Urals Cheated on Europe with Asia

21.08.2009 — Analysis

Over the last decade the Urals was strengthening its ties with the West increasing the trade turnover. The thundering crisis in the autumn 2008 had not only shaken the trade balance between countries but also forced the Urals Federal District to refocus on Asian countries. Find out with whom the Urals cheated on Europe in this RusBusinessNews material.

The financial crisis has hit the Urals region the hardest since this region is the industrial heart of Russia. The volumes of raw materials supplied for processing and technological equipment sold to companies have significantly reduced. What fell even lower are the world market demand and prices for metals, energy resources, petrochemicals, and other products traditionally exported from the Urals Federal District. Foreign trade turnover has dropped by almost a third. According to the Urals experts' opinion, however, the problem lies not only in crisis in Russia but in Europe as well since Western countries have reduced production volumes due to the instability in the world economy, closed a number of plants down, and, therefore, reduced volumes of purchasing. This is why Russians had to look for new partners in the "stable" Asia.

"At the moment our plants are demonstrating ever growing interest in companies of neighbouring countries like Azerbaijan, Kirghizia, Kazakhstan, and China where the oil and gas production equipment manufacturing is well developed. Tyumen companies tried to demonstrate their capabilities to the Europeans before, took part in various exhibitions, in Hannover for instance. This interest in the Old World is rarely demonstrated now. It is too far and transportation costs are high", says Olga Vellert, the Head of the Department for International Economic Activities of the Chamber of Trade and Industry of the Tyumen Oblast.

Boris Tokarev, the First Vice President of the South Urals Chamber of Trade and Industry, agrees with his colleague. "As China has suffered from the world crisis the least of all countries and the Chinese economy is still growing, Chelyabinsk companies are focusing on this country’s markets. This is where metals and metal goods are exported to in volumes larger than to Europe. Moreover, the neighbouring Kazakhstan traditionally remains a priority trade partner for the region. This country began suffering from the crisis before others and now it is coming out of it before others too. This country is buying a lot of construction materials and metals in the Urals", says Boris Tokarev.

Analysts think that the active cooperation with China and the CIS countries is one of the most effective ways of getting out of the crisis for companies in the Urals. This would, however, require help from Russian authorities and banks.

"This year the Russian Government decided to abolish VAT on imported industrial equipment if such equipment is not manufactured domestically. Still, a purchasing surge has not happened. Our companies have no cash at the time of crisis. This is why it is necessary for the Russian banking system to react in an appropriate manner and provide companies with affordable credits", Boris Tokarev reckons.

Today the lack of own funds is one of the key obstacles in the way of Urals companies into the Asian market.

"Not so long ago an Asian company wanted to place a large order at one of the largest plants in the Perm Krai. They were prepared to pay, all they wanted was the Perm company to make the product. The director of the company, however, could not take this responsibility, you need the money to start production, and there was none. It is also virtually impossible to borrow from banks. This is why, as far as I know, the company declined the order", Yelena Mironova, the Deputy Director General for the Development of Entrepreneurship, Interregional, and International Cooperation of Perm’s Chamber of Trade and Industry, is not too happy about the situation.

The experts are convinced that if no steps for the support of industries damaged by the crisis are undertaken, the trend of reduction in trade turnover will last at least to the end of 2009.

"The fall in prices for products made by companies in the Urals, cessation of work of some plants, reduction of production volumes may lead to the situation when the most optimistic predictions estimate a fall in the Urals Federal District's trade turnover by 35-40%. Import and export volumes are going to drop in equal proportions", reckons  a Mid Urals analyst Konstantin Selyanin.

The Urals’ foreign trade turnover has dropped by almost a third. Compared to the Russian nationwide figure (a drop in export and import by 46.9%) the Urals Federal District is not doing too badly.

Ekaterinburg customs office, for instance, informed us that on their territory the trade turnover has dropped by 36.7% compared to the first half of 2008 and amounted to 2.6 billion US dollars. In the South Urals the drop has amounted to 39.6%, down to 1.8 billion dollars.

In the Tyumen Oblast the foreign trade turnover in 7 months amounted to 410.7 million dollars, having fallen by 31.7% compared to the same period of the previous year. Exports accounted for 252.9 million dollars.

In the Perm Krai the foreign trade turnover has fallen by a third and amounted to 1.9 billion US dollars. Most notably dropped the import and export volumes of mineral fertilisers (by 71 and 83.7% correspondingly) and export of metal goods (-69.8%) and timber import by 78.6%. The Perm Krai managed to make money only on food stuffs exports which grew by 4.4%

In Zauralye (lands beyond the Urals) the foreign trade turnover has fallen by 45% compared to the first half of 2008 and amounted to 282 million dollars.

The most significant reduction is recorded in Yamal where the foreign trade turnover, not taking hydrocarbons into account, has fallen by 55.4% compared to the first half of 2008, down to 127.5 million US dollars. This region’s major exports are mineral products; imports are machines, metals and metal goods, timber and paper products, chemicals.

The only region standing out is Ugra having not gone into red but even improving on the last year's figures. They managed to increase the trade turnover by almost 20% due to one-off shipments from Russian oil companies. The highest growth was recorded in January-April 2009. The trade turnover has grown by 31.8%, amounting to 378.27 million US dollars during this period.

The Netherlands, Germany, India, China, USA, Kazakhstan, and Ukraine remain the countries most actively cooperating with the Urals regions.

The sad 2009 statistics notwithstanding, the Urals analysts look forward with optimism, they reckon that once the country makes it out of the hard economic situation the foreign trade turnover will grow several times, economy always blooms after a crisis. The Urals companies’ products have always been in demand abroad and this interest will not be lost and the "conquest" of Asia will help the development of the domestic production.

Maria Truskova, Pavel Kober