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Bracing for sanctions: German businesses react to invasion

February 24, 2022

For years, Germany's policy on Russia has been to promote political change through trade. Now, German companies with investments in Russia and in Ukraine are faced with imperiled staff and expensive uncertainties.

An entrance to a newly opened Metro Cash&Carry hypermarket in Vladikavkaz, the capital city of Russia s Republic of North Ossetia-Alania
German wholesaler Metro employs 10,000 staff in RussiaImage: Anton Novoderezhkin/ITAR-TASS/imago images

German business leaders have reacted emotionally to today's Russian attack on Ukraine. For years, German policy on Russia has been to promote positive political change through economic ties — the so-called Wandel durch Handel, or "change through trade."

Germany is one of Russia's most significant foreign investors, with direct investment amounting to about €25 billion ($28 billion).

According to the Moscow branch of the German Chambers of Commerce Abroad, there are 3,651 German-run companies active in Russia at the moment. In 2019, these firms employed more than 277,000 people.

The situation is different in Ukraine. While there are an estimated 2,000 German companies active there, employing around 50,000 people, German direct investment there amounted to about €3.6 billion in 2019, according to the German central bank, the Bundesbank.

Many of these businesses are now facing uncertainty and possible sanctions at best, and crisis situations, with their staff in physical danger, at worst.

What happens next?

"We cannot yet foresee the economic impact of this invasion, but it is likely to be severe," Peter Adrian, the head of the Association of German Chambers of Commerce and Industry, told DW.

"As president of the association, my thoughts are with the employees of German companies [in Ukraine] and our branch in Ukraine."

Additionally, he noted, staff at German-run firms in Russia and Ukraine, as well as at the Russian-German chamber of commerce, will also be dealing with a very difficult situation and a lot of uncertainty..

"We are deeply shocked by the Russian invasion of Ukraine," said Oliver Hermes, the head of the German Eastern Business Association, which promotes trade ties in eastern Europe. "This is an unjustifiable attack on a sovereign state, its citizens and on peace in Europe, and the world. Everyone will lose in this war," he said in a statement released by the Berlin-based organization on Thursday.

Support for sanctions

The Mechanical Engineering Industry Association of Germany, or VDMA, issued a statement on the conflicton Thursday.

"The VDMA and its members are stunned that Russia has started a war in Europe," Karl Haeusgen, head of the association said. The VDMA represents over 3,400 German businesses working in mechanical engineering.

His association supported "the decision to impose tough sanctions," Haeusgen added. That was despite the fact that the association was aware that the sanctions would have an impact on its own sector, "the extent of which cannot currently be estimated."

A woman works on an electric motor.
One of Germany's most popular exports to Russia is engineering equipmentImage: Waltraud Grubitzsch/dpa-Zentralbild/picture alliance

Because of the Russian attacks, Hamburg-based port and logistics group HHLA suspended work at its container terminal in the Ukrainian port town of Odesa. HHLA has operated a container terminal at the Black Sea port since 2001.

A spokesperson reported that all 480 of its employees were safe and that the company has activated a crisis team, which is in contact with both local authorities and the German government.

The company still had two ships at the port, ready to leave, the spokesperson added, although it was unclear if they would be able to.

German giants in limbo

German company, Knauf, one of Europe's leading suppliers of building materials with annual revenues of around €12.5 billion ($14.1 billion), has also closed down its factory in Donbas, in eastern Ukraine, due to the Russian invasion.

The decision to close the plasterboard factory there until further notice and to send staff home was made on Thursday morning "purely as a precautionary measure," the company said. Everyone was safe, it confirmed. At the end of last year, Knauf employed 589 people at the site. The workforce did not include any German citizens.

"I hope that the conflict will deescalate, so this situation can be defused," Ola Källenius, chairman of the Mercedes Benz Group's management board, said during a Thursday press conference announcing the company's financial results. Mercedes doesn't have any staff in Ukraine but does have a factory near Moscow. The company's first priority, said Källenius, is its people.

Containers being unloaded feature the HHLA logo.
Hamburg's HHLA runs a container port in Odesa, UkraineImage: Marcus Brandt/dpa/picture alliance

Metro, a German food wholesaling giant, also expressed concern. "Our responsibility as a company in Russia is above all to our approximately 10,000 employees and 2.5 million customers," a spokesperson said on Tuesday.

Over the past financial year, Metro, which is mostly supplied by domestic food producers, totaled revenues of around €2.4 billion in Russia, through its 93 markets there. In Ukraine, where it runs 26 markets, Metro made revenues of about €800 million ($906 million) during the last financial year.

German telecommunications company Deutsche Telekom is in a similar position. It doesn't have any staff in Ukraine but it does employ around 2,000 people at a software development site in St. Petersburg in Russia.

Deutsche Telekom boss, Tim Höttges, has spoken of offering staff there visas and re-locating business activities currently undertaken in Russia. The company's financial managers also expressed concerns about how to pay Russian staff and how to supply software and hardware, in the event of sanctions.

ul/hb (Reuters, dpa, AFP, tagesschau.de)

This article was originally written in German.