Asian Exporters Scramble To Access Russian Consumer Markets
Russia has a middle class consumer base of 43 million with higher income levels than China, India, Brazil, South Africa, and most of Asia.
By Chris Devonshire-Ellis
The recent events in Ukraine and the subsequent pulling out of the Russian consumer market by mainly EU businesses, either via sanctions or by Government pressure and media opinion has left a huge gap in the Russian consumer market that principally Asian exporters are now rapidly looking to fill. As most of the West’s sanctions on Russia have been energy focused, this has left opportunities to sell non-energy sectoral products to Russia in markets vacated by the Europeans. We can examine these as follows:
What Does Russia Import?
Russia is often written-off as purely an energy play, and while 53.8% of Russia’s exports are in the energy sector, this does not apply in terms of imports. Machinery, equipment, and transport occupied the largest share of Russian imports in 2021, at over 49 percent. Chemical products and rubber were the second-leading import commodity, constituting less than one fifth of imported goods. Leather raw materials, fur, and articles thereof amounted to 0.44 percent of total imports. A complete 2021 breakdown can be seen below.
These imports were collectively worth @ US$318 billion last year, meaning there is a huge gap to fill in terms of accessing Russian consumers abandoned by the West.
The 2022-2023 Russian Consumer Market
Changes in Russia’s foreign policy, which has just occurred, affect trade levels and how secure consumers feel. This has had unpredictable consequences in Russia, with many high-value consumers, torn between patriotism and brand awareness, choosing Russia over the likes of Chanel. This is leading to erratic Russian consumer behavior at the present, and it will take time for market sentiment to adjust. This means that there is still time to conduct research into what will emerge as normal trade consumption patterns while waiting for consumer behaviour to settle down.
According to the OECD, a member of the middle class is someone whose annual income is within the 75–200 % range around the national median income. For Russia, that range is 312,000 –840,000 rubles per annum, which according to a 2019 study by Alfa Bank, Russia’s largest private commercial bank, represents about 30 % of the Russian population, or about 43 million people.
There is little point in using the US$ or Euro as comparisons due to the sanctions, however in Chinese RMB Yuan this equates to an annual income of between RMB30,000 and 1 million. In India, that is equal to INR 350,000 to 1.2 million.
This is of note as the average Chinese middle-class income is slightly lower than that of Russia’s, while the average Indian middle-class income is just 20% of the Russian standard. We can compare the Russian GNI per capita with that of the BRICS economies as follows. This is also significant as the BRICS is estimated to account for 50% of global trade by 2030 while the bloc has also been in discussions to ditch intra-member US dollar transactional trade and switch to either mutual settlements in respective currencies and/or bring in a BRICS coin digital trade wallet.
Potential Free Trade Advantages
Russia is a member of the Eurasian Economic Union (EAEU), a trade bloc that also includes – and will bring trade opportunity along with it – the economies of Armenia, Belarus, Kazakhstan, and Kyrgyzstan. Crucially, the EAEU has been extremely active in recent years and has highly successful Free Trade Agreements with Iran, Serbia and Vietnam all of whose Russian trade have shot up considerably in the past two-three years.
The EAEU influence will not stop there. Other significant economies such Bangladesh, Brazil, Egypt, India, Indonesia, Pakistan, Thailand, and the UAE among others are all currently negotiating free trade agreements with the EAEU. None are burdened with the Western problem of anti-Russian public opinion.
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Issues To Overcome
There can be payment issues that require resolution due to the West’s imposition of sanctions upon Russia, however these are not total and not all Russian banks are affected. Payment from Russia through cryptocurrency channels has also started to emerge as a major trade conduit. It is assumed for the purposes of this article that exported goods are not sanctioned, although certain products could fall under the ‘dual use’ concept and still be banned. It may also be necessary to trade via Russian distributors rather than go to the trouble of establishing a physical presence in Russia. All of these issues can be dealt with and the potential opportunities discussed through a small amount of research. Interested exporters should contact us at email@example.com for assistance.
During these uncertain times and with sanctions in place, our firm helps Russian companies relocate to Asia. We also provide financial and sanctions compliance services to foreign companies operating in Russia. Additionally, we offer market research and advisory services to foreign exporters interested in doing business in Russia as the economy looks to replace Western-sourced products. For assistance please email firstname.lastname@example.org or visit www.dezshira.com