Business Buddies

Germany Shuns Mr. Putin's Conference

ST petersburg forum dpa
Germany must stand by while other countries take their chances. Here, the Shanghai Cooperation Organisation discusses new business opportunities at the St. Petersburg Forum on June 17.
  • Why it matters

    Why it matters

    Many of Germany’s international competitors are laying the groundwork for new business ventures at the International Economic Forum in St. Petersburg.

  • Facts

    Facts

    • Almost all German companies are adhering strictly to the economic sanctions against Russia.
    • Special business forums are planned for the Shanghai Cooperation Organization and the BRICs countries at the conference. 
    • The European Union is planning to extend the Ukraine-related sanctions until the end of January 2016.
  • Audio

    Audio

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While nealy all German firms continue to adhere strictly to the sanctions against Russia, their European and American competitors are finding loopholes to do business in the country, most recently at the International Economic Forum in St. Petersburg.

Only a few top German executives have accepted Vladimir Putin’s invitation to attend the forum,  which began Thursday in the Russian president’s home city of St. Petersburg.

The handful of German managers attending the event include: Mario Mehren, the new managing director of the BASF energy subsidiary Wintershall; Eckhard Cordes, the head of the supervisory board of the Bilfinger construction company, who has come as the head of the Committee on Eastern European Economic Relations; and Klaus Mangold, the TUI supervisory-committee chairman.

Other notable German attendees include: Randolf Rodenstock from the Confederation of German Employers’ Associations; Siemens management-board member Siegfried Russwurm; and Heinz Hermann Thiele, the chairman of Knorr-Bremse’s supervisory board. Mercedes and Deutsche Bank are sponsors of the event.

The coterie of German executives joins a huge gathering of CEOs and supervisory-board heads of Western companies such as BP, Enel and Carlsberg, as well as JP Morgan, Intesa and McKinsey.

The highest-ranking E.U. representative in St. Petersburg is Greek Prime Minister Alexis Tsipras.

According to Russian media reports, BP intends to seal an oil deal worth $700 million with Russia's state-owned oil giant Rosneft in the city on the Baltic Sea.

“We received clear instructions from the (German) chancellery to maintain the sanctions absolutely, but retain other business undertakings,” said the head of one German company’s operations in Russia, who asked to remain anonymous.

European Union countries agreed on Wednesday to extend economic sanctions against Russia until the end of January. The sanctions were imposed last summer in reaction to Moscow’s involvement in eastern Ukraine. E.U. foreign ministers are slated to ratify the agreement formally at a meeting in Luxembourg on June 22.

The ban on investments by E.U. firms in the Crimea, which was annexed by Russia, is rumored to be extended until June 2016. Several countries including Italy, Hungary and Greece had at one point questioned the extension of sanctions but there was no opposition at the meeting of the 28 member states, according to an E.U. diplomat quoted by the Reuters news agency.

Many Western companies have found a way around the restrictions imposed by the sanctions. For the economic The United States, for instance, lifted its informal prohibition of CEO travel to the Neva River Delta area of Russia, which incorporates St. Petersburg. And, according to Russian media reports, BP is poised to sign an oil deal worth $700 million with Russia’s state-owned oil giant Rosneft in the city on the Baltic Sea.

“When we aren’t permitted to deliver to state companies on the E.U. or U.S. sanctions lists, they often immediately set up as a new and supposedly independent firm as a buyer,” said one representative of a European company, who also asked to remain anonymous.


Video: St. Petersburg International Economic Forum’s kick off video.

Goods from the United States and European Union are also finding their way into Russia via circuitous routes, according to representatives of European and Russian firms. China is said to be “the last resort” when other routes aren’t possible. Indirect routes are said, for instance, to include sites in Turkey or deliveries via Brazil.

Still, business with Russia has declined significantly.  “Under today’s conditions, we wouldn’t have taken on projects that we recently began in Russia,” said the head of Russian operations for a significant mid-sized company in Germany, who asked not to be named. “We are sliding into the loss zone because of the decline of the ruble.”

E.U. countries’ trade with Russia fell from $417.7 billion in 2013 to $377.3 billion in 2014. For U.S. trade, the Russian Statistical Office reported an increase from $27.6 billion to $29.2 billion in spite of sanctions.

After a temporary recovery, the ruble is falling once again. And following a 2.2 percent decline in economic performance in this year’s first quarter, the country’s minus grew to 4 percent in April, according the Russian ministry for economic affairs.

 

Mathias Brüggmann is an international correspondent at Handelsblatt. To contact the author: brueggmann@handelsblatt.com.

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