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10 March, 2022updated 11 Mar 2022 00:00

Russia moves to nationalise assets of departing Western companies

A proposal to nationalise the property of foreign companies has been approved by the Russian government's legislative commission.

By Sebastian Shehadi

Russia’s ruling party, United Russia, said on 9 March that the government’s commission, which assesses laws that the government intends to propose to the State Duma, the lower house of the Russian parliament, had approved measures to nationalise the property of Western companies that are exiting the country in the wake of Russia’s invasion of Ukraine

In a statement, United Russia added that, in an effort to prevent bankruptcy and save jobs, the commission had waved through a bill allowing for companies from “unfriendly states” to be put into external administration, if they are owned 25% or more by an unfriendly country. 

If the law goes live, dozens of Western businesses in Russia could be affected. 

For example, McDonald’s, which is just one of more than 100 foreign companies that have suspended or announced intentions to divest operations in Russia, owns 850 restaurants and has 62,000 employees across the country. If the company decides to permanently shut down its Russian operations, its properties could be seized and put into external management, as appointed by the Russian state

“Russia has destroyed its credibility as a market economy in numerous ways over the past two weeks,” says Maximilian Hess, a fellow at the Foreign Policy Research Institute. “First capital controls, then asset freezes, then announcing a technical default, and now this latest expropriation.”

“It is clear the Russians don’t care about the Washington consensus, the international market economy, or a world in which they are under sanctions. Russia is completely devoid of capital. Foreign direct investment is gone. So yes, they are trying to expropriate assets, but right now the assets aren’t worth much anyway, so why even bother to do this? It just leaves them with expropriation lawsuits and claims to settle one day.” 

The effectiveness of the commission’s law is also called into doubt by the fact that Western companies looking to sell their operations will find it nigh on impossible to do so considering the state of the sanctioned and free-falling Russian economy

In the coming weeks, therefore, the Kremlin may take the proposed law even further and look to seize or coerce foreign companies that have suspended operations (such as McDonald’s), rather than those (like BP) that have announced plans to sell assets and leave the country. 

More coverage of the Ukraine invasion from Investment Monitor:

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