Column by Vladislav Onishchenko on the goals and objectives of transforming Russian exports

In the context of international sanctions, questions about where to turn and what to do for export-oriented companies to develop are becoming more relevant than ever. A number of answers in the column for Kommersant are offered by the General Director of the Agency for Transformation and Economic Development, previously the head of the Analytical Center for the Government and the Center for Social Development Vladislav Onishchenko.

The main direction of development of Russia’s foreign economic activity under sanctions is the search for new export directions. Moreover, we are talking both about product areas and the creation of new, including innovative, production facilities, and about geographical areas – countries where previously exports (and primarily the export of non-raw materials, non-energy goods) were not carried out or were carried out in small volumes.

Now traditional and widely discussed directions for both export supplies and foreign economic cooperation are China, India, the UAE, Turkey, and North African countries.

At the same time, we are talking about the development of both trade and investment cooperation, including from the point of view of the opportunities for Russian companies to invest in assets in the territories of friendly countries. This area is being actively explored, for example, in relations with India. Throughout the year, Russian financial organizations and banks are exploring the possibility of obtaining portfolio investor licenses, which allows them to carry out transactions on Indian stock exchanges. Thus, in February 2023, Alfa Capital Management Company received a portfolio investor license; in June 2023, Pervaya Management Company received such a license; VTB is currently exploring the possibility of obtaining a license. Another direction is concluding agreements with investment companies, that is, working with stock markets through intermediaries. This path was chosen by retail broker Finam, which entered into agreements with local broker Ashika Group, which should provide Russian investors with access to trading shares on Indian stock exchanges.

But in what directions is it still important to look? Which countries in the Africa, Middle East and Southeast Asia regions should you watch out for? And what is required for successful cooperation with them?

Export directions

When choosing countries that you can pay attention to as potential export destinations, it is worth analyzing the projected indicators – GDP per capita growth, population growth. According to the IMF, the top 15 countries with the highest projected growth in GDP per capita in constant prices in 2028 compared to 2022 indicators include Libya (a projected increase of 49.2%), Mozambique (40.8%), Bangladesh ( 40.4%), Cambodia (35.5%), Philippines (34.0%), Ethiopia (33.2%), Rwanda (31.0%). Of these countries, Bangladesh, Ethiopia and Cambodia are also among the top 20 countries in terms of average annual growth rate of GDP per capita in 2015-2022 (according to existing IMF estimates). Although these countries are far from being among the highest income countries, projected growth in GDP per capita indicates that the purchasing power of the population in these countries will expand.

Of these countries, Mozambique is also among the top 20 countries for which the IMF projects the highest population growth in 2028 compared to 2022. For him, with an estimated population of almost 33 million people. in 2022, it is projected to grow by 17.8% by 2028. Countries that are projected to have high population growth (and therefore an expansion of the potential market) and whose population in 2022 is estimated by the IMF to be more than 20 million people include Niger, Uganda, the Democratic Republic of the Congo, Mali, and Angola.

In order to stimulate the development of exports to the listed countries and develop appropriate support measures – these conclusions are based on a recent study of possible trends in foreign economic activity, which was conducted by VEB.RF – it is necessary to conduct a proactive analysis of the available niches for Russian products in their markets. At the same time, existing analytical tools aimed at analyzing end markets for Russian products, export conditions and existing barriers to it are now actually launched upon request (for example, specific exporters).

Certain materials are compiled by the REC Group in the form of sources of reference information. For example, on the My Export platform, a resource is available for rating potential countries for exporting goods based on foreign trade data and available information on barriers to products. However, there are no tools for proactive deep market analytics, which would include detailed analysis and constant updating of information on regulation, methods of entering the market of a particular country, main competitors and pricing policies, etc.

Of course, creating a mechanism for proactive analytics of the markets of individual countries (or groups of countries) will require resources in the form of additional employees (representatives, consultants) conducting such analysis. In addition, it may be necessary to expand the network of representative offices (either trade representative offices or representative offices of the REC Group), especially, for example, to the countries of Western and Central Africa, which are currently poorly covered by representative offices. Of course, an assessment of the required resources and effects from the implementation of such predictive analytics mechanisms is needed.

At the same time, what is already known is that Russia has unrealized export potential (NEP) in African markets, which characterizes the existing opportunities for Russian exports in these markets. In total, the volume of NEP in the markets of African countries is estimated at $7.6 billion. Regionally, the NEP is: $4.8 billion in the markets of North Africa, $1 billion in West Africa, $0.8 billion in South Africa, $0.7 billion in Eastern, and $0.3 billion – Central Africa. If we assume that with the expansion of the purchasing power of the population, export opportunities will also expand, then if it grows by at least 30%, the opportunities for Russian exports to African markets in total will amount to about $10 billion. It is worth noting that individual countries have already paid attention on the development potential of African economies as potential markets for the export of their products. For example, the UAE and Saudi Arabia have been actively increasing their exports to the markets of states belonging to the Economic Community of Central African Countries (ECOCAS) over the past 20 years. If we detail the information about the trade of these countries with each other, it is worth noting the following.

According to ITC Trademap, the UAE increased the export of its products to the markets of ECOCAC countries in 2003–2022 by 114.8 times, to $2.6 billion. The growth in 2010–2022 was 15.3 times. Key export products (as of 2022) are mineral fuels; sulfur and cement; means of ground transport.

Saudi Arabia increased the export of its products to the ECOCAS countries in 2003–2022 by 73.1 times, to $2.6 billion. The increase by 2010 was 50.2 times. The main exports (as of 2022) were mineral fuels; plastics and products made from them; fertilizers

At the same time, for example, Russian exports to the countries of the association in 2021 amounted to $0.9 billion, with an increase of 57.1 times and 18.8 times compared to 2003 and 2010, respectively. That is, when compared with the UAE and Saudi Arabia, Russia paid significantly less attention to the ECOCAC countries.

About directions for investment activities

Another area of ​​foreign economic activity in addition to trade is investment activity, which, among other things, can further stimulate foreign trade between countries. At the same time, it is proposed to consider the possibility of mutual investments between Russia and individual countries. Firstly, this will create additional sources of financing for the development of certain industries in the form of foreign investment; secondly, this approach can potentially mitigate possible political risks when investing in the territories of foreign countries (which may be relevant, including for African countries).

From the point of view of searching for areas for mutual investment, it is important to look at the size of the economies of partner countries. Thus, using the example of African countries, the largest economies (based on data on their GDP levels) usually include Nigeria, South Africa, Egypt, Morocco, Ethiopia, Kenya, Ghana, Angola, Cote d’Ivoire, and Tanzania.

To determine possible areas of investment, it is important to take into account the structure of exports and imports, as well as the industrial structure of the partner country.

So, for example, Kenya is a net exporter of clothing items and is actively developing the textile industry on its territory, while the country is a net importer of furniture. A possible option for mutual investment could be the creation in Russia of joint capacities for the production of textile products while creating joint capacities for the production of furniture in Kenya.

Of course, the described option requires in-depth analysis, including the importance of taking into account the competition that familiar imports, primarily from China, will create for new capacities in Kenya. Here too, proactive analytics tools can be useful, important for determining export directions.

Development of export and investment support systems

For the proposed geographical directions of export and the development of cross-border investment activities, it seems important to develop and take into account in activities to support foreign economic activity such principles and components as the development of proactive analytical work to identify promising markets and niches for Russian exports, requirements and barriers to the export of Russian products, opportunities and ways to enter markets (a kind of “export intelligence” on a state scale, rather than an individual enterprise).

It will also be useful to expand legal and consulting support for exporters through foreign representative offices, including with the involvement of local experts in the territory of presence who are well aware of the current regulations and the state of the markets in the country of the representative office. Moreover, such consulting services are proposed to be provided on a commercial basis – we are talking about support both in the form of analysis of sales markets and regulation, and in terms of auditing the products of Russian enterprises (including SMEs) in terms of their demand in the market, necessary conditions and price policies for positioning and implementation in the country.

Developing proactive analytical work and strengthening the advisory presence in foreign countries, especially African countries, may require expanding the foreign presence, creating representative offices in countries (or groups of countries) that are not currently covered by them (primarily in Central African countries) – for organizing constant active promotion of Russian products abroad, regular live contacts with representatives of a potential consumer country of Russian products to establish stable contact.

When promoting Russian products abroad (including within the framework of bilateral contacts, business missions), it is important to encourage representatives of the partner country to cooperate by offering and discussing issues of supplying products from this country to Russia (a mutual approach when promoting exports). Development is also required the practice of creating and implementing tri- or multilateral investment projects in which several countries are involved, as well as the implementation of the approach of mutual investment with partner countries in assets in each other’s territories (cross-investment). Creating conditions for Russian exporters to create assets abroad, including by investing export proceeds, can help expand the presence of products produced by Russian enterprises or with Russian participation. An additional “internal” measure to support foreign trade activity could be the expansion of SMEs’ ​​involvement in exports through the use of digital platforms and the introduction of appropriate training.