Useless Sanctions? German investment in Russia still climbing

And in Austria, Russia and China lead export financing boom


More German investments in Russia
Despite sanctions, last year German companies invested the second highest sum since the financial crisis of 2008 in the Russian economy. In its final calculation, the Bundesbank has raised German net direct investment in Russia by more than € 1 billion in 2018 to € 3.26 billion. In the preliminary calculations, the Bundesbank assumed that 2.1 billion euros were invested. “In addition to major projects such as Nord Stream 2, German mid-sized companies and family businesses in particular are recognizing the opportunities offered by the large Russian market,” said AHK CEO Matthias Schepp.

We add the latest Russia-Austria business news, from Der Standart:

The Republic secures billions for exports to Russia and China; India and Turkey are also among the top performers in terms of Vienna export guarantees – The Austrian Export Bank’s export finance boom has brought a record year for the export finance sector: the new commitments for export liabilities increased by 6.8 percent to 5.7 billion euros (of which 1.5 billion euros in guarantees and 3.9 billion in temporary guarantees). The liability engagement developed just as dynamically, rising from € 24.3 billion to € 26.4 billion. As a result, the Control bank, operating on behalf of the republic and owned by the commercial banks, still has some breathing space in its liability framework, which has been reduced to 40 billion euros granted by the Ministry of Finance.

Among the top markets in the Export Liability ranking are Russia with 1.9 billion euros, China with 1.2 billion euros, followed by India and Turkey, which are well below € 400 million each. Brazil and Indonesia are ranked 5th and 6th, said Kontrollbank board members Angelika Sommer-Hemetsberger and Helmut Bernkopf on Thursday in the club of business journalists.

However, the front runners among the new commitments are Turkey, Morocco and Ghana. Africa has a lot of potential, especially for Austria’s technology and environmental companies; they could benefit from investments in air-conditioning technology and environmental technology, and Bernkopf encouraged the export industry.

Sanctions are having an effect In Russia, the sanctions imposed until September are being felt, and there are some signs of worsening political relations with the EU, rather than improvements. Nevertheless, a lot of new business is possible, said Bernkopf. However, the volatility is very high.

On the other side of the Atlantic, in the USA, which has become the second most important export market, economic growth is still acceptable. Pulp, metal, fiber and transportation were among the most promising industries. The slowdown in the economy is already being felt by export insurers: applications are recording a slight weakening, but the business volume has not yet returned, said Bernkopf. The surplus from liability fees, which OeKB [Austrian Control Bank] delivers to the Republic, amounts to 156 million euros.

Compare Ostexperte’s trade notes on Austria-Russia from two years ago:

Austrian-Russian trade back on growth path

The ruble devaluation and economic sanctions were painful for Austria’s exporters. Now foreign trade with Russia is picking up again after 2013, according to the Austria Press Agency (APA).
Exports from Austria to Russia dropped by almost half after 2013, but now the Austrian economic delegate in Russia, Rudolf Lukavsky, announces now a “turnaround.

2014 to 2016 were “bad years.”

“Exports fell 46 percent from 2013 to 2016,” explains Lukavsky.  Down “from 3.48 billion euros in 2013 to 1.88 billion euros last year.” From 2015 to 2016, foreign trade fell by 4.8 percent.

In October 2016, the plus compared to the same month last year was 34.8 percent. For 2017 as a whole, Lukavsky sees a “plus of around ten percent” compared to 2016.
He described the period between 2014 and 2016 with declining exports as “the bad years”.

Growth of the Russian economy

In addition, Lukavsky emphasized the economic links between Russia and Austria. These are “very strong, but expandable”. The Russian economy is also back on a growth track. After years of recession, “Forecasts of growth for Russia are between 0.6 and 2 percent this year.”
“If the Russian engine gets rolling again, it is unstoppable,” said the business delegate  In addition, investments in Russia would have increased. He also sees an opportunity for Austrian suppliers of equipment – but less in the consumer goods sector.

Food embargo burdens exporters

Austrian exporters mainly deliver machinery, equipment and pharmaceutical products to Russia. Due to Russian counter-sanctions, food exports – v. a. Meat, milk, salt and fruit – are badly broken. Vice versa (from Russia to Austria), exports consist of four-fifths of gas and oil. Even after a repeal of the bilateral sanction spiral, Austria’s food exporters would not have an easy game, Lukavsky believes. It will be difficult to regain lost market share. And, if it were up to the Russian Minister of Agriculture, the import embargo could remain active for another ten years anyway.

Agriculture in Russia has made “great progress”

The strategy of import substitution pursued by Russia Lukavsky considers as successful: “The field of agriculture is a sector where very great progress has been made. Russia is a net exporter of pork, and and they are able to meet their full needs in wheat and corn. That was not the case three or four years ago. “Although Russia is only 15th in terms of trading volume as a foreign trade partner, according to Foreign Trade Austria, around 50,000 jobs in Austria depend directly and indirectly on economic relations with Russia. These are mainly located in mechanical engineering, the automotive industry and in the chemical industry.

Sanctions had a strong influence on Austria

With the devaluation of the Russian currency, foreign products became significantly more expensive for Russians. Austrian machines, which due to their quality are very popular on the Russian market, have become less and less attractive. Consumers in Russia were also barely able to pay for the rising prices of Austrian goods. According to a study by the Austrian Institute for Economic Research (Wifo), European sanctions against Russia have had a strong influence on Austria. In Austria, the economic output in 2015 was about 550 million euros lower. In addition, because of the sanctions in Austria about 7,000 employment relationships were dissolved.

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