(Bloomberg) — Russian efforts to rewire trade flows and circumvent sanctions for the war in Ukraine cannot compensate for the collapse in imports that is crippling its economy.
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A striking result so far: For the first time, neighboring Belarus, which Russia used to stage the invasion, in April overtook Germany – an economy more than 60 times larger – by value imports to Russia, according to a Bloomberg analysis of the latest data.
“The market practically collapsed” this spring, said Andrey Pobezhimov, international logistics manager at SDEK, one of Russia’s largest express delivery companies. “Today it is very difficult to bring a shipment from Europe, sometimes almost impossible.”
Russia has made it harder to get an accurate reading of its economy as it has stopped releasing some key statistics, including a detailed breakdown of imports and exports. But a picture that emerges from the figures made available by the larger Russian counterparts is that of a disrupted trading pecking order.
Sales to Russia from trading partners that together accounted for nearly half of its imports in 2021 were down about 40% in April from a year earlier, according to Bloomberg calculations. Even those, like China, which have not joined the United States and its allies in imposing sanctions, are reducing their shipments of goods.
The invasion at the end of February was a boost for an economy so integrated into world trade after three decades that its imports as a share of gross domestic product in the years before the war were significantly higher than in emerging markets. such as Brazil, India and China.
But since a global backlash against the war has severed supply chains and caused many multinationals to pull out, Russians have had to fend for themselves or learn to navigate a new obstacle course – sourcing ingredients from alternative foreign suppliers, travel the world in search of new routes or find other loopholes to transport the goods. Otkritie Research estimates that the value of imports in April may have fallen to $5 billion from nearly $27 billion a year earlier.
What our economy says…
“The collapse in imports inflates the current account but reflects a painful adjustment that will take time to trickle down to the economy. Until supply chains are reconfigured, producers will face bottlenecks and living standards are likely to deteriorate further.
— Scott Johnson. For a full analysis, click here
As trade with much of Europe has dried up, Belarus stands out as one of the main beneficiaries. Its exports to Russia of items ranging from building materials to pet food jumped more than 100% in April, measured by value.
Boris, who owns a large supermarket chain and factories across Russia, said processing payments was initially an even bigger challenge than delivering shipments.
Enough workarounds are now available to ensure more shipments come through and imports start to recover, Boris said, asking to be identified only by his first name to speak candidly about his business.
Long way down
But another major threat looms as the European Union’s fifth sanctions package comes into full effect next month. Boris, whose business depends on imports for around half of the goods it sells, expects 5% of its products to disappear from store shelves.
“We’ve come down a few steps, but that doesn’t mean we’re on the landing yet,” he said. “The stairway down will be long.”
The collapse of imports was one of the forces that distorted Russia’s wartime economy and drove it towards what its central bank called “reverse industrialization”.
Car factories employing tens of thousands of people shut down for lack of components and simple paper was in short supply because manufacturers didn’t have enough bleach. The Bank of Russia even expects some imports to shift to the “shuttle trade” seen in the 1990s, when people traveled abroad in droves to bring back goods to sell in open markets.
Seeking new ways to get consumer goods from overseas, Fesco, a major Russian cargo carrier, has launched a new shipping line between Vietnamese ports and its Vladivostok terminal on the Pacific coast. Its other new initiatives in April included the start of a container service between Istanbul and Novorossiysk on the Black Sea and rail shipments to Western Europe.
Yet even in government rhetoric, the outlook is bleak. According to the main official forecasts, imports of goods are expected to decline by more than a quarter in real terms in 2022.
Besides cheap credit and subsidies to struggling industries, the government has also responded by waiving tariffs on many products and legalizing gray market sales, also known as parallel imports.
Countries like Turkey could increasingly become import channels, according to Andrej Golubchik, a professor at the Russian Academy of Foreign Trade. Shipments have restarted to India and the Persian Gulf via Iran, he said.
“Over the past two and a half months, market participants have come out of their stupor,” Golubchik said. “The first shock is almost over.”
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