Russian bank Troika Dialog is looking to capitalise on trade flows between Russia and emerging markets. GTR speaks to Peter Ghavami, head of global markets at Troika Dialog, about the role Russia and other BRIC nations will have in world trade.
GTR: How has Russian trade developed with other emerging markets?
Ghavami: It is increasingly clear that international trade will help lead the global recovery. After all, this is a sector that is countercyclical in nature so the need to ensure that credit for structured trade finance is available is crucial, as it is the life blood in keeping globalisation alive. It is here that emerging markets can make the most significant contribution as investment and bilateral trade between the BRIC economies, while traditionally strong, has in fact increased dramatically over the last decade.
We have seen a resurgence in Russia’s international trade activities and foreign direct investment (FDI) with other developing markets, increasing five-fold with the developing world at an annual rate of 27% each year from US$53bn in 2001 rising to US$274bn in 2008. In terms of trade, Russia is increasingly leveraging its ties with other emerging markets, with China, Belarus, Turkey and the Ukraine, which absorbed nearly US$100bn of Russian exports during 2008 alone, capitalising on Russia’s rich supply of minerals and fuels.
At Troika Dialog, we have previously underlined our intentions to facilitate trade and investment flows between Russia and other emerging economies, particularly with Africa, by capitalising on existing traditional ties between the two regions and Troika Dialog’s own strategic partnership with Standard Bank to maximise what is predicted to be a busy deal pipeline over the coming decade.
The importance of BRIC (Brazil, Russia, India and China) economies nurturing close strategic and commercial ties with other developing regions, such as Africa, is increasingly being realised, demonstrated by Russia’s trade with Africa which has grown by 25% since 2000. This is the largest growth of the BRIC nations, according to research from Standard Bank.
GTR: How has Russia maintained its trade links with developed markets?
Ghavami: The Russian government’s recent decision to join the WTO has certainly helped to act as a catalyst for growth and enhances existing relations with some of the world’s developed economies. In fact, in 2010, Troika Dialog is forecasting GDP growth of 5% and possibly higher for Russia.
GTR: What has been Russia’s activity in FDI in recent years?
Ghavami: Russia is increasingly undertaking FDI, with growth rates increasing by more than a third each year between 2004 and 2008. Indeed, since 2006, the share of FDI in total investments from Russia has more than tripled to nearly 20% in 2008. Traditionally, the majority of Russia’s FDI into emerging markets has favoured other CIS economies, but more recently, the geographical breadth of Russia’s FDI has diversified to include investment further afield in countries such as India and Africa. The level of Russian investment into Africa for example, including monetary and human capital, is integral to the future growth of the continent, especially in areas such as infrastructure services and financial services.
GTR: How are financial services and products evolving to meet the needs of Russian international trade and investments?
Ghavami: The rapidly growing volumes of Russian international trade and investments mean that its financial services and products need to evolve to keep up with the speed of evolution. The corporate banking and the investment banking sectors have also been developing to keep abreast of change and diversifying their products to accommodate the increasing demands of trade finance.
Plain vanilla trade financing, pre-export financing, notably in commodity-producing economies, are increasingly being used, along with support from export credit agencies. On the wholesale side, increasing levels of structured export financing, cross-border M&A advisory and cross-border ECM are increasingly becoming accessible.
GTR: How are financial products meeting the needs of emerging markets?
Ghavami: The financial products which have become common place in developed economies are only now starting to be implemented in more developing markets. In order to mitigate risk, local partners are often sourced to share and structure the risk. Support from governments is frequently requested, thereby lowering counterparty exposure by swapping it from a private party to sovereign risk. We would expect to see an increase in the use of risk management products to deal with the elements that create the risk landscape in these regions. These include local currency swaps, commodity hedges, and credit default swaps where each party can hedge that risk.