Page 63 - bne Magazine August 2022

bne August 2022 Eastern Europe I 63
Petrochemicals manufacturer Sibur provides another striking example. More than 20% of Sibur’s products used to be exported to Europe, which was
the company’s second largest single market beside Russia. Sibur goods went primarily to Eastern Europe, France, Germany and the Netherlands. Now, the share of Sibur’s sales going to Russia’s western neighbours has been reduced almost to zero, while its Asian exports have ballooned. Forced to re-shape its trade flows, the company now plans to increase exports to Asia significantly this year. The company will most likely return to the market if sanctions are lifted, but for now some European companies will not be receiving products from Sibur.
Meanwhile, European imports of synthetic rubber and polymers from Russia have dropped steeply, as have some of the components needed to manufacture them such as naphtha and LPG. Analysts are predicting shortages of both goods unless European companies can find new suppliers to make up the shortfall, but specialist materials like these can be notoriously difficult to source at short notice.
Sibur’s case is a particularly effective litmus test because the company has not been sanctioned. It is therefore a useful indication of the general flow of Russian goods away from Europe and towards the Global South.
Sibur may well be ahead of the curve here, as it has been working with China for more than 10 years, allowing it to
adapt more quickly than other Russian companies. The Chinese direction was set by former CEO Dmitry Konov, who left the company this year amid Western sanctions against Russian officials and businessmen. Educated in Switzerland, Konov has a reputation for striking up foreign partnerships and championing an outward-looking management style. His strategy of increasing resilience
by orientating trade flows towards developing markets has proved very perceptive.
If Sibur is indeed an early indicator, and other Russian companies follow its pivot to the Global South, the implications for world trade could be significant.
Speaking at a business forum of leaders from BRICS countries in June (Brazil, Russia, India, China and South Africa), Russian President Vladimir Putin
said that “Russian business circles
are activating their contacts with the business communities of the BRICS countries... The volumes of Russian oil delivered to China and India are growing noticeably. Collaboration in the sphere of agriculture is developing dynamically. Russia is exporting significant volumes of fertilisers to BRICS states. Russian IT companies are expanding their activities in India and South Africa...”
As Russian producers forge new trading partnerships and strengthen existing ones, business confidence in June reached its highest level since February. Activity in Russia’s manufacturing sector also began expanding again last month.
Where next?
There can be no question that European sanctions are contributing to adverse effects on the Russian economy, and a deep recession is on the way. Russia’s Ministry of Economic Development estimated that growth was down 4.3% in May 2022. And transactions through the Central Bank of Russia’s payments system were down 7.2% in June compared with the previous quarter – a reliable sign of economic decline.
But it is also clear that Russian companies are flexible enough to look for new trading partners, and that many of them have long been geared up to do just that.
On the other hand, European industry
is looking increasingly anaemic without the supplies of Russian raw materials which it had got used to. The EU is the world’s largest importer of natural gas, and some very industrialised countries such as Germany rely heavily on Russian commodities for their export-based economic model.
With benchmark European gas prices around five times higher than they were a year ago, Europe is reeling. The shock has contributed to a steady devaluation of the euro, which is now at its weakest level in twenty years.
WTO forecasts for merchandise trade volumes in 2022-3 show “Europe is
now expected to underperform on the import side”. The continent is set to experience shortages of some of the raw materials and consumables provided chiefly by Russia, including grain, energy and rare metals like palladium.
European companies must now show that they are as resilient as their Russian counterparts, which are forging new partnerships and entering new markets. Africa could be an invaluable partner in this undertaking.
Italian Prime Minister Mario Draghi has signed a new gas supply deal with Algeria to increase gas imports by around 40%. And British energy giant BP is looking to new projects in Senegal and Mauritania to help fill the gap created when it left the Russian gas market.
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