Domestic Product

With Operations in Russia, German Firms Avoid Bite of Western Sanctions

  • Why it matters

    Why it matters

    German firms unaffected by sanctions continue to do business with Russia, but if the political situation deteriorates, some may face greater difficulties.

  • Facts

    Facts

    • There are approximately 6,000 German businesses active in Russia, according to estimates by the German Economy Ministry.
    • At the end of 2012, German direct investment in Russia was €23 billion ($30.7 billion).
    • European Union sanctions currently affect the military and arms trade, energy and finance.
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    Audio

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In the town of Volzhskiy in the Volgograd region of southern Russia, two German companies, Jena Analytik and AJZ Engineering, are in the final stages of constructing and equipping a new 150-bed kidney transplantation and dialysis center. With offices across Russia, the German companies are also building a radiopharmaceutical manufacturing center for a neurosurgery institute in Moscow, financed by the Russian government.

Russia accounts for nearly one fifth of sales at Jena Analytik, which has operated in the country since before the communist revolution. “We are very involved there,” said Dana Schmidt, a company spokesperson. “And, of course, we’re watching the situation closely.”

Ms. Schmidt said the company is concerned how the sanctions could affect spending in Russia, in particular investment in the hospital sector.

The latest round of sanctions has bit into business between Russia and Germany, and even more could be on the way if the conflict in Ukraine worsens. Yet, for many small German firms long established in Russia, it’s business as usual.

The latest round of sanctions has bit into business between Russia and Germany, and even more could be on the way if the conflict in Ukraine worsens.

Cedima, which is based in Celle in former East Germany, sells diamond components for construction equipment from its Moscow offices. “We’re still operating; we haven’t been affected by the sanctions,” said Alexander Redich, a sales manager at Cedima. “We’re not military, nor a bank, but if the situation changes, we are looking at how to react.”

Christine Kuhne runs a travel agency specialized in selling Germans vacation trips to Russia and the Ukraine. “We’ve had a lot of cancellations,” she said, adding that some business partners specialized in the Crimea have gone out of business. But Kuhne is still booking some trips. “People involved in longer-running projects such as aid programs, church exchanges and city partnerships, are still travelling,” she said.

Another mid-sized German company, Claas, which makes farm equipment, has not felt any impact from the sanctions at its plant in Krasnodar, in southern Russia near the Black Sea, but doesn’t rule it out. “We’re still serving customers, but we expect the situation in Russia and the Ukraine will affect our business in the region this year,” said Theo Freye, a company spokesperson. Claas recently invested €100 million ($134 million) to expand production at its Russian plant.

 

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Siemens is still shipping equipment.

“Of the contracts we have, they are from our plants in Russia for delivery to local customers in the country,” Joe Kaeser, chief executive at Siemens, said when announcing second-quarter results earlier this month.

Siemens has 3,200 employees in the country and most are Russian citizens. In 2013, it had sales of €2.17 billion in Russia, and reported new contracts worth than €2 billion for it energy, healthcare, industry and infrastructure products. Siemens delivered turbines to a power plant in Perm, an iron processing plant and high speed trains for railway lines connecting Moscow, St. Petersburg and Nizhny Novgorod.

Siemens is keeping a close eye on developments, Mr. Kaeser said at the time.

“The current Ukraine-Russia crisis won’t have an effect on the guidance for 2014,” the Siemens chief executive said. “The deliveries that are being done there are local, so are a transaction within the country from our factories to our customers.”

“For the majority of German firms active in Russia, work continues as normal.The only complication with sanctions is potentially with goods which could be classified as dual use.”

Marcus Felsner, chairman of the German East and Central Europe Association

“If it comes to sanctions and escalation, of course, the business will be affected,” Mr. Kaeser told journalists and analysts. “But I don’t want to talk about what’s wrong or right. What’s important is that the parties continue dialogue to come to solutions.”

“For the majority of German firms active in Russia, work continues as normal,” said Marcus Felsner, chairman of the East and Central Europe Association, a German trade group. “The only complication with sanctions is potentially with goods that could be classified as dual use.”

European clients are responding differently to the Russian situation, said Anastasia Verevkina, an analyst for Kienbaum, an executive search firm based in Germany. “Some European companies are postponing their activities in Russia but they are hoping the situation will get better,” Ms. Verevkina said, speaking from Kienbaum’s office in Moscow. She observed that while two German firms have cancelled their plans in view of the sanctions, a French client is continuing its work with Russian partners.

“It depends less on the industry and more on a company’s individual management,” she said. “But Russian firms are continuing to work as usual. They still want to enter European markets and do business in Europe.”

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