Russia would decimate its ability to attract foreign investment by moving forward with a plan to seize the business operations of Western companies such as Microsoft, McDonald’s, and Volkswagen.
Russian leader Vladimir Putin‘s recent endorsement of the government taking over and selling businesses that have suspended operations in the country would be a drastic step and would have lasting implications even if Russia ends its invasion of Ukraine.
In a meeting with officials, Putin asserted that his government must “introduce external management” on fleeing companies “and then transfer these enterprises to those who want to work.” The endorsement goes in tandem with a Russian legislative proposal to do as much.
“It would basically kill faith in the ruble for years to come. Monetary stability is based on political stability,” said Matthew Schmidt, a University of New Haven associate professor of national security and political science.
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Many international corporations choose to invest in countries such as the United States and in Europe because they are politically secure even though yields in other countries may be higher. If Putin went forward with his brash plan to seize the business assets of foreign companies, he would be violating some of the most fundamental principles of international investment, which would deter investment even after the war.
The nationalization of businesses would create tremendous uncertainty about what a postwar, or even post-Putin, Russia would look like from a foreign investment standpoint, and it may take years for companies to reestablish trust with the Russian government.
Several international corporations have announced that they are stopping business operations in Russia because of the war, which began near the end of last month. The litany of companies that have suspended operations or fled the country includes home furnishing retailer IKEA, Toyota, Nike, Microsoft, McDonald’s, Starbucks, Coca-Cola, PepsiCo, and many others.
“Like the rest of the world, we are horrified, angered, and saddened by the images and news coming from the war in Ukraine and condemn this unjustified, unprovoked and unlawful invasion by Russia,” said Microsoft President and Vice Chairman Brad Smith. “We believe we are most effective in aiding Ukraine when we take concrete steps in coordination with the decisions being made by these governments and we will take additional steps as this situation continues to evolve.”
Other companies that have pulled the plug on Russia have made similar statements condemning Putin’s actions and standing in support of Western sanctions policy.
The decision to nationalize foreign business would be divisive even among those with ties to Putin. Vladimir Potanin, a Russian oligarch and Kremlin confidant, pushed back on the notion and compared such seizures to the Bolshevik Revolution.
“I would call for a very cautious approach to the issue of confiscations from the enterprises that have announced they are leaving Russia,” Potanin said in a Telegram post.
“This would take us a hundred years back, to the year 1917, and the consequences of such a step would be the global distrust of Russia from investors, it would be felt for many decades,” added the billionaire, who is the world’s 88th-wealthiest person.
While Putin and his allies in the Kremlin contend that nationalizing foreign businesses would be done so that Russian citizens could keep their jobs and to keep the economy moving, Schmidt said he thinks such a move would be done purely out of symbolism, anger, and spite because the companies represent some of the largest sources of foreign direct investment in Russia.
Seizing control of the businesses would also do little to change the short-term situation the Russian economy is in, he added.
It would also prove very difficult to keep the nationalized businesses functioning like before.
For example, if a car manufacturing factory were to be seized, the parts used to construct the cars would only last until they ran out. Because of sanctions and the company itself stopping business with Russia, it would be tough for Russia to continue operations because the car company wouldn’t ship new parts to the factory.
White House press secretary Jen Psaki said that the U.S. is well aware of Putin’s threat to nationalize the businesses of American and other international companies. She emphasized that decisions to pull out of Russia are those for the companies themselves to make and that the U.S. welcomes the choice of businesses to do such.
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“Any lawless decision by Russia to seize the assets of these companies will ultimately result in even more economic pain for Russia. It will compound the clear message to the global business community that Russia is not a safe place to invest and do business,” Psaki said.
“Russia may also invite legal claims from companies whose property is seized,” she added. “We stand with American companies who are making tough decisions regarding the future of their Russian operations.”
