Guest commentary: Seven reasons why German companies’ business in Russia will not recover
Ever since the German industrialist Otto Wolff von Amerongen and the Soviet representative Sergej Borisow founded the era of special economic relations between the two countries at a secret meeting in the Richmond luxury hotel in Copenhagen on August 4, 1952, crises and wars have repeatedly caused setbacks.
The suppression of the uprising in Hungary in 1956, the invasion of Prague in 1968, the long Afghan war between 1979 and 1989, the collapse of the Soviet Union in 1991, the bloody Russian campaigns against Chechnya from the end of 1994, Vladimir Putin’s war against Georgia in 2008 and the military occupation of the Crimea 2014, however, never brought the business of German companies to the breaking point.
Companies more or less followed the wording of sanctions, but immediately became very imaginative in circumventing them. If the German companies had to withdraw a bit, they signaled their partners in Moscow with a wink: “We’ll be back soon!”
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This was the case at BASF, for example: after the Crimean crisis, the board of directors had to put the long-planned asset swap with Gazprom on hold in 2014, but completed the billion-euro deal a year later and appropriately even dated it back to 2013.
The German corporations have internalized the tactic of hibernating in every Russian crisis so much that they still dream of it now. Just like SAP SE: They announced the end of the cloud business in Russia with great enthusiasm, but the day before they quickly sent a letter to all Russian customers with the proposal of the Executive Board to transfer the affected data abroad as quickly as possible.
Seven reasons why the Russian business of German companies will not recover
But this time the calculation doesn’t work. The Russian economy faces a very long winter. A return to the status quo ante, as at least some German corporations are hoping for it, will therefore not happen even after the end of the Ukraine war.
There are seven reasons for this:
First Normal political contacts with the “war criminal” Putin, as US President Joe Biden called the Russian President, are no longer possible. As long as the dictator stays in power, no chancellor and certainly no US president will sit down at the table with him. With little hope of “regime change” in Russia, we are almost certainly in the years ahead of a new Cold War, in many ways even more bitter than the 1950s and 1960s.
Secondly The backbone of German-Russian relations is breaking with the oil and gas business. The public debate is no longer about whether we can free ourselves from dependency, but only about when.
Even if Putin were toppled, which would probably only be conceivable as a palace coup within the current nationalist leadership, there is no going back on energy issues. However, a significant part of German exports to Russia also depends on the entire Gazprom network.
>> Also read: Why the sanctions against the oligarchs are not effective enough
Third Even after the war is over, the German economy should not expect the sanctions of the West to be lifted. The Americans seem determined once and for all to weaken the Putin regime economically so that it can no longer afford another war like the one in Ukraine.
Since the images of the Russian massacre in Bucha went around the world, mainstream Republicans have supported the US President’s stance. Since the American sanctions basically apply worldwide, nobody should think of being able to circumvent them as easily as in the past.
Fourth new major projects in Russia are too risky for years to come – especially as long as there are no longer any Hermes guarantees. The United States even completely bans new investments in Putin’s empire. Those corporations, such as Claas or Knauf, who want to remain in Russia at all costs must reckon with the gradual deterioration of their factories.
The ban on semiconductor exports alone makes it impossible for many companies to continue producing as in the past. In some cases – aircraft, for example – the lack of spare parts leads to a complete standstill in Russia in the medium term.
Fifth the corporations that choose to spend the winter in Russia must consider the high reputational risks around the world. The longer the Russian attack drags on, the more we witness the most horrible war crimes committed against women and children in Ukraine in real time, the greater the pressure on German companies in particular.
No western country has lost as much sympathy in Central and Eastern Europe as we have by its hesitant support for the Ukrainians. If you want to keep your sales in Russia, you have to expect to lose them in the Czech Republic or Poland. You could call it the Ritter Sport Syndrome.
Russia is turning into a poorhouse
Sixth the business climate in Russia, which was already very bad before the war, is deteriorating before our eyes for all Western corporations. And especially for us Germans.
Blinded by 20 years of propaganda and national hate speech, most Russians feel like the real victims of the war, unjustly punished by Western sanctions and betrayed by the Germans in a special way. German managers, who are still in very small numbers in Russia, report verbal attacks of all kinds. The more the Russians feel the consequences of the war and Western sanctions, the more aggressively they react.
seventh Russia is turning into a poor house even though the billions for Gazprom continue to flow in from the West. In the future, there will be little left of the “consumer-friendly” population, which many German corporations such as the wholesaler Metro or the Globus retail chain had to use as the main argument for their strong commitment in Russia.
The war wiped out more than 15 years of growth, and even Russian experts calculated that the already small middle class in Putin’s empire could be halved within a very short space of time. Inflation continues to depress the third of the population, which is already living on the edge of subsistence.
What flows into Putin’s treasury is likely to flow into the arms race with NATO in the coming years. The story that once ended with the economic collapse of the Soviet Union is repeating itself.
The question of whether or not to close the Russia deal is not just about moral issues. Some companies, such as the Obi markets, explicitly justify their withdrawal with ethical arguments. Trumpf boss Nicola Leibinger-Kammüller says: “It’s better to forego sales than decency.”
But there are also many purely economic reasons for writing off past investments worth billions sooner rather than later. Just wanting to hibernate like you used to can no longer be a business strategy.
There is a Russian proverb that applies to the current discussion in many German corporations: before making important decisions, you should “measure seven times”, but then you also have to “cut once”.
The author: Bernd Ziesemer is a publicist and former editor-in-chief of the Handelsblatt. From 1990-95 he was Moscow correspondent.
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