Companies strive to keep trade relations alive in Russia

A theme year may bring new opportunities for the cleantech sector. An upturn in the economy is anticipated.

After the dismal past year, Finnish companies are anxiously awaiting positive signals from Russia.

During this autumn, individual enterprises have actually had better news to report, but the road to the peak years is still long.

Trade between Finland and Russia hit some sort of rock bottom last year, when exports fell by nearly one third on the previous year, to EUR 3.2 billion. In the best years of this millennium, the value of goods crossing Finland’s eastern border exceeded EUR 7.5 billion.

According to Finnvera’s experts, the most positive feature of the Russian economy is that the bottom has been reached. Forecasting institutions predict that the economy will grow by about one per cent next year. Growth is fuelled by global oil prices, which also affect the rouble.

“Inflation has slowed down and industrial production shows an upswing. In addition, Russia is experiencing a real tourist boom from Asia,” Senior Adviser Outi Homanen lists.

In the same breath, she points out that the political situation adds uncertainty to forecasts.

Timo Pietiläinen, Head of Finnvera’s Representative Office in Russia, has been surprised at how ready Russians have been to compromise on their own standard of living.

In his view, a real change would require an annual growth rate of over three per cent.

“Investments are virtually frozen. No economic reforms have been made. These are big problems in the long term,” Pietiläinen says.

Pietiläinen is based in St. Petersburg, so he is well aware of Russian investment needs.

Finnish companies are able to sell machinery and equipment, for example, to the food industry and agriculture. In addition, Russia needs subcontractors for the maritime industry.

“Next year will be the Year of the Environment in Russia, which will open doors for cleantech companies. Otherwise demand focuses on fairly traditional sectors. However, it is possible to export products profitably from here to the Western market if labour and costs are in the local currency, but income is received in a foreign currency,” Pietiläinen believes.

As good examples he mentions enterprises that have become established in Russia and specialise in the wood processing and building products industries.

Present at difficult times

On 20 October, the Finnish-Russian Chamber of Commerce held a Finnish Business event in Moscow, where 67 Finnish companies and business organisations were present. In all, the event was attended by about 400 guests.

According to Executive Vice President Jussi Haarasilta of Finnvera, one message of the event was that Finnish companies strive to keep trade relations alive even in difficult times.

“Russians are really cautious in their investments. Our exposure has decreased and we have good opportunities to help Finnish enterprises. The largest sectors from Finnvera’s perspective are ICT and the forest industry,” Haarasilta explains.

Homanen shares Haarasilta’s view. Companies engaged in business with Russia know the local customs and trading partners well. There are few newcomers.

“We receive inquiries but projects proceed very slowly,” Outi Homanen says.

She recommends credit insurance for short-term trading.

“Guarantees are granted for good buyers even though payment defaults have increased. We’re careful when determining the buyer’s creditworthiness.”

Timo Pietiläinen also underlines the importance of having an expert on Russia if a Finnish company wants to do business with Russians.

“It pays to ensure that the expert has up-to-date information. Know-how is quickly outdated,” Pietiläinen says.

FACT: Russia

• Finnvera’s country risk category for Russia is 4/7, i.e. decreased credit quality. Credit insurance and medium-term and long-term export credit guarantees can be granted for Russia, taking into account the sanctions imposed by the EU.
• Gross domestic product: Approximately EUR 1,078 billion. Finland’s gross domestic product is EUR 207 billion.
• Gross domestic product per capita: EUR 7,501. Finland’s gross domestic product per capita is EUR 37,827.
• Economic growth: -3.7% (2015). The forecast for the current year is -0.9%–1.8%. Consensus forecast for next year +1.0%.
• Inflation: 12.9%.
• Exports: EUR 472 billion. Finland’s imports from Russia totalled EUR 6.0 billion. 73% of this were energy products.
• Imports: EUR 292 billion. Finland’s exports to Russia totalled EUR 3.2 billion. The largest group consisted of chemical substances and products (24.4%).
• Principal sectors: Agriculture (about 5% of the GDP), industry (about 40% of the GDP, including the coal, oil, gas, mining, chemical and metal industries) and services (about 55% of the GDP, including trade, repair services, real estate agencies and leasing services).
• Currency, the Rouble: The exchange rate is 1 euro to 68.6 roubles.

More information about Finnvera’s export credit guarantees is available here.

Sources: Statistics Finland, World Bank, Focus Economics, Finnish Customs.

Text: Kimmo Koivikko