important Russian banks. Raiffeisenbank ranks second in terms of assets in the RBI group and first in terms of profits. According to Raiffeisen International Group's public reports, the bank's loan portfolio in Russia increased by 22% as of the end of the third quarter of 2022 compared to the end of the first quarter of 2022. The company continues to increase its revenue in 2022 compared to 2021 - an additional $665 million or +46%.

In an official statement, the RBI emphasized that it would "consider strategic options for the future of Raiffeisen Bank in Russia, including a carefully managed exit from the market." However, so far, the bank's Russian subsidiary, Raiffeisen Bank JSC, not only continues to operate in Russia, but also provides favorable lending terms to the Russian military, which is involved in the war of aggression in Ukraine. Reportedly, in 2022, Raiffeisen paid 4.8 times more to the Russian budget than in the entire "pre-war" year - 559 million euros.

Unilever is a British multinational company producing a wide range of consumer goods. In Russia, Unilever owns 8 large enterprises, including a margarine factory in Moscow, factories producing sauces, tea, perfumes and cosmetics in St. Petersburg, a food factory and ice cream production in Tula, as well as in Novosibirsk and Omsk. The company has promised to suspend all imports and exports of its products to and from Russia, as well as to stop all media and advertising spending, but noted that it will "continue to supply the country's residents with food and hygiene products made in Russia." In 2022, Unilever Rus LLC raised RUB 84.9 billion in revenue, which is only 2% less than before the full-scale invasion. At the same time, the company's net profit in 2022 increased from RUB 4.9 billion to RUB 9.2 billion, or +91%.

Nestlé Switzerland is the largest publicly traded food company in the world, a multinational food and beverage corporation. Nestlé's representative offices in Russia were among the largest taxpayers. In 2020, the company paid $502 million to the Russian budget. In March 2022, Nestle announced the suspension of capital investments in Russia, but did not withdraw from the Russian market. The corporation said it would continue to sell basic products, such as baby and specialty medical food. And the company's CEO, Mark Schneider, even called on the Ukrainian office to be "friends" with the Russian one.

Foreign companies have paid at least $18 billion of taxes to Russia, the amount that is enough to finance Russia's war in Ukraine for two months," Natalia Popovych, co-founder of B4Ukraine, wrote in her column for the Atlantic Counsil.

If compared with the revenues provided by the governments of the EU and G7 countries, for every $7 declared by world governments as bilateral aid to Ukraine, there is at least $1 paid by companies from the same countries to the Russian budget.

After the outbreak of a full-scale war, foreign companies headquartered in the United States were the most likely to leave the aggressor country of Russia. However, the weight of businesses that have completely sold their assets since the invasion of Ukraine has been less than 18% of all US subsidiaries doing business in Russia. In contrast, 15% of Japanese firms have divested their assets in the terrorist country, and only 8.3% of EU firms have done so.

Among the EU and G7 companies that remain operating in Russia, 19.5% are German, 12.4% are American and 7% are Japanese multinationals.

Companies in France, Germany, Italy, and Japan have the worst record of withdrawing funds.

It is worth mentioning that Russia, as expected, has done everything possible to inflict maximum damage on every company that dared to try to leave the Russian market. For example, one day, Russian officials simply passed a law declaring more than $20 billion worth of aircraft to be state property. In effect, they stole them from their rightful owners.

Doing business with Russia used to be seen as a profitable investment, but now it has a toxic image of being a sponsor of a bloody war.

Finally, it is highly questionable how long businesses will be able to pretend that they have nothing to do with financing the terrorist, genocidal ideology of racism in the new consumer culture, where the reputation and values of companies are becoming a key factor in consumer decision-making.

In the meantime, the only effective way to combat companies that sponsor war is by putting pressure on direct consumers who ignore the products and services of the toxic corporations and encourage other concerned people to repeat their experience.