French Companies Resist Sanctions Against Russia

17 October 2014, 15:06

There are currently 1,200 French enterprises operating on Russian territory, making France Russia’s third largest investor. Some of them had truly ambitious goals, such as Renault, together with its Japanese partner, Nissan AvtoVAZ. The sale of 200,000 vehicles a year guarantees it the status of the largest foreign investor in Russia, owning an 8% share of the Russian automobile market. With the sales of Nissan and AvtoVAZ added up, the alliance makes every third car currently bought in Russia. And Russia is the third largest consumer of the French car-building giant in the world.

Other French companies have made massive investments, too. For example, Auchan, an international retailer, has opened 80 supermarkets in Russia, employing 38,000 workers. Danone, a dairy company, gets 11% of its annual turnover from Russia: this is the company’s most important foreign market. Russian assets significantly impact the operations of the French bank, Société Générale, which bought out the ninth largest Russian bank, Rosbank. The producer of railway technology, Alstom, which acquired 25% of the leader of Russian locomotive manufacturer, Transmashholding, is also dependent on the Russian market.

All of these enterprises believed in the potential of Russia. Many have already felt the consequences of political decisions and are afraid of what the future holds. Société Générale has just announced positive results at a level of EUR 16mn in the second quarter of 2014. But this is 30% less than in the previous year. The sales of Renault cars have fallen by 9%, the Russian domestic automobile market is collapsing. The oil concern Total is probably the one that is troubled the most. It joined the project for the development of oil deposits in Yamal, together with Novatek (which holds 18% of shares) and the Chinese CNPC, investing USD 27bn. This project was to have made Russia Total’s first production zone in 2020. However, this initiative is now under threat, because the sanctions could prohibit Western banks from financing it.

The situation is also influenced by the general slowdown of the Russian market which sanctions will aggravate further. French enterprises are afraid of a chain reaction in different sectors, because it is as yet unclear how far Moscow is prepared to go in the confrontation with the West. It is well-known that above all else, business hates the unexpected and risks.

When talking about Russia, the French constantly waver between two lines of behaviour. The first is fed by memories of “Russian imperial debts” (the money that was lent to it before the Bolshevik Revolution of 1917). The Communists confiscated all funds, and for a long time, the country was known as being high-risk from the financial viewpoint.

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The second line emerged in the 1990s, when the “strategic partnership” project came into being. The EU supported this concept, which was promoted the most by Germany. It entailed the creation of privileged relations with the Kremlin under the “oil for technology” principle. Russia sold its raw material to rich European clients, and the latter invested in the modernisation of the country. The scheme lasted 10 years. The current crisis reflects that it has outlived its usefulness.

Federica Mogherin, the EU's new foreign policy chief, has already delivered a verdict: “Russia is no longer a partner of the European Union” she announced in recent days.

In spite of numerous risks, France’s big business is trying to move contra to decisions approved in the EU, not wishing to give up its long-term presence in Russia. Some succeed in their active resistance to the sanctions. When Sergey Naryshkin, the Chairman of the State Duma who is on the EU visa ban list, visited Paris on September 1, quite a few managers of French companies operating in Russia hurried to meet him, including the executives of Auchan, Total, GDF Suez (a large client of Gazprom and an investor in the Nord Stream pipeline). Emmanuel Quidet, President of the French-Russian Chamber of Commerce and Industry, a Frenchman, who has long lived in Moscow, continuously protests against the sanctions, which “are holding enterprises hostage”.

Official Paris is extremely sensitive to the issue of employment and is also resisting the sanctions, because they will inevitably increase France’s unemployment. The issue of jobs is the principal counterargument in favour of the sale of Mistral helicopter carriers to Russia. Even so, the reality of war in Ukraine has forced at least a temporary suspension of the contract. Other sanctions are faced with similar situations. France is forcing itself to implement them, without enthusiasm, agreeing to them at the last moment, when there really is no other option. Let’s be realistic: this behaviour will not change in the coming months, in spite of all its brutality and egocentrism.

When Sergey Naryshkin, the Chairman of the State Duma, who has been prohibited from entering the EU, visited Paris on September 1, quite a few managers of the French companies operating in the RF, hurried to meet him

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