Russia is running a strong trade surplus but needs to wean itself off
oil and mineral exports that earn most of the country’s hard currency.
The government has allotted $500m to support its own export guarantee
bank, Roseximbank, to boost the export of Russian heavy equipment – one
of the few things the country’s dilapidated industry produces that it
can sell overseas The Duma passed the 2004 budget in October, which
included $500m to provide guarantees against political risk for Russian
exports that target developing countries.
Roseximbank was set up in 1994, but has been merely ticking over since
then. Earlier this year its shares were transferred to Vnesheconombank
(VEB) – the state’s main interface with the international financial
markets – which injected capital into the bank in return for 94.6% of
Roseximbank’s shares.
The de facto export bank since the 1960s, VEB provided $900m worth of
trade guarantees this year, but is getting ready to hand the baton over
to Roseximbank, which should become the specialist export promotion
bank in January. VEB will offer the experience of its personnel to
supplement Roseximbank’s small staff of 200 and will oversee its
operations. However, the two banks will be kept separate, with
Roseximbank reporting to the ministry of finance.
Production attraction
Despite Russia’s lacklustre reputation for reliable goods, even in the
Soviet era it was a world leader in heavy engineering and certain
hi-tech fields like radar. Today, as companies get their act together,
they hope to play on their solid engineering skills and Russia’s low
production costs and so carve out a niche in new markets. Roseximbank
will focus on the export of value-added goods as well as financing the
development of import substituting industries. For example, Russian
electricity generators may not be as advanced as those from Germany,
but they are reliable, simple to maintain and, at one-third of the cost
of Germany’s, they are attractive to less developed countries.
At the same time, a new breed of manufacturer is coming to the fore as
the economy recovers and invests heavily in production. Russian
companies are already eyeing the nearby western European markets and
cheap power at home will make them very competitive.
To help this process along, Roseximbank will provide credit guarantees
to exporters. The bank is already in operation but this year the only
export it guaranteed was the delivery of power generating equipment to
Bulgaria.
The government has been signing co-operation deals with other credit
export agencies and the plans, laying out in detail the bank’s mandate,
should be approved by the end of the year, clearing the way for
Roseximbank to step up its operations.
The bank will start taking proposals by the end of this year and will
back deals in lots of $10m from next year, before building up its
business as non-oil trade relations with other countries develop.
“These are not huge sums but it is a beginning and Roseximbank will
build up its business as time passes. We are still at the first stage,”
says Svetlana Nikitina, head of communications at VEB.
The need for cover from political risks was driven home during the war
in Iraq earlier this year. Car-maker GAZ had produced 5000 Volga which
were due to be delivered to the Iraqi government, destined to be
Baghdad taxis, but as hostilities began the cars were stranded in
Russia.
“We had spent over $30m but did not deliver the cars to the country. We
cannot sell the ‘Baghdad taxi’ anywhere because such cars are not
suitable for our conditions,” said Sergei Chernykh, head of the export
department of RusPromAvto, the holding company that controls GAZ.
International advantage
The government is also toying with the idea of subsidising interest
rates to give Russian exporters a bigger advantage on international
markets. The Economic Development and Trade Ministry estimates that
dropping interest rates could lead to Russia’s manufacturing sector
increasing exports by $4bn-$5bn a year, up from the $27bn exported by
the end 2002.
Agreements have already been signed with the French AFB-export, German
Kreditanstalt fur Wiederaufbau, Indonesian PT Bank Mandiri and, at the
end of September, VEB and Roseximbank signed off on a tripartite
co-operation agreement with the US Eximbank.
VEB has been working with Eximbank since 1992, when the first framework
agreements were signed. Since then the two banks have done more than 30
individual projects worth a total of $1.2bn.
