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Russia sanctions hit German family businesses

By Michael Finnigan

German family businesses are feeling the pinch from Russia’s confrontation with the West, particularly carmaker Volkswagen, who has reported an 8% year-on-year decrease in Russian sales.

With further sanctions on the horizon, Volkswagen, controlled by the Piech family, is just one of approximately 6,000 German family businesses operating in Russia that are expected to suffer from the incoming “level three” sanctions.

The US and European Union sanctions limit the trade of weapons and technology and prevents Russian state-owned banks from accessing EU capital markets.

Volkswagen, which sells around 300,000 vehicles to Russia per year, said last month that Russia was a key European market and urged against a rash response.

In a Wednesday press release, Martin Winterkorn, Volkswagen chairman, said: “[Despite] the tense situation in some emerging economies, we are working hard to create all the conditions we need today to ensure success tomorrow”.

Another German family business, retailer Metro Group, partly owned by the Haniel family, has about $2 billion (€1.49 billion) invested in Russia and has seen sales in Eastern Europe collapsed by 14% between April and June.

The firm, thought to be the fifth-largest retailer in the world, was due to take its Russian subsidiary Cash & Carry public this year, but stopped the deal as a result of a weakening rouble. 

Family businesses with no Russian ties are also expected to suffer, with the Kiel Institute predicting that a weakening Russian economy could cause German economic growth to decrease by as much as 2%.

"There's no question that Germany's economic interests would be best served by avoiding sanctions," Klaus-Jürgen Gern, an economist at Kiel Institute, told The Wall Street Journal.

Around 90% of Germany businesses are family owned, making up 41.5% of the country’s sales. They also provide 57% of employment opportunities.

The latest Institute for Economic Research survey of German companies reveals German exports to Russia have dropped 14% in the first four months of 2014.

A breakdown in Germany's trade relations with Russia could cost as many as 300,000 German jobs, according to the government.