The road ahead for Russian industries presents not only challenging
economic drivers but also an uncertain political environment, according
to a new report by leading trade credit insurer Atradius.
The Russian Economic and Industry Outlook reviews the country’s economy and assesses each sector’s performance and provides valuable information UK businesses who are trading with Russia or may be looking for new market opportunities. None of the 15 key sectors in Russia have a strong outlook with the best performing sectors – chemicals and paper – only having a ‘fair’ assessment. The automotive and transport sector is the worst performing with a ‘bleak’ outlook and every other sector, including agriculture, food, energy, ICT, metals and financial services given a ‘poor’ rating.
• Heavy industries and constructions
The combination of decreasing internal and external demand, deteriorating prices, higher currency risk and increasing capital costs has created problems for all market players - even for domestic oil and gas companies. The main concern is still with large, highly indebted businesses in the metals & mining, construction, infrastructure, transportation (especially airlines), machinery production and engineering (including automotive production) sectors. In 2014, insolvencies increased in sectors like metals and construction and, this pattern is continuing in 2015 for the heavy industries and construction segments.
• Food and agriculture
Together with the economic downturn and the Rouble depreciation, Russia´s sanctions against imports of food and agricultural products hit the domestic food sector hard, in particular the fish, meat and dairy subsectors. There has been a high frequency of defaults of import and distribution businesses, which were previously focused on supplies of European foods. At the same time, some major Russian agricultural vertically integrated holdings have been growing successfully in the last 12 months, using opportunities that state protection provides and benefitting from the sanctions on EU agricultural imports. The largest domestic grocery retailers have continued their expansion and generally have not been as affected by the sanctions.
• Electronics/ICT and household appliances
These sectors were significantly impacted by the Rouble depreciation. However, major players – retailers and distributors – have been able to withstand the recent market turbulence, with some of them even improving their profitability and market position. On the negative side, the market experienced several major insolvencies, and we expect the current consolidation trend to continue, mainly at the expense of mid-sized regional players.
• Overall Russian economy
The Russian economy has entered recession; the economy contracted1.9% of GDP in the first quarter of 2015 compared to the same period in 2014, driven largely by a fall in consumer spending,. However, the contraction is less severe than previously anticipated, with the improvement in outlook helped by the successive cuts made by the Central bank. The rouble has also significantly recovered from its 42% fall against the US dollar at the end of December 2014. The oil price has shown signs of strengthening and capital outflows have been lower due to a lighter debt repayment schedule and modest reduction in international tensions following the Minsk II agreement. The rouble appreciation, the recession and austerity measures taken by the government to bridle spending will take the pressure off inflation, which fell from 16.9% in March to 15.8% in May.
Jason Curtis, Commercial Director for Atradius UK said: “The recession is taking its toll; despite some stabilisation since early 2015, the negative trend in the Russian economy continues – with the most impact felt by industries that are capital intensive, reliant on imports, with high external borrowing and with local investment demand. In particular, Russian foreign trade is still suffering with imports to Russia decreasing by 37% year-on-year in January and February 2015, while exports declined 26%.
“That said, Atradius continues to protect significant levels of trade in the region and whilst the economic and macro political environment remain challenging, we have the advantage of direct presence on the ground providing first hand insight for our customers.
“Looking forward, the economy is forecast to expand 0.5% in 2016 and inflation is predicted to fall to 7%. The pressure on consumer spending power will therefore be to some extent relieved, supporting the softening of the recession.
“The mixed outlook in the Russian economy does provide a window of opportunity for UK businesses wishing to continue trading in the region, although trading unprotected still presents inflated risks. The climate does remain challenging and there will inevitably be pitfalls to avoid; having up to date market intelligence is key.”
As a trade credit insurer, Atradius protects its customers from the risks of doing business by insuring trade domestically and overseas. Customers also benefit from the wide range of services provided including a world-wide debt collection package. With a strategic presence in 50 countries and intelligence on 200 million companies worldwide, Atradius provides customers with real-time analysis and advice to enable them to do business around the world.
(Source - Atradius Press Release)