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French firms in Russia under pressure to leave

March 29, 2022

French companies in Russia are increasingly coming under pressure to exit the country. But leaving is not an easy decision and could even be counterproductive for the West, say some economists.

A Leroy Merlin store in Russia
Leroy Merlin operates about 100 DIY stores across RussiaImage: Anton Novoderezhkin/dpa/TASS/picture alliance

As Ukrainian President Volodymyr Zelenskyy undertook his  virtual tour through the parliaments of the United States, the United Kingdom and Germany over the past few weeks, he mostly asked for more weapons and jets to fight the Russian army invading his country.

In his video address to the French parliament last Wednesday, though, the 44-year-old also targeted specific French companies.

"French firms should leave Russia," Zelenskyy urged, as always dressed in a khaki T-shirt and with the yellow-blue Ukrainian flag in the background.

"[Carmaker] Renault, [supermarket chain] Auchan and [DIY chain] Leroy Merlin have to stop being the sponsors of the Russian war machine — values are more important than profits," he added.

Then he called for a worldwide boycott against Renault.

Not an easy decision

But leaving Russia is not an easy decision. And affected companies — and some economists — say it could even be counterproductive for the West.

Zelenskyy: Sanctions were 'a little late'

Carmaker Renault announced a few hours after Zelenskyy's speech that it would stop activities at its only factory in Moscow, and "rethink" its 68% stake in Russia's Avtovaz, the manufacturer of traditional Russian car brand Lada.

"We have been monitoring the situation since the start of the invasion and now decided that we could no longer maintain our activities in Russia — also because the war is likely to drag on," a Renault spokesman told DW.

He added that Renault leaving Russia had far-reaching consequences. The group, of which the French government holds a 15% stake, has lowered this year's profit forecast from 4% to 3%. And the future of its 45,000 employees in Russia is now up in the air — even though the company continues to pay their wages for the time being.

Biggest foreign employer in Russia

The human factor will also be part of the equation when other French companies ponder their options in Russia. France's firms are the country's biggest foreign employer, according to figures from the French Economy Ministry — with 500 subsidiaries in sectors like energy, wholesaling or the food industry that employ a total of 160,000 staff.

"French companies are often active in the labor-intensive services sector, as opposed to their German or Italian counterparts," Julien Vercueil, an economist specialized in Russia and post-Soviet States and vice president at the Paris-based National Institute for Oriental Languages and Civilizations, told DW.

Renault plant in Russia
Renault has warned that the company's withdrawal from Russia would have severe consequencesImage: Stanislav Krasilnikov/TASS/picture alliance

Leroy Merlin, for instance, has roughly 100 stores and 45,000 employees in Russia. The group is facing headwinds for maintaining its activities on Russian soil, also through demonstrations in France and Poland. Even Leroy Merlin's own Ukrainian staff are demanding that the company leave Russia; they launched an online petition after a recent bomb attack on a store in Ukraine's capital, Kyiv, killed eight people.

But Leroy Merlin's parent company, Adeo, argued against a departure in a recent press release. "We carry responsibility for our staff and their families," the group wrote. It added that leaving could even be counterproductive: "It would mean premeditated bankruptcy and expropriation of our assets, which would boost Russia's finances."

'A huge present for the oligarchs'

Energy giant TotalEnergies, not mentioned in Zelenskyy's recent speech but also present on Russian soil, has invoked the same argument.

"Us leaving the country would be a huge gift for the oligarchs," the company told DW. The group will stop buying Russian oil by the end of this year, but continue to purchase Russian gas.

TotalEnergies lacks alternatives to replace what, at 17%, is the biggest share of its worldwide gas purchases. And although the company announced it would make no additional investments, it plans to maintain its stakes in half a dozen Russian firms totaling €13 billion ($14.3 billion).

Logo of TotalEnergies
TotalEnergies has stakes in half a dozen Russian firms totaling €13 billion ($14.3 billion)Image: GONZALO FUENTES/REUTERS

Yannick Jadot, candidate for the Green Party in France's upcoming presidential election, has accused TotalEnergies of being "[Russian President] Putin's accomplice in its bombardment of civilians."

The group's CEO, Patrick Pouyanne, reacted with outrage. "I'm an angry boss," he said in an interview with French radio network RTL adding that such language was "extremely grave" and "an insult." TotalEnergies is now suing Jadot for libel.

For the moment, the international sanctions on Russia don't mean European companies will have to leave the country. And the French government doesn't seem to want to make that decision for them.

"I have asked companies active in the sectors concerned by the sanctions to follow the rules set out by France," said French President Emmanuel Macron at recent NATO and G7 meetings in Brussels. "But my position is that companies should decide by themselves [whether they should maintain their activities in Russia]."

'This is about defending European values'

Russia specialist Vercueil understands the government's restraint. "If companies employing a lot of staff withdraw their business from Russia, there's a risk Putin will use this for his propaganda and say 'Look, they want to punish you – the West is anti-Russian'," he said.

"That could unite the Russian population with its president," he added.

Edouard Simon, head of research for security matters and European defense at the Paris-based Institute for International and Strategic Relations, adds that the international allied nations have to thoroughly gauge the effectiveness of sanctions. "It's a fine line — the sanctions need to harm Russia more than Europe and France," he told DW.

A customer pushes a shopping cart in an Auchan Hypermarket in Moscow
French supermarket chain Auchan was also targeted by the Ukrainian president, who said the firm should leave RussiaImage: Getty Images/AFP/N. Kolesnikova

Simon thinks this explains the West's reluctance to impose an energy embargo. "It would have a huge economic impact on Europe and governments will want to prevent that, especially the French one in the times of a presidential election campaign," he said.

But Olivier Marty, a lecturer in European economics at Paris university Sciences Po, said the West should be willing to shoulder that burden. He points to a set of measures France recently decided and which are aimed at compensating the negative effects of the sanctions. They include subsidies for energy purchases and furlough.

"If push comes to shove, other European countries will also have to put forward such measures," he said. "After all, this is about defending European values."

Edited by: Hardy Graupner