Russia’s desire to develop its own production may open markets for Finnish export companies
Russians now believe in cautious economic growth, says Team Leader Anu-Leena Koskelainen.
Finnish companies’ increasing interest in Russian markets is reflected as more frequent inquiries at Finnvera’s Representative Office in St. Petersburg. The Russian economy has had a slight upturn. Despite challenges, this is opening opportunities for Finnish companies. Finnvera estimates that demand for financing for Russian trade will pick up this year.
The following tip sounds like a cliché but is absolutely true: A company aiming at Russian markets must do its homework well.
- In Russia, one cannot think that a good product sells itself. Relations and the trading partner’s trust are important, says Team Leader Anu-Leena Koskelainen of Finnvera.
Koskelainen was appointed to lead the management of country and environmental risks in the Large Corporates Unit of Finnvera in April 2017. Before that she had worked as an economic and financial adviser at the Embassy of Finland in Moscow, where she had an excellent view of the development of the Russian economy for three and a half years. She was already familiar with Russia and its neighbouring areas from her previous career at Nordea Bank and its predecessors, and she also knew Finnvera through corporate finance.
Compared to the situation in 2014–15, the economic outlook in Russia has improved. The sanctions imposed by the West and Russia’s own counter-sanctions have undoubtedly had an effect, but maybe not as great as had been predicted, Anu-Leena Koskelainen says.
- When the economy shrinks, it must also grow at some point. Private consumption, previously the engine of economic growth, is showing a slight upswing after a steep decline. Russia’s foreign trade is increasing after having decreased for two or three years. A turn in sentiments took place in early 2017, and Russians now believe in cautious economic growth.
Investments need machines and equipment exported by Finland
Finnish companies also have a more positive view of Russia than before. Although Russia has turned to a more protectionist direction and has an import substitution policy that favours domestic production, opportunities may open for Finnish export companies. For instance, the sanctions imposed by the EU on trade with Russia are still in force, but trade is possible when the sanctions are taken into account.
- The development of Russia’s own production calls for investments, and these require technology from abroad. There is then a need for machinery and equipment, the greatest of Finland’s exports, Koskelainen says.
Russia is a very noteworthy trading partner despite the fact that exporters must know the local conditions and authorities, get used to the bureaucracy and ponder their attitude to corruption.
- Russia encourages foreign companies to shift their production to Russia. Export trade, in turn, is easier without having to become established. However, there are challenges: finding partners; trust; and how to secure receivables from the goods sold.
- Among established partners, trade is generally conducted against an invoice. Finnish exporters can insure their receivables from a foreign buyer by means of Finnvera’s export receivables guarantee which is well suited to the short-term exports of raw materials and consumables. At the moment Finnvera is covering credit risks connected to over 100 Russian buyers. When there’s a crisis in Russia, advance payments are common. Then the buyer must trust the seller. A letter of credit is often used to secure receivables, but in Russia it is also a financial instrument.
No change in economic policy is foreseen for the next few years
Russia’s economy is troubled by structural problems, such as the state’s strong role, a low productivity of work and demographic challenges. However, major changes in economic policy are hardly likely before the presidential election in March 2018. In recent years, funds collected from oil revenues have been used to cover the budget deficit.
- The budget deficit is one of the biggest problems in the economy. In an economy dominated by the state, this affects the allocation of resources. Now that the economic outlook is better, it is not absolutely necessary to carry out extensive reforms.
From the Finnish perspective, Russia is near and geographically huge, when compared against many other export markets. Even though there are problems, Russia has improved its ranking in the Doing Business comparison conducted by the World Bank on business regulations.
“Inquiries keep coming about how Russia is doing”
After a break of a few years, Finnish companies are again interested in trading with Russia.
- Many clients inquire generally about the market and how Russia is doing. This is a positive feature. It’s also positive that more Russian tourists are again coming to Finland this year, giving a boost to Finnish business on this side of the border. The purchasing power of the rouble against the euro has improved, which makes Finland a more attractive destination for Russian tourists, says Timo Pietiläinen, Head of Finnvera’s Representative Office in St. Petersburg, who has been managing Finnish companies’ relations in the St. Petersburg area for about ten years.
During this time, he has been stationed in St. Petersburg for a total of seven years.
- I act as Finnvera’s eyes and ears in St. Petersburg, he says, characterising his role.
Finnvera’s financing for exports to Russia kept rising in 2014–15, when Finnvera’s exposure in Russia increased 1.5-fold. Since then, the exposure has diminished slightly because Russians are paying back their loans.
Tools for networking and efficient expert services
According to Pietiläinen, the Finnish SMEs that invest in Russia at present are primarily those that already know Russian markets as exporters or that are already established in Russia. A production line in Russia helps a company now that Russia is restricting imports from outside its customs territory.
Even now, many Finnish companies engaged in the building product industry, wood processing industry and the service sector are operating in Russia.
In Russia, Finnvera works in cooperation with Team Finland actors. They help companies to network and create contacts, and guide companies for instance in the use of local expert services. After the initial phase, companies themselves manage most of their contacts with the authorities and other Russian cooperation bodies.
In Northwest Russia, Finns have a good reputation as reliable trading partners. Most Finnish companies active in Russia operate in the St. Petersburg area. Knowledge of Finland is not as solid in Moscow or further away. The Astana Expo 2017, being held in Kazakhstan from June to September, will offer Finland the opportunity to raise its profile also outside Russia.