With regard to Russia’s war in Ukraine, two things are clear to German family businesses: They will feel the consequences of this war for a long time – and the worst is yet to come.
Dependence on the Russian market is limited overall because Russia’s economy is comparatively small. The Russian national product is only a tenth of China’s economic output.
For most companies, the direct effect of sanctions should also remain manageable, although there are also family companies with a strong position in Russia that are already suffering painful losses. In the majority of family-owned companies, however, the assessment that the so-called second and third round effects of the war will be significant prevails.
This means the indirect consequences of the war, such as exploding energy prices. A current survey of 1,100 companies conducted by our foundation shows that companies are increasingly putting their investment decisions to the test due to the rise in energy prices.
In addition, there are massive disruptions in the supply chains, for example in China, and the threatening shortage of raw materials. Added to this is the uncertainty as to what the higher inflation rates mean for the next round of wages. The upheavals will inevitably lead to economic slowdowns, which will weaken tax revenue as well as the financing of our welfare state and the political leeway.
The family businesses support the sanctions with full conviction. They are the price of defending the rights of free and sovereign states. Nevertheless, we must not lose sight of what this also means for employment in Germany.
The price that we have to pay cannot yet be precisely assessed. But the uncertainty has increased. Long-term consequences include changes in trade flows.
The EU needs a new free trade agreement
The family businesses ask themselves: In which markets can and do we still want to be active in the future? Will there be a new split in world trade?
As a result of the Russian crisis, the discussion about taking a tougher stance on China has gained momentum. However, we must warn against further escalation. Trade cannot simply be divided into “good” democratic states and “bad” authoritarian regimes.
This is illustrated by the example of India, which is a democracy but has close ties with Russia. It would be short-sighted to stop trading with India because of its proximity to Moscow.
Overreactions towards China are also out of place. This would create an economic conflagration. What is important now is a new push for free trade. The EU free trade agreements with Canada and the Mercosur countries have been on hold for a long time and should finally be implemented.
The need for sanctions against Russia and Belarus must not be used as an excuse to turn back global trade altogether.
It is often overlooked that the integration of states in trade and value chains made social and societal improvements possible in the first place. A flight into 19th-century nationalism would be irresponsible.
Family businesses in Russia fear expropriation
It is advisable not to talk about the effect of the sanctions imposed on Russia. From the point of view of family businesses, the economic sanctions are clearly noticeable. This is shown by their experiences with contacts in Russia: local business partners report that it is becoming increasingly difficult to obtain materials.
This also applies to spare parts that are not on the sanctions list. In many cases there is hardly a freight forwarder who will take on the risky transport to Russia.
Russian citizens will notice this in everyday life – whether it is the availability of mobile phones or the supply of cash. It is also foreseeable that Russia is threatened with a far-reaching lack of technology. On the effectiveness of the sanctions The fact that some companies – for example from the pharmaceutical or food industry – continue to supply the Russian market does not change anything because they bear responsibility towards consumers, patients and those in need of care.
But many family businesses whose products do not fall under the sanctions have also decided to shut down their operative business in Russia. They report that the shelves in Russian shops are sometimes filled with Chinese products within a few days. As so often, China is stepping into the breach.
>> Read here: War in Ukraine causes considerable problems in purchasing
In return, the Russian government is threatening to nationalize companies that run into problems due to a lack of supplies from the West or that deliberately stop operating in Russia. The pressure from the Russian authorities on the local management is also increasing.
This raises the question of whether German family businesses will have to accept expropriation in Russia without compensation. For them, high investments are at stake, which Putin’s power apparatus would like to incorporate. German companies often do a balancing act: They stand by their employees in Russia and continue to pay them despite production stops.
After all, they also feel a duty of care towards them. You don’t pull the ripcord immediately. Some family businesses have even given their local employees an employment guarantee for the next few months to give them more security.
The consequences of Russia’s decoupling are not foreseeable
The standstill can be financed for a few months, but this is not possible in the long term because of the losses incurred. In the next few months, German companies will have to decide whether to finally withdraw from the Russian market.
This would further isolate Russia from the rest of the world. One thing is clear: the extent of Russia’s economic decoupling will only become fully apparent in a few months.
The time is running. This war not only causes unspeakable human suffering. The long-term economic consequences are also so drastic that they destroy decades of economic cooperation. This throws back not only the individual companies, but also their employees in Russia, who have often been working for German companies for decades.
The author: Rainer Kirchdorfer is on the board of the Foundation for Family Businesses and Politics.
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