Foreign Economic Relations of Moscow in Contemporary Conditions
Andrey Dorokhin, Head of the Department of Foreign Trade Analytics and Relations with International Organizations of the Department for Foreign Economic and International Relations of the City of Moscow
Despite the particular existing external background, during January–March 2022, enterprises and organizations registered in Moscow carried out trade operations with almost 200 countries of the world (according to customs statistics).
The results of recent years show that the export shipments of organizations registered in Moscow, excluding the products of the fuel and energy complex, are less susceptible to market fluctuations. According to the results of the first quarter of 2022, the foreign trade turnover of organizations registered in Moscow (not including the fuel and energy component) decreased by only 1.1% compared to the first quarter of 2021, and amounted to $36.3 billion.
Supporting Companies with Foreign Participation
The current situation of large-scale external economic pressure dictates the need to take concrete and effective steps aimed at supporting legitimate enterprises with foreign participation that continue their activities in the Moscow region, primarily small and medium-sized enterprises and companies. It should be noted that according to various sources, from 5000 to 8500 enterprises with foreign participation, including small and medium-sized ones, are currently actively operating in Moscow.
According to existing expert estimates, more than 90% of enterprises with foreign participation operating in Moscow are experiencing significant economic difficulties associated with a drop in trade turnover, a reduction in the supply of raw materials and components, and a sharp reduction in sales volumes – which cause an objective decrease in the wage fund of employees. Currently, in the existing sanctions conditions, such negative estimates tend to increase significantly. Almost all manufacturing companies with foreign capital have experienced supply chain disruptions, restrictions on production processes, or partial/complete production shutdowns.
It is worth noting that companies with foreign participation bring to the Russian Federation – including Moscow – not only jobs, but also new technical solutions and modern business experience. In addition, as a rule, they are exemplary employers and taxpayers.
Currently, measures of state support for small and medium-sized businesses are regulated by the Federal Law “On the Development of Small and Medium-Sized Businesses in the Russian Federation.” This law defines the criteria for classifying enterprises as small and medium-sized enterprises (SMEs). Specifically, such enterprises may include business companies and economic partnerships, in the authorized capital of which the total share of foreign legal entities does not exceed 49% in the aggregate.
An exception to this rule is the situation when the foreign parent company itself can be classified as an SME entity in terms of the number of employees and the income received. However, this exception to the rule is not automatically applied, but rather imposes on the foreign participant the need to request in his country of origin a certain package of documents by which it would be possible to prove that the foreign enterprise meets the criteria of a small and medium-sized enterprise. Unfortunately, in the current conditions, it is very difficult and costly to collect, certify and legalize such documents.
It appears that such rules are extremely restrictive – above all, for the activities of foreign investors. It should also be borne in mind that large foreign parent companies, like SMEs, are not currently able – nor will be able in the foreseeable future – to have a financially stabilizing effect on the activities of their Russian (primarily Moscow) subsidiaries. Therefore, it is important now to support the activities of such enterprises in order to avoid their possible closure, thus preserving numerous developed production chains and established channels for introducing advanced foreign technologies and technical solutions into the Moscow economy.
So one of the pressing issues for the Moscow economy at present is the equalization of the availability of state support measures for small and medium-sized enterprises with foreign participation, including those which do not fit the existing criteria for formal reasons. The department, together with a number of other interested agencies of the city of Moscow, has prepared and sent to the Ministry of Industry and the Ministry of Economic Development of Russia corresponding proposals to equalize and make available state support measures for such small and medium-sized enterprises with foreign participation.
Developing New Markets
Within the framework of its economic contacts with foreign partners, Moscow also seeks to assist local companies in the development of new markets. In particular, there are good opportunities to work in the markets of South American countries. Literally just now, in early September 2022, a business mission to Peru and a Moscow-Peruvian economic conference took place. A comprehensive business program was prepared, taking into account the main opportunities for the development of trade and economic relations between Moscow and Peru.
The meetings with representatives of the business community in Peru touched upon the development of the supply to the Peruvian market of locomotives, electrical equipment, engines, cars, food, and other industrial and agricultural goods of Moscow companies, and their participation in major infrastructure projects. The possibilities of increasing the volume of exports of exotic fruits, coffee, cocoa, seafood, food products of the “superfood” category, and natural and synthetic fabrics from Peru to Moscow were also discussed.
The meetings showed that the business community of Peru – and our South American partners in general – are positive about developing relations with Moscow enterprises, and openly declare the need to intensify cooperation. Based on the specifics of the region’s economy, it seems that Moscow manufacturers of industrial and power equipment, motors, pumps, food equipment, as well as IT products, have great potential demand from South American companies.
Domestic structures also already have good groundwork in a number of countries in North Africa and Central and South-East Asia for the implementation of possible projects in the field of transport infrastructure. Here we can talk about the design and construction of metro stations, tunnels, railway tracks, and bridges of varying degrees of complexity.