Fear of ‘brain drain’ prevents Russia from seizing Yandex for now -sources

Fear of 'brain drain' prevents Russia from seizing Yandex for now -sources

The Fear of Brain Drain Hindering Yandex’s Nationalization Talks

Image Source: Reuters

LONDON, Aug 10 (ANBLE) – The fate of Yandex, often referred to as “Russia’s Google”, has been the subject of much speculation since the announcement of its corporate restructuring plans last November. As Russia’s leading tech company, with a workforce of more than 20,000 and global ambitions, Yandex’s potential nationalization has raised concerns regarding a possible brain drain. Moscow’s fear of losing top talent to other countries is the primary factor preventing the nationalization of Yandex, according to sources familiar with the situation.

The Threat of Brain Drain

Yandex, housing some of Russia’s finest developers, has experienced a significant exodus of employees, many of whom have relocated to countries such as Serbia. In fact, it was reported that around 100,000 IT specialists left Russia in 2022. The departure of these skilled professionals could severely damage Yandex’s leading position in search technology, advertising, and ride-hailing. The company heavily relies on the expertise and knowledge of its staff, making a talent exodus a potential disaster, according to insiders.

“It’s obvious that if (nationalization) happens, the company will gradually come to nothing,” stated one person familiar with the talks. The fear of the state’s hostile takeover triggering an even larger talent exodus is likely what is preventing decisive action from being taken. The Kremlin did not respond to requests for comment, and Yandex declined to comment, leaving the future of the company uncertain.

Moscow’s Historical Actions

Moscow’s past actions further confirm the concerns. The seizing of assets in Sakhalin’s oil and gas projects last year raises more suspicions. Additionally, the Russian government has taken temporary control of the Russian assets of four Western companies in 2023, including the subsidiary of French food group Danone. This raises questions about the potential fate of Yandex under state control.

Yandex Co-founder’s Criticism

Yandex co-founder, Arkady Volozh, publicly criticized Russia’s actions in a statement, referring to the invasion as “barbaric”. He stated that his focus since the war began has been on extracting talented Russian engineers from the country. These skilled engineers, now out of Russia, have the opportunity to contribute to other countries and drive further technological innovation, according to Volozh. The impact of these comments on Russia’s decision regarding Yandex remains uncertain.

Divestment Plans at a Standstill

Preliminary discussions regarding Yandex’s divestment plans have reached a standstill. Sources suggested that the shareholders in Yandex’s Dutch holding company could potentially make $7 billion from a full divestment of its Russian businesses. It was also reported that Yandex received bids from several Russian billionaires. However, the likelihood of Yandex’s successful divestment is diminishing, according to three sources.

The key asset of Yandex is its talented workforce, and no one wants to be perceived as “killing the company,” stated one source. There is a risk that if the company is nationalized or sold to a state firm, the skilled professionals at Yandex could leave en masse. State-controlled companies’ “hawks” believe that nothing should be paid to foreigners, further complicating the situation. Andrei Kostin, CEO of state-owned Russian lender VTB, proposed that Moscow should temporarily take control of Yandex’s assets, criticizing the advantage that Western investors would gain. However, VTB withdrew from the buying process and was never seen as a serious option due to sanctions on the state lender.

Challenges in Fund Extraction and Sanctions

Obtaining approval for deals and extracting funds from Russia has become increasingly challenging. Moscow has implemented requirements such as a 50% discount, making the process lengthy and difficult, as reported by Western company executives. Furthermore, the recent U.S. sanctions on Alexei Kudrin, the former finance minister acting as a mediator between the Kremlin and Yandex, pose further complications for the company.

The fear of a brain drain and the potential loss of top talent is a significant factor holding back the nationalization of Yandex. As one of Russia’s leading tech companies, retaining expertise and innovation within the country is crucial for its success. The future of Yandex remains uncertain as talks stall and concerns persist.