Successfully investing in the Russian Federation

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last updated on 23 June 2022 | reading time approx. 2 minutes

 

 

 

What is the present reality of business in Russia? 

Although the past few years of German-Russian trade have been profitable, German companies doing business in Russia are now faced with a number of challenges. This includes mutual trade-restricting measures imposed by the EU and Russia. The EU is currently imposing sanctions with regard to finance, defence, energy, aviation and the aerospace industry. Russia has taken measures aimed at stabilization of the ruble exchange rate and financial stability and has banned the export of certain goods. Moreover, new laws affecting the day-to-day operations of international companies have been enacted in Russia. Transport and logistics currently have to be planned in a different way, since many routes and service providers are no longer available and new channels have to be used. 
  

What consequences does this have for German companies with a relation to Russia? 

The new conditions of the Russian market affect companies in different ways, and the impact on a particular company needs to be assessed on a case-by-case basis. In general, appropriate measures should be taken to secure liquidity. One needs to check if the company’s own goods and services as well as contractual partners are being affected by the international sanctions. Products to which sanctions may apply require the issuing of zero reports by BAFA (Federal Office for Economic Affairs and Export Control). You have to stay on safe ground in both jurisdictions and take sanctions imposed by relevant third countries into account when developing business strategies. 
  

What are the current opportunities for German companies in the Russian market? 

The government wants to prevent foreign companies from leaving the Russian market, which is good news for companies looking to remain in the market at full or reduced capacity. Opportunities for further operation pre­sent themselves when production operations of companies shift to or focus on the goods and services which are not subject to sanctions. Regulations such as the legalization of parallel imports create new fields for trade in Russia. Although most companies have suspended new investments in Russia and the development of new projects has been discontinued for the time being, the majority of the surveyed members of the Association of European Businesses in Russia believe that growth in the Russian economy can be expected in six to ten years. Therefore, most companies try to secure a return to the Russian market even in the event of termination of business activities. 
 

What are the options for foreign companies that want to withdraw from the Russian market? 

There is a number of exit strategies for the companies that want to leave the Russian market, ranging from li­qui­dation of the company and permanent withdrawal from the market to a management-buy-out with protective mechanisms such as a buyback option, the conclusion of a partnership agreement or pledge of shares. Which course of action, i.e. discontinuation of business activities, a kind of "dormancy" or trust management, is best for a particular company, depends on the individual case. The decision on the right strategy for exiting the market depends, among other things, on how long the measure should apply, what long-term goals are being pursued and what capacities the company has.

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