How many unemployed will be left behind by Western runaway companies

Victoria Pavlova

This week began with the end of production and supply of Bridgestone tires and the suspension of the supply of Otis elevators. In total, 118 “runaway companies” have already accumulated, including the sensational McDonalds and IKEA. These enterprises employ at least 163,000 people. And do not forget that any large enterprise has a lot of suppliers who will also suffer.

"Die but not now"

Everyone leaves the Russian market in different ways. Oil and gas companies such as Chevron and ExxonMobil, involved in joint projects for the extraction of raw materials, have radically abandoned further work in Russia. And British Petroleum is selling its stake in Rosneft altogether. Only who and when will buy the shares is not yet clear.

Everything is completely different with enterprises operating in the retail market. IKEA has stopped sales and closed stores for 3 to 6 months, but promises not to lay off employees and keep salaries. McDonalds in Russia also retains employees for the time being, while in Siberia it continues to work at all. In the Krasnoyarsk Territory, Novosibirsk, Tomsk, Kemerovo Regions and in the Altai Territory, fast food is managed by the franchisee partner of the Russian company GiD LLC. A high share of domestic products will allow the work to continue for some time. Coca-Cola is also leaving Russia in a very peculiar way: the parent division ceases operations, but another company, Coca Cola HBC, is engaged in production, promotion and sales. Familiar drinks will be on store shelves, but, like all other goods, they will rise in price.

At first, Pepsico Corporation scared everyone with its departure, because it produces not only Pepsi drinks, which, according to the Ministry of Economy of the Trans-Baikal Territory, can replace Chita Keys, but also baby food, a variety of dairy products, juices, chips and snacks. There are 28 brands in total. But then it turned out that we are talking only about the suspension of sales of drinks with international brands. Kvass "Russian gift", fruit drink "Miracle-Yagoda", milk "House in the village" (this is also all Pepsico) will not go anywhere.

Sometimes it turns out that the plans of foreign companies to leave Russia are not as ambitious as originally announced. Shell, for example, first issued a press release announcing that it was pulling out of oil and gas projects, shutting down its filling station network and halting the production of lubricants and jet fuel. But a few days later the situation changed. The company admits that it is experiencing a shortage of imported additives, but the oil production plant in Torzhok continues to operate in the same way as the entire gas station network. The company will have to withdraw only from mining projects in Khanty-Mansi Autonomous Okrug. With a fourth round of EU sanctions restricting investment in Russia's energy sector, there are no options.

The situation is similar with some automakers. First, Ford published a notice on its international website that, due to a special operation in Ukraine, it was stopping work in Russia. But representatives of the Russian partner, who assembles the Ford Transit, in response to a request from Novye Izvestia, explained that “we are talking only about temporary downtime due to the suspension of the supply of components, but not about Ford leaving the Russian market.” Also, Toyota, as it turned out, did not stop the supply of cars and components forever, but only until new supply chains were built.

Why is the government laying the straw

But why, then, are the authorities working on proposals with the introduction of external management and the transfer to new owners of companies leaving the market, which are more than 25% owned by foreigners? Obviously, despite statements about the temporary cessation of activities and the preservation of at least part of the salaries of employees, the government is preparing for the worst case scenario. Otherwise, there would be no need for an anti-crisis plan, which is entirely estimated at 1 trillion rubles, and the allocation of 370 billion rubles for unemployment benefits. Maybe the government knows something about which business owners prefer to remain silent?

Associate Professor of the Department of Corporate Governance of the Higher School of Corporate Governance of the RANEPA Viktor Solntsev admits the very fact of the return of the business, since the departure is not associated with personal preferences, but with external pressure:

- If the conflict in Ukraine is short, I think some significant part of Western companies will return. Think and come back. This behavior is largely due to the cancellation culture, and companies are simply forced to act in such a way as not to fall under its rink. As soon as there is any chance to return without running into accusations, they will do it.

But economist Vladislav Inozemtsev believes that it is not worth counting on the resumption of work of foreign enterprises:

Many will leave altogether. Companies like Ikea have a very high regard for moral imperatives. Luxury goods firms are also likely to leave, because Russia is not the most significant market for them. As for those companies that were deeply involved in production - car factories, for example, then I think that a lot of things will happen in these two months, after which they will not return.

Two months is a critical period. This is how long foreign companies can stretch without commercial activity, but with salary obligations, Viktor Solntsev believes:

- During the covid lockdown, it was also something similar, the most severe covid restrictions were 2 months - well, that means they can calmly stretch for 2 months, plus or minus a quarter. But it all depends on what point the escalation will now reach, where it will stop, and what will be the psychological state of Western communities so that companies can return without reputational risk.

The expert also emphasizes that even if enterprises return to Russia, it is not clear how they will continue to work in the current conditions:

- After all, we have now, in essence, abandoned the convertibility of the ruble, the question is how they will repatriate export earnings. That is, there immediately arises a whole range of questions. The point is not even whether they leave or not, but how they will work in the new economic system.

Difficulties for the return are also noted by Vladislav Inozemtsev:

- If during these two months external management is introduced or your property is taken away altogether, then it is not clear where to return, why and why. The returns will be very exotic occasions. After all, what can improve in these two months? During this time, lawsuits against Russia to the international tribunal will only be created and will begin to work. On the contrary, in two months the intensity of the struggle against Russia will be at its maximum.

The hut on the edge is no more

Domestic enterprises also do not operate in a vacuum. They depend on the supply of imported components, on the demand for their services. Unfortunately, it does not happen that some companies curtail their activities, while others do not pay attention to what is happening. This is especially true for industrial enterprises with complex production chains.

Professor of the Department of Economic and Social Geography of Russia of the Faculty of Geography of Moscow State University Natalya Zubarevich explained that the dependence of the domestic economy on imports is now extremely high:

- We have a lot of imports. I'll start with the production import. Even in Soviet products, we have a lot of components that we import. Because this is either the best quality, or we do not know how to do it. Many of these supplies will be frozen. And the process started. Many industries will stop only because they do not have any parts, components, although, it would seem, they produce Russian products. Refrigerators, TVs, washing machines…

And even if foreign companies, fueled by the finances of parent companies, will pay salaries to employees for some time before the final closure of the business, contractors do not have such an opportunity. No orders - no money. Moreover, it is subcontractors, as Vladislav Inozemtsev notes, who create the bulk of jobs:

- The subcontractors will have more problems than the enterprises themselves, for the simple reason that the enterprises themselves are, for the most part, quite efficient. There were times when the entire foreign car assembly provided fewer jobs than Avtovaz alone. Now this is not entirely true, but according to rough estimates, somewhere around 680,000 jobs are directly located at the enterprises of companies that have announced that they are leaving. But subcontractors who directly work for them are about 1.5 million. I think the ratio will be 1:2 between closing companies and subcontractors.

It turns out that Russia has a risk of losing about 2 million jobs - a bleak prospect. According to Rosstat, in December 2021, there were 72.5 million employed people in Russia, and 3.2 million people were unemployed. If prompt measures are not taken, unemployment could rise by more than 60%. But with effective measures against it - a big problem. The owner of the Teremok fast food chain, Mikhail Goncharov, recently explained why it is impossible to just take and create your own McDonald's after nationalization:

- Of course, no one will take the place of McDonald's in Russia, since no one in Russia has a similar business in terms of complexity and system. It won’t take even for the simple reason that the average bill and the price of dishes in Mac have always been extremely low... Teremok and other representatives of Russian business were not created as competitors to McDonald’s, simply because we don’t know how to do it the way they do. Neither technologically nor in terms of management and marketing.

Natalya Zubarevich is sure that there will be problems with employment, but they will not lead to total unemployment:

- A market economy is more flexible than a planned one. The auto industry will introduce part-time employment. People are sent on vacation either without pay (this is cruel), or by agreement of the parties with the payment of a tariff salary. For some time, a month or two, people can hold out. Now, if it stays like this for half a year, that's another story.

AvtoVAZ has already adopted a similar strategy: on Wednesday, March 16, the company's management decided to postpone the planned corporate vacation from July-August to April 4-24 in order to accumulate car components.

Chain reaction: several waves of unemployment

The departure of foreign companies is only the beginning of a black streak in the Russian economy, which will lead to the loss of a lot of jobs. Which areas will suffer the most - Natalya Zubarevich explained:

- The regions of the auto industry are especially hard to sink. And these are jobs. Production just stops. These are Togliatti (Samara region), Kaluga region, Kaliningrad region, there is a little auto industry in Vladivostok ( Mazda sits at the assembly there ), and St. Petersburg with the Leningrad region. A very strong blow to large cities. They have services in the form of dealers (car dealerships), there are airports (everything related to aviation shrinks very much with the loss of work). Travel agencies will suffer - they do not need so much. In oil and gas, the risks of job loss will begin when the so-called special operation in Ukraine drags on, as sanctions are added.

The exit of companies and sanctions set in motion a chain of events: job cuts lead to loss of income for people, which will make it increasingly difficult to create new jobs on their own. The general recession of the economy and the loss of the former standard of living are inevitable. Viktor Solntsev says that it is still very difficult to understand the depth of the fall:

- We made a forecast about a fall in GDP as a result of the entire economic situation, we got about a 7% decline in GDP, but this is very uncertain, it's just some kind of rough guideline. As for the decline in GDP precisely because of the departure of companies, no such forecasts have yet been made. It is possible to assess this at the level of individual industries and individual enterprises, but this is a long process.

According to Vladislav Inozemtsev, everything will be even worse:

- I will be very surprised if the fall in GDP at the end of the year will be less than 10-12%. These figures will soon become clear: in addition to Rosstat, there are a large number of leading economic indicators, the mood of purchasing managers and so on - there are a large number of indicators that reflect what is happening.

All hope for small business, but it will receive the least help

Askar Rakhimberdiev , CEO of the MySklad cloud service, an expert in small and medium-sized businesses, predicts several phases of the crisis:

- The first phase of the crisis will be the most acute until the turbulence in the market stops and the fall of the ruble stops. I think that soon we will see expensive counterfeit goods. The second phase will be addictive, flattening the falling demand curve. It is possible that offline retail will become more popular than online again, since in conditions where every penny counts, delivery may turn out to be an unaffordable luxury. However, small businesses have a chance, now someone needs to fill empty shelves and areas. The small business that we observed during the crisis of 2008, then 2014, then in 2020, when the pandemic began, shows resilience. Yes, a large percentage of companies close, but they open too. Small businesses are easier to restructure, they are flexible, they can start producing or selling hot items, such as masks for a pandemic.

The Russians are really no strangers to crises and the fall of the economy. In 1998-1999 alone, the economy of our country more than halved from $404.9 billion to $195.9 billion. During the crisis of 2008, the drop was 26.4% in dollars, in 2015 - by 34% in dollars.

The fall will be strong, everyone will be hurt. But at the same time, a lot of opportunities for domestic business open up. Whether entrepreneurs will be able to use them depends largely on the state. So far, the project of priority measures of the Cabinet of Ministers is practically not noticed by small businesses. Almost half of all funds (496 billion rubles) will go to social support, another 275 billion rubles to support transport (of which 250 billion can be received by Russian Railways), 99.8 billion rubles will be received by construction and the housing and communal services sector, backbone organizations will get 84.8 billion rubles , agricultural enterprises will receive 42 billion rubles. Small and medium businesses can only count on 23.3 billion rubles. He's at the very end of the line. Now we are waiting for a couple of months of uncertainty, while businesses and people have some reserves. The main scale of the disaster will be clear by early summer.