Experts assess EU sanctions' impact on foreign businesses in Russian SEZs
In late October, as part of its 19th package of sanctions, the European Union imposed restrictions on a number of Russian special economic zones (SEZs). These sanctions will have little impact on foreign companies operating in Russia, as they are mainly focused on the Russian market, according to the authorities and experts, Kommersant reports.
The Official Journal of the European Union notes that special economic, innovation and preferential zones "are a key element of Russia's economic development strategy" and are designed to "attract direct investment and develop industrial, technological and innovative potential by providing preferential tax, customs and regulatory regimes for industrial parks, technology clusters, logistics centres and port areas."
The sanctions prohibit any new participation in existing joint ventures, the creation of new ones, and the provision of financing to any enterprises established in or operating through a number of SEZs. The European Union also prohibits the signing of new contracts with such enterprises.
The restrictions apply to residents of the free port of Vladivostok, the special economic zones of Skolkovo, Technopolis Moscow, Alabuga and Innopolis in Tatarstan, and industrial zones in the Lipetsk, Ulyanovsk, Samara, Kaluga, and Moscow regions and St. Petersburg. European companies are prohibited from acquiring shares or increasing their existing shareholdings in the ownership or control of any legal entity, organisation or business that is a resident of the sites specified in the package. This also applies to companies whose office, main place of business or permanent representative office is located in an SEZ.
According to Kommersant, the sanctions apply to the creation of any new joint venture, branch or representative office in an SEZ or with a legal entity or organisation from the list. EU businesses are also prohibited from entering into any new contracts or agreements for the supply of goods or services, or the transfer of related intellectual property rights or trade secrets for use in the SEZ.
The Ministry of Economic Development told the publication that it had not received any requests from foreign investors to wind up operations in the SEZs because of the new sanctions. "Should there be any change in the way that projects are implemented, the procedure for settling obligations will be determined by the operating agreements and by Russian law," the ministry said.
Of the 1,360 residents registered in Russian special economic zones, over 100 companies currently have some degree of foreign ownership from 34 different countries, Economic Development Minister Maxim Reshetnikov said earlier. In 2024, the revenue of foreign companies that are resident in SEZs grew by 50%, they invested almost RUB 200 billion and created 11,000 jobs, he said.
The Economic Development Ministry pointed out that foreign investors in SEZs are traditionally involved in the pharmaceutical, food and manufacturing industries. Reshetnikov said that SEZs are being used to launch the production of cleaning products in cooperation with Iran, the production of agricultural machinery in cooperation with Belarus, and the localized manufacture of medical devices in collaboration with India.
The ministry added that it is open to international cooperation and interaction with investors from friendly jurisdictions. "The focus is on the localisation of technologies and components and the development of R&D and production chains. Projects involving companies from the Eurasian Economic Union (EAEU), Asia, and the Middle East are being implemented in the SEZs, aimed at creating competitive production facilities," the ministry said.
According to Mikhail Labudin, director of the Association of Clusters, Technoparks and SEZs of Russia, in 2024, Chinese companies accounted for about 48% of investments, with another 27% coming from investors from other BRICS countries. Nikita Kondratyev, director of the Department of Multilateral Economic Cooperation and Special Projects at the Economic Development Ministry, said earlier that companies from BRICS countries are "showing sustained interest" in locating production in Russian preferential territories. They are mainly attracted by the absence of barriers to entering a new market, the prospects of reducing financial costs and the fiscal burden, and "the opportunity to implement the most daring and advanced innovative solutions," he said.
Overall, about 75% of foreign investment today comes from friendly jurisdictions, and the new EU restrictions on SEZs are mostly political in nature, Labudin points out. He recalls that the influx of investors from the EU and a number of other unfriendly countries declined significantly several years ago and has virtually ceased in the current environment. Therefore, the introduction of the 19th sanctions package does not critically impact the operation of the zones, he said.
"Most residents are focused on the Russian market and cooperation with partners from friendly countries. Logistics chains have already been adapted, investment projects continue to be implemented, and the stated commitments to launch production and create jobs are being honoured," says Labudin.
There is no forced exit programme for foreign companies from SEZs, the association chief says. "If individual investors decide to revise their strategy, then standard legal mechanisms apply, and obligations to the government for ongoing projects must be discharged in full, which is normal practice," he adds.