Business Insider
Western companies have exited Russia in droves. New companies with owners from China and former Soviet republics are stepping in.
Huileng Tan – January 12, 2024
- Nearly 10,000 companies with foreign involvement exited Russia in 2022 and the first 10 months of 2023.
- But the number of firms in Russia with co-owners from China and former Soviet republics has increased sharply.
- Russia is targeting new markets in the east following sweeping Western sanctions over the invasion.
Western companies have been leaving Russia in droves since Moscow invaded Ukraine nearly two years ago — but new companies from alternative markets are stepping in to take their place.
In total, 9,600 companies with foreign affiliation left Russia in 2022 and the first 10 months of 2023, Vedomosti business daily reported on Thursday, citing a review of official data from the SPARK-Interfax professional information service.
However, the number of new companies in Russia with cofounders from former Soviet republics and China has soared in those two years, per Vedomosti.
Companies with cofounders from former Soviet republics including Belarus, Kyrgyzstan, and Kazakhstan accounted for 59% of all new companies that established operations in Russia last year, per Vedomosti. Companies with cofounders from Turkey and India accounted for 3% and 2% of new firm registrations in that time frame, respectively.
Companies with cofounders from China accounted for 25% — or 1,500 — of new companies in Russia over the first 10 months of 2023.
But it doesn’t appear as if the new entrants are fully making up for the number of those that have left.
In all, 116,400 legal entities with foreign involvement were registered in Russia as of late 2023 — down by more than one-third from a peak of 185,000 foreign-affiliated entities recorded in 2017, according to Vedomosti.
Mikhail Nikolayev, the head of Russian ratings agency ACRA, told the Russian media outlet that while Western sanctions hit the number of foreign-affiliated companies in Russia, the realignment of Russia’s trade and supply chains eastward helped boost new company registrations from alternative markets, according to a Moscow Times translation.
Meanwhile, Russian businesses overseas have also been moving their assets home amid the pressures of Western sanctions and a push by President Vladimir Putin’s regime.
Despite tensions between Russia and the West over the war in Ukraine, about 3% of companies registered in Russia last year were from countries the Kremlin deems “unfriendly” — which means they have imposed sanctions on Russia over the invasion of Ukraine, according to the SPARK-Interfax’s analysis. This still marks a huge decrease from 14% of new companies registered in 2021.
The review from SPARK-Interfax comes nearly two years after Russia’s invasion of Ukraine triggered early pledges from a swathe of international companies to exit the market.
But, Russia has been making it increasingly difficult for foreign companies to exit.
It has introduced a series of steep hurdles to the process, such as demanding companies pay donations to the state and sell their assets at a steep discount before they can exit the country.
Companies operating in strategically important sectors — such as energy and resources — also need Putin’s sign-off before any asset sale.
All in all, what that has amounted to is a large number of unfulfilled promises by Western countries.
Just about 350 international companies have completed their exits from Russia, a tracker from the Kyiv School of Economics shows. Another 1,606 international firms are continuing operations as usual, while 1,741 foreign firms are in various stages of pausing their investments or operation in Russia.