German business isn’t giving up

The business climate in Russia is getting worse as the volatile ruble and sanctions take a toll on the country’s economy, but this hasn’t discouraged German businessmen.

This was the conclusion drawn from the survey of German companies operating in Russia regarding prospects in 2019, conducted by the German Committee on Eastern European Economic Relations and the Russian-German Chamber of Commerce. A total of 168 German companies that employ almost 142,000 people in Russia and generated a turnover of 23 billion euros in 2018 took part in the survey.

According to the data, about 60 percent of survey participants fear that the Russian economy will either stagnate or take a turn for the worse this year. According to Michael Harms, Executive Director of the German Committee on Eastern European Economic Relations, these fears are largely tied to the fact that “the possible increase in political tensions and the threat of new US sanctions are causing uncertainty among the business community.” At the same time, he points out that the potential of the Russian economy remains extremely high. “If the conflict with the West is finally resolved and small and medium-sized business starts developing,” he says, “there will be a rapid boom in the Russian economy.”

In any case, the German companies doing business in Russia are happy with the results. According to Matthias Schepp, Chairman of the Russian-German Chamber of Commerce, “87 percent of companies responded that their financial situation in Russia is somewhere between ‘satisfactory’ and ‘very good.’” Also, a significant number of respondents said that they were able to increase their turnover in 2018. “In spite of the challenges, German companies have definitely demonstrated that they’re committed to the Russian market,” he said, “They like working in Russia, and plan to keep investing.”

Tired of sanctions

Everybody is tired of the US sanctions, but they remain in place for now and present many challenges for German companies doing business in Russia. According to the results, only a third of all companies who participated in the survey said that they have not been directly or indirectly impacted by the restrictions. But the sanctions don’t scare everyone. “Only a small number of companies are considering cutting back on their activities in Russia. And about a third are planning to move forward and expand their business here,” Michael Harms said.

According to German companies working in Russia, the sanctions aren’t producing the results politicians hoped to achieve. “This is why it’s time for Russia and Europe to jointly work on exiting the sanctions regime,” Matthias Schepp said. He also noted that the US sanctions “definitely seek to ensure the US has an economic advantage at the expense of German and European companies.”

Michael Harms also added that “the discussions about sanctions that are underway in the US are in many ways impeding” the development of economic relations with Russia. Moreover, he lamented that the US sanctions “aren’t discussed with the European Union,” pointing out that the EU is discussing setting up a payment system that’s independent of the dollar in order to avoid US sanctions against Iran in the financial sector. “Two thirds of the companies surveyed have a positive attitude toward this idea and applying it to trade with Russia,” Michael Harms says, “If we don’t want the US to control the EU’s foreign trade, we need to start thinking in this direction.

Exports to Russia have slowed down

Although export volumes from Russia to Germany are growing, there has been a reduction in exports from Germany to Russia. “This is the result, among other things, of the low ruble, which is making German products more expensive,” Michael Harms explained. He lamented the fact that “the prospects for exports are worse for 2019: just 30 percent of the companies surveyed expect an increase in exports this year, and the majority are expecting stagnation or a decline in export volumes.”

Two thirds of the companies surveyed think the main problem is the low ruble. About half think the US and EU sanctions against Russia are another reason. The growing number of protection barriers, which have appeared for foreign business in Russia in the context of import substitution policies, was third on the list. Just 36 percent of the companies surveyed reported that they hadn’t felt the effects of these policies.

Visa-free and cooperation with Eurasian Economic Union

Most companies reported that political relations between Germany and Russia are undergoing a period of stagnation, and under these conditions direct contact between Germans and Russians are a stabilizing factor and a key investment into our future. “The introduction of a visa-free regime for students, for young people under 25, could be a step in the right direction,” Matthias Schepp said.

Closer cooperation between the EU and the Eurasian Economic Union (EAEU) is another important issue for business. ‘It’s very important for the European commission intensifies its relations with the EAEU. Even the smallest bit of progress toward harmonizing out norms, standards, and certification processes has a direct positive impact on business, on business everywhere in Europe,” Michael Harms concluded.