Russian companies with foreign links have fallen by 40% in 3 years
The number of companies with foreign shareholders operating in Russia has fallen by 40% in the past three years due to international sanctions, the coronavirus pandemic and Russia’s desire to isolate its economy.
Business consultants Kontur found that the number of foreign-invested companies – in which a non-Russian company or individual has a stake in the company – fell to 28,400 in August, according to a study released on Friday. This was down from over 47,000 three years ago.
The fall brings the share of Russian companies with foreign shareholders below 1%. In total, there are about 3 million companies and legal entities registered in Russia.
“We are seeing a clear downward trend in the number of organizations in Russia with foreign participation,” said Vladimir Savelyev, Kontur data analyst. “This may indicate both an outflow of foreign capital from the country and a reduction in the number of companies registered in offshore areas.”
Since the annexation of Crimea in 2014 and the imposition of Western sanctions, the Kremlin has launched an ambitious campaign to push back foreign investment in key sectors of the Russian economy in order to protect the country from any further escalation of tensions with the West.
Russia banned most agricultural imports from the EU, for example, and has invested heavily in the promotion of craft technology, often with the use of coercive tactics and laws, such as warrants to use Russian products in government contracts or drastic “Internet sovereignty” measures.
Foreign investors have also been put off by the high perception of corruption, an opaque bureaucracy and high-profile legal cases such as the arrest of US investor Michael Calvey, surveys showed.
Elena Kataeva from Kontur estimated a “systematic decline” in foreign investment in Russia of around 15% per year since 2018.
The coronavirus pandemic made matters worse last year, with foreign investment in Russia to crash at its lowest level since 1994 last year, according to Central Bank data.
The Kremlin has also embarked on a so-called relocation campaign to make it less attractive for Russian companies to register in low-tax foreign jurisdictions. Tax treated with Cyprus, Malta and Luxembourg have been revised in the past 12 months to increase levies on profits recognized abroad, while Moscow abandoned a similar treaty with the Netherlands after officials in the country l The EU refused to accept Russia’s terms for renegotiation.
Cyprus-based investors accounted for 23% of all foreign shareholders in Russian companies, Kontur found.
At the same time, Russia has introduced a number of its own special low-tax jurisdictions in the Far East to promote investment in the region and realize long-term plans for the development of the low-density territory of population.
Despite Western sanctions against Russia’s lucrative energy industry, it remains the sector of the economy with the highest level of foreign participation, Kontur found, with 15% of companies registered in Russia having foreign shareholders.