Warehouse with containers in the Leningrad region

The countries of the European Union reported a decrease in exports of goods to Russia by 55% (from €7.65 billion to €3.42 billion), China – by 26% (from $5.126 billion to $3.8 billion). This is due to both sanctions restrictions and related problems with logistics and economic recovery from the consequences of the pandemic. How stable is this trend and what are the prospects for Russian foreign trade – in the material of Izvestia.

Where are they from

Russia imports from China mainly electromechanical equipment and vehicles. According to the Chinese side, the current geopolitical situation has not affected the trade turnover between the countries.

Information about the volume of trade can only be studied by analyzing European and Chinese sources. It is impossible to obtain data from the Russian side – the FCS has suspended the publication of data in the public domain.

Photo: Izvestia/Alexander Polegenko

According to the German statistics service, exports of goods to Russia fell by 62% in just a month – data for March compared to February – and 2.3 times against March 2021. Shipped German products worth €983 million

Italy (€349.6 million versus €706.5 million a year ago) and Poland (€324.8 million versus €659.7 million in March 2021) reported similar export results to Russia.

If we talk about Asian countries, South Korea has more than halved supplies ($352.2 million in March 2022 versus $793.1 million in March 2021). Japan reduced exports from $683.8 million in March last year to $422.9 million in March this year.

Miracles of ingenuity

The temporary decline in exports is explained by the situation in the global market, says Ekaterina Kosareva, managing partner of the VMT Consult analytical agency.

– Now there is not a single manufacturer of goods or service provider who is confident in the future. Planning is for the short term only. Companies hunkered down, waiting for certainty, following the rhetoric of their own political leaders while looking for likely ways to circumvent sanctions. Let uncomfortable and impractical, but legal. Like, for example, the mechanism for “transforming” Russian oil into non-Russian oil by pouring from one tanker into another, which was revealed by the Wall Street Journal. Companies will invent something similar in order to maintain market share,” the expert explains.

Russian banknotes in a wallet

Photo: Global Look press/Maksim Konstantinov

According to Kosareva, the economy has not yet fully recovered from the effects of the COVID-19 pandemic, and business problems are growing like a snowball.

For example, logistics chains did not have time to recover in 2021, as they need to be destroyed and rebuilt again. The purchasing power of Russians has decreased significantly, and in order to calculate what is more profitable to sell, you should carefully analyze your niche. Nevertheless, many people simply cannot afford to ignore the Russian market, where there is already a shortage of certain groups of goods due to sanctions – exports to Russia, albeit in a roundabout way, can help keep the business going, Izvestia’s interlocutor is sure.

Heavier than thought

Russian official statistics on imports are now unavailable, so we have to rely on the statistics of foreign partners, which we cannot verify, complained Olga Belenkaya, head of the macroeconomic analysis department of FG Finam.

— A sharp reduction in imports from the EU due to sanctions, logistical problems and voluntary decisions of Western companies to leave the Russian market was expected. The decline in supplies primarily affects technological and industrial products that are subject to sanctions restrictions, as well as cars and auto parts. At the same time, Germany increased the supply of medicines. But, apparently, imports from Asian countries have significantly decreased, some of which (Japan, South Korea, Taiwan) joined Western sanctions, and some (China, Turkey) did not. However, the threat of secondary sanctions is forcing local companies to avoid supplying products using American components and patents. In the case of China, lockdowns due to the coronavirus could also have an impact. In March, deliveries could also be held back by a sharp depreciation of the ruble, now the exchange rate conditions for imports are more favorable, the expert notes.

Novorossiysk Commercial Sea Port

Photo: RIA Novosti / Vitaly Timkiv

According to the analyst, for the Russian economy, a sharp contraction of imports while expanding exports is expressed in an excess of foreign currency, which leads to a significant strengthening of the ruble.

“At the same time, the shortage of supplies also affects the consumer market, where the situation is still mitigated by the presence of stocks and temporary saturation of demand in early March, and in industry. For example, the 78.5% yoy decline in car sales in April reported by the AEB yesterday is partly a result of the shutdown of many domestic car factories due to a lack of components and a sharp reduction in the import of new cars, she adds.

According to the expert, in Russia, many are betting on replacing supplies from the EU, the US, Japan, and Korea by increasing imports from Asian countries (primarily from China and India), Turkey, and Latin America. However, while practice shows that this process is more difficult than expected, summarizes Olga Belenkaya.

Surprise Mongolia

It is foolish to deny that imports to Russia have decreased due to sanctions, and this applies not only to the EU and China, says Artem Tuzov, Executive Director of the Capital Market Department of IC UNIVER Capital.

– The possibility of falling under secondary sanctions makes it necessary to reduce imports to the Russian Federation and other countries. For the Russian economy, this opens up the possibility of replacing imported goods with domestic ones. For citizens, this means a temporary absence of imported goods, but at the same time, the emergence of new jobs. In the long term, this is a positive phenomenon, – explains the specialist.

According to the expert, the decline in turnover with China is due to the restructuring of logistics.

– Also, data on imports to the Russian Federation do not take into account secondary imports to countries adjacent to the Russian Federation, with further imports from these countries to Russia. Similar processes, but in smaller volumes, are also taking place with the EU countries,” he says.

Employee at work in a warehouse

Photo: RIA Novosti / Pavel Lisitsyn

As for forecasting the volume of exports and imports, it is difficult due to the decision to temporarily not disclose data to the FCS.

“Obviously, the import of everyday goods will either be aligned with other countries or replaced by domestic products,” Tuzov continues. — The issue is the availability of high-tech equipment and products, the movement of which is easy to track. This equipment, machine tools, cars and aircraft, server equipment and more. Here the issue is acute and cannot be resolved without serious and quick intervention by the state, Tuzov emphasizes.

According to the interlocutor of the publication, import growth is expected with all EAEU countries. The volume of imports from Mongolia can also surprise. But the biggest increase in imports can be expected from Kazakhstan, which has been actively developing one of the routes of the New Silk Road and is logistically capable of increased throughput of goods.

It is quite obvious that, following Europe, they are restricting the supply of necessary goods to Russia and other countries, fearing that restrictions from the US and the EU may also affect them. In particular, Chinese car companies have said that they do not intend to increase the export of cars to our country for the time being, the same applies to smartphones and other electronics. At the same time, Russia will increase trade with the countries of the Middle East, Africa and South America. However, it is still difficult to say how much it will be possible to replace critically needed imports in this way,” sums up Artem Deev, head of the analytical department at AMarkets.

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