November 2016 Credit Management magazine

COUNTRY FOCUS
THE Russian economy is suffering following
its March 2014 annexation of the Crimea, it’s
ongoing involvement in Ukraine (which the
country denies) and the remarkable drop in
the price of oil. While Forbes has since 2008 named
Moscow the ‘billionaire capital of the world’ its wealth
is diminishing and the economy is in recession. Even
its Finance Minister, Anton Siluanov, recognised as
much when he spoke in November 2015: “Next year
will not be simple,’’ he said in an interview with Russian
state television, adding, “the latest predictions show
that the price of our main exports could be lower than
predicted.”
However, the situation in 2016 while not great hasn’t
been quite so bad.
Yes, the growth potential for Russia is not good and
its GDP has slowed every year since 2010 – it grew 0.7
percent in 2014 and shrank by 3.7 percent in 2015. The
figures for 2016 are looking a little rosier. As Focuseconomics
noted in August (2016), while the economy
contracted 1.2 percent in Q1, the downturn was softer
than expected and more recent data shows that parts of
the economy are gradually leaving the recession behind.
Further, an increase in the oil price from Q1 to Q2
have supported a gradual improvement in the Russian
industrial sector.
So where is Russia now and how can firms still export
to, and do business, with the country?
OVERVIEW
Russia is a market that cannot be ignored. It has 144
million people, spans nine time zones and is the largest
country in the world with a landmass of 17 million square
miles – one ninth of the global total. It was, in April 2016
at least, the world’s 14th largest economy by Gross
Domestic Product (GDP) according to the International
Monetary Fund. It’s also number 51 in the World Bank’s
Ease of Doing Business ranking (latest figures June
2015) and is making progress in meeting President
Putin’s target of reaching 20th position by 2018. Not bad
considering that Russia started from 123rd in 2011(out of
185 where Chad now sits).
As might be expected, Russia’s overseas forays have
led to sanctions and an impact on trade. But despite
the European Union’s (EU) restrictive measures, which
are highly targeted, there are still many opportunities
for firms to do business in Russia. Indeed, the country
is investing and modernising, and this is providing
opportunities – it’s looking for foreign investment,
expertise, technology and resources.
But as the US Government notes: ‘Its seriously
underdeveloped infrastructure poses challenges,
especially in accessing markets outside of major
cities. Conducting business might be impeded by
burdensome regulatory regimes; widespread corruption
and inadequate rule of law; inconsistent application
of laws and regulations; lack of transparency; and a
non-level playing field for competition due to the
continued presence of large state-owned, or statecontrolled,
enterprises dominating strategic sectors of
the economy.’
But looking positively, there is, according to the
UK Government, a desire of Russian companies to use
international accounting and legal standards, a respect
for brands including retail and luxury, and an anticipated
increase in the number of Russian mid- and small-sized
businesses. The Russian market has a young and well
educated workforce;strong transport links and logistics
in many, but not all places; and offers access to supply
chains that could lead to exports to other markets in the
26 November 2016 www.cicm.com
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