Plotting a comeback simply muddies the departure

MATTHEW LYNN 14 February 2023 •

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It probably won’t be next year, or even the year after that. It might even take as long as another decade. Even so, Cees ’t Hart, the chief executive of the Danish brewing giant Carlsberg, last week raised the possibility of returning to Russia one day, even as the company completes the exit of its existing business there.

Plenty more companies are taking their time about getting out, perhaps even crafting buy-back clauses that will allow them to return once a ceasefire has been negotiated to the war in Ukraine.

Russia is a major market, and not one that any global company feels it can ignore forever. It is painful to have to sell valuable assets at a knock-down price.

Even so, it would require not just a ceasefire, but a complete change of regime for Western businesses to operate in the country again. And any talk of returning one day simply waters down the impact of the sanctions that have already been imposed.

No company should be contemplating a return to Vladimir Putin’s monstrous, gangster state for the foreseeable future – and probably not ever.

We are only a week away from the first anniversary of the Russian invasion of Ukraine. A war that was meant to be over in a matter of days, with a swift Russian victory followed by the installation of a puppet government, has instead turned into a brutal war of attrition.

Against overwhelming odds, Ukraine’s heroic army has kept the Russians at bay, and even won back some territory. How the war will end is anyone’s guess right now. Short of a sudden and swift collapse by the Russian forces, or a coup in the Kremlin, it could drag on for years.

Despite that, some companies are already leaving the door open to going back one day.

Announcing a decent set of results this week, Carlsberg’s ’t Hart raised the possibility of a return. “We are exiting Russia for now, but we don’t exclude the option… of coming back,” he said.

“I can’t see us coming back in the first 10 years, and many things will need to change before we would consider going back to Russia.” But he added: “Obviously, it would be good for my successor to have such an option in the future once the political situation has changed dramatically.”

Other companies may well be thinking along similar lines. After all, many of them are taking a mighty long time to get out, perhaps because they are negotiating buy-back clauses that will allow them back in once everything has calmed down.

A report by Barclays last month showed that of the 26 consumer staples companies it covers, 15 have said they would leave Russia, but only six had actually done so.

Likewise, a report by St Gallen University in Switzerland found that of more than 2,000 Western-owned businesses in Russia only 9pc had so far been closed, while another report noted that many major corporations had simply written down the value of their Russian units to nothing, which is not the same thing as closing them (it is an accounting rather than an operational change but one which helpfully makes it look as if you have left).

Add it all up, and it looks as if plenty of corporations are thinking about when they can start operating in Moscow and St Petersburg again.

True, on one level we can understand what they are thinking. Russia remains a huge country, with 140 million people, it has plenty of resources, and the weakness of its own system of crony capitalism means it is wide open to foreign competition.

It has been a lucrative place to operate for many years. Even worse, once they have sold off subsidiaries, it will be very hard to get them back later, and even if you restart from scratch, there will be local competitors who have acquired your brands and factories. There is plenty of incentive to think about a return. And yet, it would still be a huge mistake. 

It is not just about the war itself. Replacing one brutal dictator with another one doesn’t make any difference, and nor does a cessation of hostilities along the border with Ukraine.

If Russia is still menacing its neighbors, repressing its own people, and threatening the rest of the world, nothing has really changed. Until there is a complete change of regime in the Kremlin, and one that has shown over many years it is committed to democracy, then it is not a country where anyone can do business. 

Holding out the prospect of a return one day, even if it might be a decade or more away, simply muddies the departure. The point was to make a complete break with Russia, to hit its economy as hard as possible, and to make it clear to its people that they are no longer part of the club of civilized nations. A suspension of trade doesn’t achieve any of that – only a total withdrawal.

Russia is not the market it was in the 1990s, when it was still full of promise. It is losing the war, its energy industry is in decline and it has little chance of ever growing again.

It is not an exciting emerging market any more. Instead, it is one in steep decline, and where it will become increasingly harder to ever make money. On both moral and economic grounds, it is not worth dealing with.

Russia is now a pariah state. Its government is guilty of atrocious war crimes. It has killed tens of thousands of innocent people in Ukraine, and flattened whole cities, while waging an energy war on Western Europe for which we have all paid a price. No major company should be contemplating doing business there until it has changed completely – and that is still a very long way away.