Potential Trade Opportunities

An Expert's View about Business Environment in Russia

Last updated: 28 Apr 2011

Overview

While Russia is not yet a member of the WTO, the liberalisation of its trade and business regime throughout the years during the process of negotiation for membership has played no small part in the country’s fast-growing external trade. As a resource-rich country with Europe’s largest population of more than 140 million, Russia, as an outsider to the WTO, recorded a compound annual growth of 23% (14%) in trade between 2000 and 2008 (if the recession year 2009 is also included). This not only shows Russia’s heavy weight as a player in global trade, but also indicates the potential benefits that the country can bring to other WTO members upon accession.

Given their location and historic ties, EU countries (e.g. Germany, Italy, and the Netherlands) and Commonwealth of Independent States (CIS) countries (e.g. Ukraine and Belarus) have always been major trading partners of Russia. While it is unlikely that Asian suppliers can challenge the lion’s share of European and CIS countries in Russia’s external trade in the near term, the growing interest of Russian importers in sourcing from Asia has already made China its largest import source in 2008, overtaking the all-time champion Germany.

Without doubt, minerals, metals and related derivatives dominate the commodity structure of exports of resource-rich Russia, accounting for more than 80% of the country’s total exports in 2009. Meanwhile, machinery and equipment, foodstuffs and agricultural raw materials and chemical products are the major product categories that the country is sourcing abroad. Despite vibrant Sino-Russian border trade, Russian importers of consumer goods, limited by their small order size (due to a fragmented market structure), used to turn to European distributors, especially German, for imports from Asia. However, the strong economic growth in the past decade and increasing globalisation have greatly enhanced Russia’s import absorption capabilities, prompting Russian buyers to look for more competitive sources of imports and consider more competitive sourcing models such as direct sourcing.

Being the most populous country in Europe, impressive economic growth averaging more than 6% during 2003-2008, together with the dazzling spending patterns among the new rich in the past decade, has transformed Russia into a sizable and lucrative emerging market for Hong Kong companies. While the Russian economy cannot be decoupled and is still suffering from the economic storm battering the whole world since the second half of 2008, its sizable domestic market somewhat helped Russia overcome its biggest annual GDP contraction in 15 years of 7.9% in 2009. The robust growth of the Russian market in recent years has created a strong demand for Hong Kong-type products. Hong Kong’s total exports to Russia more than doubled between 2005 and 2008, despite seeing a staggering decline of 34% to US$724 million in the recession year 2009.

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Posted: 26 April 2011, last updated 28 April 2011

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