Turnaround in Russia business


Machine exports up 22.5 percent in 2017 - Sanctions continue to weigh on companies - China captures market shares

After four declining years, a turnaround in the Russian business of mechanical engineering companies from Germany came in 2017. Last year, machines and plants worth 5.3 billion euros were sold to Russia - 22.5 percent more than in the previous year. Growth has been broad-based, but sanctions and a lack of structural reforms are dampening expectations. The sanctions imposed by the EU and the USA are still preventing a normalisation of business relations. "Especially now that the Russian economy is slowly recovering thanks to the oil price, the sanctions will put European manufacturers at a disadvantage," warns Ulrich Ackermann, Head of VDMA Foreign Trade. "We fear increased difficulties in the financing and hedging of Russian transactions triggered by the US sanctions package of 2017, and there are growing signs of this," says Ackermann.

"We fear increased difficulties in the financing and hedging of Russian transactions triggered by the US sanctions package of 2017."

Russia is currently the 9th most important sales market for German mechanical engineering industry. In 2017, German machinery exports focused – amongst others - on agricultural engineering, food and packaging machinery, construction and building material machinery and materials handling technology. All top 10 sectors recorded growth, in some cases in the high double-digit range. But many sectors that are less strongly represented in Russia were also able to significantly increase their exports. This positive development was primarily due to the stabilization of the oil price. Although the price per barrel is still significantly lower than it was before the crisis, the price is relatively stable. This also affects the ruble.

China is catching up
Exports to Russia are also being boosted by the development of domestic industrial capacities. Because the state relies on machines and plants "made in Germany" for its modernization. Not only the German manufacturers profit, but all important machine suppliers of Russia. For example, China: in 2016, Chinese suppliers sold machines and plants worth a total of 4.9 billion euros to Russia, an increase of 73 percent. China thus overtook Germany as Russia's most important machinery supplier for the first time.  This picture changed slightly in 2017. According to Chinese export statistics, China supplied machines to Russia for around 5.1 billion euros, slightly less than Germany. Nevertheless, German manufacturers have lost their former lead in market share in the Russian machine market.

Cautious look ahead
Overall, the Russian economy grew less strongly than expected in 2017, by 1.5 percent according to preliminary figures. Forecasts for the next two years are cautious. More than 2 percent growth seems unattainable in the next two years. The lack of structural reforms and the growing share of the state in the economy are slowing down momentum. Almost all experts agree that little will change without far-reaching reforms. According to these forecasts, German machinery exports to Russia will probably continue to grow at a moderate pace, and there is still a long way to go before the highs of 2012.

Do you have any questions? Monika Hollacher, VDMA Foreign Trade, phone 069 6603 1448, monika.hollacher@vdma.org, will be happy to answer them.