Russian President Vladimir Putin on Thursday endorsed a plan to nationalize foreign-owned businesses that flee the country over its invasion of Ukraine, reflecting the Kremlin’s alarm over job losses and other economic pain the exodus is inflicting.
Putin’s approval of the plan, scheduled to be discussed in Russia’s parliament Friday, came as Goldman Sachs said it was “winding down” its business in Russia, following hundreds of other Western firms that have closed or suspended operations.
Japanese clothing retailer Uniqlo and U.S. chain Victoria’s Secret also joined the list by announcing they will temporarily close Russian stores, prompting long lines as shoppers queued for what might be their last chance for months to purchase the goods. Similar lines have formed at Ikea, McDonald’s and other departing companies as Russians grow anxious about losing access to consumer products.
During a meeting with government officials Thursday, Putin said Russia must “introduce external management” on departing companies “and then transfer these enterprises to those who want to work,” endorsing a legislative proposal that would create a pathway for the government to take over and eventually sell businesses that quit the country.
Putin’s remarks are another sign of the economic distress hitting Russia in the wake of unprecedented Western sanctions. The ruble has lost more than 40 percent of its value since the invasion began two weeks ago, prompting Russia’s central bank to restrict trade of the currency to try to halt its fall.
The central bank this week also placed limits on withdrawals from foreign-currency accounts as Western sanctions limit the nation’s supply of dollars and euros, prompting Russians to form long lines at banks to try to withdraw their hard-currency savings.
Russia’s business ties to the West took 30 years to build and one week to shatter
The signs of consumer panic are early symptoms of turmoil that will grow sharply in the coming weeks, said Maxim Mironov, a Russian economist at IE Business School in Madrid.
As global shipping companies halt cargo deliveries to comply with sanctions, Russia will eventually run short of imported food, clothing and other goods, Mironov said. Russian manufacturers and airlines won’t be able to get the imported components they need to maintain operations. And the ruble’s sharp fall means any imports will be much more costly, he said.
The effect of sanctions and corporate departures “is not like a bomb hitting a house that destroys it immediately,” Mironov said. “People can still buy stuff, people still have some money, people still can at least travel within Russia. But very soon it’s going to be very much different. It’s going to be a disaster.”
Late Thursday, the White House warned Russia against nationalizing assets.
“Any lawless decision by Russia to seize the assets of these companies will ultimately result in even more economic pain for Russia,” White House press secretary Jen Psaki said in a tweet, adding that such measures “may also invite legal claims from companies whose property is seized.”
Putin on Thursday told his cabinet that Russia “must get through this period.”
“The economy will, without doubt, adapt to the new situation,” he said. “We will continue import substitutions. And all of this will lead to the strengthening of our independence, self-sufficiency and sovereignty.”
The nationalization proposal would allow the government to request a court order to impose external management on the factories, shops and other facilities that departing companies leave behind to “prevent bankruptcy and preserve jobs,” Putin’s party, United Russia, said in a statement this week.
External management would last for three months, after which the government would put the businesses up for auction, the party statement said.
The rule would apply to companies in which “unfriendly nations” own more than 25 percent and which “stop operations” in Russia, Putin’s political party said.
Companies will be able to halt the nationalization process if they restart their businesses within five days of the court order or sell their assets in a manner that preserves the business activity and jobs, the party said.
Mironov, the economist, said many Russian leaders don’t grasp what it would take to continue running these companies.
Ikea “furniture is not growing inside the stores. … Many officials don’t understand how the modern economy will run,” he said. “If you have a BMW factory but BMW will not ship you components, what is the point? If you seize Ikea and Ikea isn’t going to ship you products, it’s not going to work!”
The proposal is one of several that Russia has floated or approved in recent days to retaliate against “unfriendly nations.” One government decree issued this week essentially allows Russian entities to violate Western patents, a step Russia could take to try to produce “devices and technologies that disappear from the Russian market or will be in short supply,” the law firm Baker McKenzie said.
A new iron curtain descends on Russia amid its invasion of Ukraine
More than 330 foreign companies have announced their withdrawal from Russia, according to Yale School of Management, putting thousands of jobs in jeopardy.
The companies have cited several reasons for fleeing, including outrage over the Ukraine invasion and difficulties processing payments and importing supplies into Russia because of Western sanctions.
Uniqlo said it is facing “operational challenges” in Russia and is opposed to “all forms of aggression that violate human rights and threaten the peaceful existence of individuals.”
Goldman Sachs said it is “winding down its business in Russia in compliance with regulatory and licensing requirements.”
McDonald’s, which is temporarily closing 850 restaurants, will continue to pay its 62,000 Russian employees and make lease payments on its locations in the country, Kevin Ozan, the company’s chief financial officer, said in a meeting with analysts this week.
He estimated those payments and other costs associated with closing down business will total $50 million a month.
“We expect this to be temporary, and we certainly don’t take this decision lightly,” he said.
Vyacheslav Volodin, speaker of the lower house of parliament, the State Duma, said Thursday that Russian-branded restaurants should take over McDonald’s locations.
“They announced they are closing. Well, okay, close. But tomorrow in those locations we should have not McDonald’s, but Uncle Vanya’s,” he said. “Jobs must be preserved and prices reduced.”
Douglas MacMillan contributed to this report.
The latest: Russia expands attacks to Ukraine’s west, as ground forces maneuver near Kyiv as the Russian military sees limited gains at a heavy cost. Meanwhile, in the U.S., President Biden will seek to end normal trade relations between U.S. and Russia.
Oil exports: Russia is the world’s largest oil exporter, sending more than 7 million barrels of crude oil to countries around the world, including to Germany and other E.U. members.
The fight: Casualties are mounting in Ukraine — including civilians, while Moscow is facing allegations that it has used cluster and vacuum weapons. As many as 4,000 Russian soldiers may have died, according to a U.S. general.
Map: Russia’s assault on Ukraine has been extensive with strikes and attacks across the entire country.
The response: Russia’s war could be a global economic “game changer,” with rising gas prices and shifting trade decisions suggesting change that will be felt for years. Meanwhile, in Russia, online access has been significantly curtailed by censors at home and businesses abroad.
How you can help: Here are ways those in the U.S. can help support the Ukrainian people as well as what people around the world have been donating.
Read our full coverage of the Russia-Ukraine crisis.
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