Russia’s economy has been performing sluggishly for a few years now. And while poor domestic consumption should shoulder its portion of blame, so too should its exports sector. Finbarr Bermingham reports.

The fact that the Russian economy is slowing down is no secret. A chart tracking its quarterly GDP growth since 2012 is one of gradual decline, with the gradient steepening in over the past calendar year. Q4’s 1.2% growth was the weakest return since the country climbed out of the post-crisis recession in 2009. 

Late last year, President Vladimir Putin blamed the problem on a lack of domestic consumption, changing from his initial claim that it was a knock-on effect from the slowdown in international markets. Speakers at GTR’s CIS trade and export finance conference in Russia spoke at length at the impact domestic decline is having on the trade economy.

Evgeny Gavrilenkov, the chief economist at Sberbank, warned that the central bank’s liquidity programme is having a negative drag on the wider economy. Last year, the central bank increased its lending to Russian banks by 60%. Between 2011 and 2013, the amount of consumer lending grew by 40% (to 15% of GDP), but over the same period, consumption fell. Ordinarily more consumer credit would galvanise domestic spend, but in Russia, the opposite is occurring.

Who’s responsible?

Part of the blame should lie with the interest rate level: in December the central bank announced a plan to limit the interest paid on loans to retail borrowers in an effort to limit the instability emanating from household debt. US$2.4tn is being lost from the Russian economy each year on retail interest rates, with the money being pumped into the economy largely staying in the banking sector (a problem many westerners will be all too familiar with).

But, while public displays of dissent aren’t the norm at Muscovite events, there was the suggestion among speakers that Russia’s performance abroad should also shoulder some of the blame. The export figures themselves aren’t inherently discouraging. The country reported exports of more than US$49bn in Q4 2013, with a current account surplus of US$4.7bn.

A country that’s home to the amount of natural resources as Russia, though, should arguably be exporting more (it’s currently eighth in the world, behind the Netherlands and South Korea). The current account balance is at its lowest ebb in more than 15 years. Last year, said Olga Strekalova, HSBC’s director of project and export finance at HSBC, the country’s dairy imports rose by 40%. Russia’s cattle headcount has long been in decline, but for a country which cultivates just 7% of its land mass, the figure is baffling.

But the problem which has long-since plagued Russia’s international profile has been its over-reliance on its natural resources. Oil prices have been reasonably kind to Russia for some time, but relying on the trend to continue would be foolish.


It was part of the reason for the establishment of Exiar, the Russian ECA, in 2011. “We were focused initially on supporting high-value adding goods such as heavy machinery and to help diversify the Russian economy. If you look at Russian exports, it’s mainly oil, gas, metals, coal and fertilisers,” Exiar’s managing director of customer relations and international business Alexey Tyupanov told GTR at the conference.

In 2013, the agency guaranteed US$2.3bn of Russian exports, and it been fairly active already in 2014 too. In January, it guaranteed the purchase of a fleet of Sukhoi aircraft by Sky Aviation of Indonesia. But in the same month, it issued a US$66mn insurance policy to Biaxpen, a packaging-producing subsidiary of Sibur, one of Russia’s exporting giants.

Tyupanov explained that the government has altered the ECA’s mandate in an effort to reverse the negative trend gripping the economy. Sure, he said, products such as packaging don’t add huge amounts to the economy individually, but they support plenty of employment, something which is worth protecting when domestic demand is lagging in the way it is.
He was more eager to discuss the country’s attempts to alter the destination of its exports. The EU is by a distance the biggest trading bloc, and in terms of individual nations, the Netherlands and Ukraine lead the way – hardly the beacons of fast-growing consumption needed for Russia to resurge.

“We have made an effort to change the geography of our exports. For Russia’s exports to grow, we need to look at more long-term sources of economic growth,” said Metalloinvest’s head of corporate finance Ilya Kosykh. One would think that his business finds itself between a rock and a hard place. With the dire state of the iron ore market, he said the company has reduced its exposure to Asia (the downturn has been blamed on the iron ore surplus on the market, as well as falling Chinese demand) from 25% to 5%.

There is no other country on earth in a position to take up China’s demand, but he says there have been more positive signs closer to home. The company has been trying to capitalise on growing local demand for large projects (the Sochi Olympics was one he cited), as well as returning demand in Western Europe. How sustainable that is, though, is hard to say.


It wasn’t surprising to hear Africa crop up in the conversation more than once. The continent assumes primacy in most discussions on high-growth areas and export diversity, but it’s largely absent from many conversations on Russia. In 2012, Africa accounted for only 1.5% of Russia’s foreign direct investment (FDI). In the same year, Russia wrote-off US$20bn of debt it was owed by African governments. Clearly, this was a strategy in formation.

During the Cold War, the Soviet Union kept close relations with numerous African states, particularly the Marxist outposts of Angola, Benin, Ethiopia, the Republic of the Congo, Mozambique and Somalia. The fall of the Soviet Union is said to have had a large impact on these countries economically, but little is made of the impact it had on modern-day Russia.

“We lost the contacts in the early 90s after the dissolution of the Soviet Union,” says Tyupanov. “The Soviet Union was active in Africa, but now we have to penetrate those markets again. We’re trying to build a platform, a business club of Russian and African companies, to present Africa as a possible destination for Russian exports and vice versa; to show to Africa what you can purchase in Russia.”

He admits that coming to the party so late may make it difficult to compete with countries already so entrenched in Africa (mainly China), but Russia, with its plentiful oil, gas and mineral reserves, may be able to benefit in a way similar to Brazil, which looks to take a hand in African infrastructure projects, without taking a huge interest in its natural resources.

“There’s massive demand coming from Africa for our engineering and railways for example,” says Tyupanov. “For just infrastructure in general… they are rich in oil and gas but they lack the petrochemicals. We have Russian exporters with massive expertise. It’s not a question of how Exiar can compete with other ECAs, but how can Russian exporters compete on quality? We’re just adding our support, which was lacking before, compared with the support China has had. I don’t think we compete with other ECAs, we’re just trying to create a more level playing field for Russian exporters.”

Plenty of Russian companies have interests in Africa – the likes of Lukoil, Rosneft, Rusal and Gazprom have all invested in projects on the continent. In October 2012, for example, oil giant Rosneft announced its intentions to construct a pipeline linking Beira in Mozambique, Harare in Zimbabwe, via Malawi, Zambia and Botswana. It marked the first time the company had committed to an overseas pipeline project.

Tatneft, the Russian oil producer, is currently bidding for the contract to build an oil refinery in Uganda. Tyupanov confirms that Exiar is involved in the discussions. It looks as though the state is about to follow suit.