Searching for an exit strategy

An exit strategy, in essence, is the way out of the current situation where the goals are achieved fully or partially and no more movement is possible within. Or the current situation becomes untenable and the risk, loss or opportunity cost need be minimized or mitigated.

In business strategy exit manoeuvres do happen in a broad spectrum. Examples galore. An owner selling his business enterprise to retire for life when things are bright for the firm and there are willing buyers too. A company liquidating one of its subsidiary which remains in the red zone after several infusion of capital. Yet another example is a company withdrawing from domestic sector to move her forces abroad.

In geoeconomics exit strategy is very hard to implement. The case of Russian frozen assets in the hands of EU is a classic one. After Russian intervention into Ukraine last year, the collective West went on a barrage of sanctions including freezing Russian sovereign assets and selected assets of Russian oligarchs such as palaces and yachts.

Out of the US$ 592 Billion external reserves of Russia as at end 2022 about USD 300 billion are seized or frozen by the West where the larger portion is held by EU countries. These are mainly sovereign securities which mature periodically. As a result there is profit earned and need to be repatriated or re-invested. Furthermore, these profit earnings have to be attached to the capital sum and legally belongs to Russian Federation till redemption.

The EU was toying with the idea that since the capital sum due is any case legally belongs to Russia profits earned can be employed by countries that currently holds these assets elsewhere. Ukraine reconstruction was chosen as an avenue. By the way, international law does not support the position arrived at by the EU. Whenever the capital is to be repatriated to Russia it should include the profits hitherto earned by these frozen assets and the EU cannot be unaware of.

EU is now facing a Hobson’s choice. Due to the prevailing sanctions profits earned cannot be transferred to Russian Government. The more they hold these asset in frozen form the more risk, loss and the claims for damages as regards to opportunity cost lost by Russia would be placed at the doors of EU countries.

Without framing an exit strategy EU as a whole is travelling in the road to nowhere other than earning indefinite enmity from Russia forever. Confronting the hard truth, EU is still looking for an exit strategy. Time for EU to send an SOS to practitioners of strategy amid geoeconomics!  

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist