In the second week of June, the Organisation for Economic Co-Operation and Development (more commonly just the OECD) published an alarming report. The headline writers seized on it.
‘UK economy set to flatline next year,’ was the Mail headline, pointing out that the OECD had predicted the UK would do worse than every other country in G20 next year – with the exception of one.
The exception of course, was the sanctions-hit Russian economy, and scarcely a day now seems to go past when there isn’t a report of another household name company announcing it is pulling out of Russia.
The reasons are not hard to work out. The OECD suggests that the Russian economy will contract by 4.1%, meaning the country is hardly an attractive place to do business. There is also the negative PR of continuing to do business in Russia: immediately after the invasion of Ukraine, McDonald’s announced they’d be keeping their restaurants in Russia open. It didn’t take long for the negative publicity to cause a re-think.
There is also the unpredictability of the current situation to consider. There still seems some doubt as to whether Renault gave up its factory in Moscow or whether it was de facto nationalised. Companies want certainty when they are making plans: right now, operating in Russia guarantees the complete opposite.
A more pertinent question, perhaps, is how much are the withdrawals costing the companies?
McDonald’s reported that the closure of its 850 restaurants in Russia cost it $127m (£102m) in the first quarter of the year. It has now sold all its restaurants to an existing franchisee – you would suspect the sale price was significantly below what it would have been before the invasion.
That figure, though, pales into insignificance compared to oil giant Shell. As it announced that profits for the first three months of the year had almost tripled from the same period last year, it also revealed that pulling out of Russia had cost it $3.9bn (£3.1bn).
Starbucks has also pulled out of Russia, and at the beginning of June Marriott Hotels joined the list, saying that, ‘We have come to the view that the newly-announced US, UK and EU sanctions will make it impossible for [us] to continue to operate or franchise hotels in the Russian market.’
With most analysts now accepting that the war will last for the rest of the year, Marriott will certainly not be the last company to leave Russia. The negative publicity, the difficulty of doing business in the country and the continuing uncertainty will outweigh any financial considerations. We can expect plenty more ‘local businessmen’ to pick up bargains as Western companies rush for the exit door.
