Financing not the biggest problem in Russian trade or investments

Barometer survey by the Finnish-Russian Chamber of Commerce reveals: More than half of the enterprises participating in the survey said that lack of funds was no problem for them. Instead, the biggest problems pertained to customs, the authorities’ actions or confusing legislation. The number of export credit guarantees granted by Finnvera for exports to Russia has increased many times over during the past couple of years.

At the same time as the Finnish-Russian Chamber of Commerce conducted its barometer survey on Russian trade, Finnvera wanted to identify the market deficiencies that might be encountered when Finnish enterprises seek to operate in Russia or have direct trade with Russian partners. The survey also investigated how well Finnvera and its financing services were known in the target group. Altogether 300 enterprises participated in the survey; of these, 186 were engaged in direct exports.

Traditional payment methods still favoured

Of the enterprises that participated in the survey, 62 per cent had direct exports to Russia. Most transactions are still paid by means of prepayments, sales credits, letters of credits or cash payments.

Only 23 per cent of enterprises engaged in direct exports have insured their export-related risks through Finnvera, private credit insurance companies or banks. When enterprises have applied for insurance or guarantees, over 60 per cent of the applicants have also received them. For insuring their export-related receivables, enterprises have most often contacted Finnvera. Of the enterprises that answered the survey, 55 per cent said that they knew Finnvera’s services well or fairly well.

Topi Vesteri, Finnvera’s Executive Vice President responsible for export credit guarantees, expects that, as Russian trade keeps developing, prepayments and cash will gradually be replaced by other forms of payment. This will also make it necessary to insure export-related receivables.

Lack of insurance or guarantees no hindrance to trade

The survey showed that financing or the lack of funds was a problem for only 12 per cent of enterprises. A mere 2 per cent reported that risks associated with receivables were a problem. According to the survey, 72 per cent of enterprises engaged in direct exports had not lost export deals to their competitors because of lacking insurance or guarantees during the past year.

However, 16 per cent of export enterprises reported that they had lost deals to their German and Italian competitors for reasons such as better payment terms. "Finnvera will analyse in more detail how German and Italian practices differ from those applied in Finland. One explanation may be that German and Italian banks have a stronger presence in Russia than Finnish banks," says Topi Vesteri.

A steady trend in Finnish enterprises’ investments in Russia

Despite a cautious attitude among Finnish enterprises concerning direct investments in Russia, many investments are being prepared. Altogether 40 per cent of the enterprises that answered the survey had carried out investments during the past six months. Moreover, 44 per cent of enterprises were planning investments. 64 per cent of enterprises reported that issues related to the availability of financing had not slowed down or hindered the implementation of their investment plans in any way.

The lion’s share, or 81 per cent, of investments carried out in Russia have been financed using the enterprise’s equity. 11 per cent of enterprises had utilised financing provided by Finnish banks and 7 per cent had made use of financing provided by Finnvera.

Out of all loans and guarantees given by Finnvera to Finnish SMEs for international establishment projects, over one third have been used for projects in Russia. With its share of EUR 3.3 million, Russia was the biggest single target country in 2004. During the past three years, Finnvera has granted a total of EUR 14.3 million for 30 projects in Russia.

Through Finnvera, enterprises can also apply for support made available by the Finnish Ministry for Foreign Affairs for launching or developing operations in Russian areas adjacent to Finland. In 2004, the Ministry for Foreign Affairs granted a total of EUR 373,071 for 22 projects.

Steep growth in demand for Finnvera’s export credit guarantees for Russia

Finnvera’s guarantee offers and commitments for exports to Russia grew fivefold in 2004 when compared against the previous year. The total sum of export credit guarantees granted for exports to Russia in 2004 came to EUR 410.3 million. The same trend has continued during the first months of this year; by the end of April, the total sum of export credit guarantees granted had reached EUR 355.0 million.

By volume, the biggest guarantees have been given to banks that provide financing for the exports of Finnish enterprises. Among the sectors that received guarantees were telecommunications, the paper and forest industries and the basic metals industry.

Short-term Credit Risk Guarantees were the most common type of guarantee in 2004; most of these were given to SMEs. At the end of 2004, Finnvera’s guarantee arrangements involved 79 Russian buyers. When examining the number of guarantees granted, Russia has clearly become an interesting target country: at the end of 2004, Russia accounted for one third of the guarantees given by Finnvera.

Topi Vesteri predicts that demand for guarantees for exports to Russia will remain high.

For further information:

Financing for exports
Topi Vesteri, Executive Vice President, tel. +358 20 460 7238 or +358 400 702 002
Raija Rissanen, Chief Economist, tel. +358 20 460 7276 or +358 40 739 8862
Financing for internationalisation
Veijo Ojala, Executive Vice President, tel. +358 20 460 7405 or +358 400 672 401
Anneli Toivonen, Development Manager, tel. +358 20 460 7364 or +358 40 715 9226