Why Putin is placing Nestlé under compulsory administration

Nestlé has been targeted despite having no desire to leave Russia Keystone-SDA

Swiss multinational Nestlé is losing control of part of its business in Russia. By presidential decree, two of Nestlé’s subsidiaries have been placed under Russian compulsory administration. Russia correspondent Calum MacKenzie explains the situation.

Why is Putin doing this?

This decision follows a complaint lodged by a Russian company. The company has accused Nestlé of failing to expand its production in Russia and of not exporting anything.

These arguments sound like pretexts. They are not the sort of grounds that would normally lead to the government ordering compulsory administration.

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Past cases of such forced administration have shown that they are usually a precursor to expropriation by the Russian state. Consequently, the expropriated company is often awarded to a figure or company with close ties to the Kremlin.

It stands to reason that such a figure is behind the company’s complaint.

Who could that be?

We do not know. The Russian company that brought charges against Nestlé and demanded compulsory administration is a small firm that hardly anyone had heard of prior to this episode.

But it is worth looking at who is now running the companies that were previously expropriated. These include the Danish brewery group Carlsberg and the French food manufacturer Danone.

In Danone’s case, the company’s Russian operations are now owned by figures associated with the Chechen leader Ramzan Kadyrov, who is one of Putin’s most loyal governors in the non-ethnic Russian parts of the country.

It is therefore conceivable that Kadyrov was allowed to take over the Russian Danone business as a kind of reward or to keep him loyal. But the Nestlé case is somewhat different in nature.

How does the Nestlé case differ?

In the cases of Danone, Carlsberg and other expropriated firms, the owners were Western companies that wished to leave the Russian market following the start of the war of aggression against Ukraine.

Before they could do so, they were placed under compulsory administration and then expropriated. This gave Western companies in Russia the impression that they would have to expect this ‘punishment’ if they wished to leave the country.

But Nestlé had no plans to withdraw from Russia. It had complied with the regime’s rules. So the compulsory administration now comes as a surprise.

Why the escalation now?

At present, that is still difficult to assess. But a few conclusions can be drawn from the signal this action will send. Western companies still in Russia probably thought they were safe as long as they made no move to leave the country.

That no longer seems to be the case. But leaving the country is now difficult. It would contradict rules that were previously thought applicable.

There is now a situation in which the Kremlin can put Western companies under pressure at will – blackmail them, so to speak – by threatening expropriation.

The situation can be viewed in the context of the Russian economy running into difficulties this year due to the war against Ukraine. The state is therefore looking for new ways to circumvent sanctions and raise money from different sources to plug the budget deficit.

Translated from German, sub-edited by Matthew Allen/ts