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. Last Updated: 07/27/2016

Expat Exodus Stage 2 Set to Commence

For those expatriates still bemoaning the departure of their friends and colleagues for calmer shores last fall after Russia's financial collapse, there is more bad news to report: The initial exodus was only the beginning.

The mass downsizing of the expat work force that began last August is nearly complete. Now, say observers, the expat community is set to be further downsized in a second, slower, but more far-reaching wave of exits and expulsions.

This wave is not a product of the direct economic effects of the August crash. Rather, it is being driven by the general loss of faith in Russia's future.

"Before the crisis, people were trying to grow the market, and you often felt as if you could see light at the end of the tunnel," said Timothy Tigner, a senior manager at Johnson & Johnson's Moscow office. "Now it is back to business as usual, except that we are starting from a smaller economic base."

Multinationals that were once willing to invest almost unlimited sums in bringing in expats to lead an expansion on the ever-promising Russian market of last year are now concentrating on restructuring to survive in the smaller and stagnant market of this year.

Hans Jochum Horn, managing partner in the Moscow office of accounting firm Arthur Andersen, said that the number of foreigners declaring their intention to file a tax return next year has dropped by 50 percent. "It may not be an entirely accurate figure, but it is a clear indicator that the number of expats is going to be going down for at least the next couple of years," he said.

"After the crisis, businesses were panic-struck," Horn said. "Now they are discovering that the crisis is not a temporary phenomenon, and that they will need a longer-term plan beyond emergency cost-cutting if they are going to stay here."

For many firms, Arthur Andersen included, the plans tend to focus on replacing their foreign management staff with local talent. After the crisis, Arthur Andersen doubled the number of Russian employees it sent abroad on internships. This, Horn said, was done as a means of ensuring that the company would have a ready supply of foreign-trained locals to replace foreign staff with over the next couple of years.

"By 2005, we should have an almost entirely Russian operation here," he said.

Measuring the size of the expat community, or the scale of its exodus, is difficult, said Scott Blacklin, president of the American Chamber of Commerce." The most reliable estimates you could get on the number of Americans in Moscow at the peak of the boom was around 70,000, but that seemed awfully high to me, even then," he said, giving 50,000 as a more reasonable figure.

"Now I think we are down to 55 or 60 percent of where we were then," he added. "What I hear just about everywhere is that companies have cut back 40 percent across the board - that includes budgets, sales and people."

The Federal Migration Service keeps records of the number of foreigners working in Russia, but the figures are considered inaccurate because few foreigners have official work visas. The service did not answer requests for figures.

Moving companies have reported an upward spike in the numbers of foreigners leaving Moscow this summer. However, this is largely attributable to seasonal variations in the moving industry, said Sipa Sikaulu, director of executive services for Crown Worldwide Moving.

"Summer is always a time when diplomats leave, and families pack up because the kids are out of school," he said.

Members of the expat business community say that corporations often decide to replace imported workers with local talent as their operations take root in a new market.

However, most interviewed for this story agreed that the August crisis had prompted companies to act more quickly in this direction than they might have otherwise, given that Russia is still an emerging market.

Caspar Appeldoorn, manager of Henkel-Ecolab, a German cleaning products firm in Moscow, said that since the crisis, companies have been either making compromises for the sake of economy, or taking steps to bring Russians through the corporate ranks faster.

"The market today is a young market," he said. "The job foreigners have is to train people so that they can fulfill tasks after we leave. This was happening anyway, but the crisis accelerated the process."

This process may well benefit Russia's young professional class, despite reports of its destruction in the wake of the August crash.

"There are no ceilings for Russians now," said Grigory Okun, of Antal International, a Britain-based executive search firm. "If before the crisis 40 percent of our orders were for expats, now that is down to 20 or even 10 percent. There are great opportunities out there for Russian professionals - the trend is toward replacing top-level expats with locals."

He said that even with comparable salaries, local hires are much more economical, because they do not require expensive benefit packages that expats usually receive.

"It is difficult to get foreigners to come to Russia, especially now," he said. "The package a company needs to offer is much the same as it was before: a company car, moving allowances, housing allowances, hardship bonuses, home leave, free kindergarten."

Money and benefits packages aside, Russia no longer has the aura of limitless possibilities it did before the crisis.

"There was a general, genuine interest in Russia, with or without GKOs," the high-yield treasury bills that help fuel the financial-markets boom, Horn said. "Russia was considered the place to be if you wanted an international career in business. It was good to have Russia on your CV, and that is no longer the case. I see it myself when I try to attract people to work in Russia."

Given the current economic situation, and the changing attitudes of foreigners toward Russia, it seems possible to say that the mid-1990s will be remembered as the expat community's heyday.

"The expat boom was driven by banks that imported foreigners to use some very specific financial instruments, which were being offered to a foreign clientele," said Kim Iskyan of Renaissance Capital. "After the crash, these instruments ceased to exist - not to mention the fact that demand for them evaporated."

It remains to be seen whether Russia will mourn the loss of the expats as much as the expats themselves have. The financial crash and ruble devaluation that caused the exodus had the effect of reviving the fortunes of entire sectors of domestic industry.

Blacklin, for his part, believes Russia may yet regret the expats' departure.

"It's fun to kick the old expats around as soulless cretins who were just here for the money, but any loss of talented people and attention from abroad is a loss for Russia," he said.