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2014 Media Kit
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Russia seeks trade shift from crisis

By: | at 08:00 PM | Channel(s): International Trade  

Russia needs to urgently re-route exports from low-growth Europe to other, faster-expanding markets, Economy Minister Elvira Nabiullina said as Moscow sought to distance itself from the crisis-hit region.

The financial woes of euro zone members have so far not had a direct impact on Russia. But the resulting rise in risk aversion has forced some Russian firms to delay listing and has sent Moscow’s stock markets lower.

“The events of recent weeks showed that it is a bit too soon to talk about the end of the global crisis,” Russian Prime Minister Vladimir Putin told a joint meeting of the Finance and Economy Ministries.

The crisis has strengthened the role of emerging markets like Brazil, India and China, Economy Ministry Elvira Nabiullina said at the same event, predicting that emerging Asia will be producing 30 percent of global GDP by 2013.

“The main part of our exports is oriented towards the slow-growing European market. We risk being outside of the new centers of growth,” she said.

“In the next few years we need to create a competitive export potential and take positions in growing markets, this concerns both traditional energy exports as well as innovation products.”

Russia launched last year a new Pacific oil terminal that, together with a new pipeline under construction, will allow the world’s largest energy producer to crack Asian markets and divert some Siberian crude flows away from Europe.

Profits Low, Problems Plenty
Putin is also keen to promote other exports such as weapons, nuclear reactors and agricultural products. Visiting Brazilian President Luiz Inacio Lula da Silva told Putin on Friday that Brazil wants to buy Russian wheat and fertilisers.

Russia is also trying to diversify its economy through promoting innovation, but Putin said trade barriers set up by developed countries against Russian-made products with higher added value were hampering the innovation drive.

“The main problem of our economy is low demand for innovation. Why? Profits are low. Problems are plenty. Potential markets are all occupied and we are not welcome there,” Putin said.

The European Union still accounted for 57 percent of Russia’s exports in 2008, according to official data. But given the country’s reliance on natural resources, analysts questioned how easy it would be to shift their destination.

Oil analyst Valery Nesterov, at Troika Dialog brokerage, said Russia could not realistically diversify oil and gas routes before 2030 given how many pipelines link it with Europe.

“One should be cautious with such statements. Europe tends to react quite nervously to them and can retaliate by revising some contracts with Russia,” he said.

“They have plenty of alternative sources of supply and Russia remains very dependent on Europe,” he said, adding that Russian gas export monopoly Gazprom suffered heavily last year when Europe partly switched to cheaper gas sources.

Minerals—including oil and gas—made up nearly 70 percent of Russia’s exports in 2008, while metals and metal goods accounted for more than 13 percent, official data shows.

Nabiullina said the competitive advantage created by the rouble’s devaluation at the height of the crisis had already disappeared and imports were again rising faster than exports.

Too Soon to Relax
The meeting of Russia’s top finance officials also focused on the need to make fiscal spending more effective to help tame inflation, as well as reduce the budget deficit to zero by 2015 from the 5.2-5.4 percent forecast for this year by Finance Minister Alexei Kudrin.

Putin said he did not regret the high spending on social commitments during Russia’s first recession in a decade last year, which plunged the country into a deficit, but called for a return to fiscal prudence after the crisis.

The meeting came as data showed the economy expanded 2.9 percent in the first quarter. As expected, that marked its first period of year-on-year growth since autumn 2008, although the rise was fanned by favourable ba