Russia Outbound – Russia’s New Developing Asian Export Markets
ASEAN & India Lead The Way In New Growth Markets For Russian Exports
With Western sanctions imposed upon Russia back in 2014, the country has had to look to new markets, including Asia. Although countries such as China and Japan have long taken up the bulk of Russia’s exports in Asia, Asia overall is growing as an export destination for Russia and now accounts for 37% of Russia’s total exports. That represents an increase of 27% in 2018 over 2017, as Russian investment funds and businesses look to capitalize on the need to place money elsewhere from traditional sources, to new emerging and developing markets and to countries where banking regimes will be more sympathetic.
Taking China and Japan out of the equation, these new Asian markets for Russian products can be defined as follows:
|Country/Territory||Russian Export Value (US$, Millions)||DTA With Russia|
These statistics are interesting because the nature of the countries concerned, with the exception of India, are not traditional Russian markets for oil and gas, meaning they are consuming manufactured products such as automotive, agriculture, textiles and electrical equipment. Of these nations, seven of them are ASEAN nations, and of those, only Myanmar does not currently have a Double Tax Treaty (DTA) with Russia.
The importance of Russia’s Double Tax Treaties upon trade with other countries is an issue I wrote about in some details in the article “Russia’s Double Tax Treaties”. In essence, DTA are useful because as bilateral documents they spell out the protection permitted for foreign investment in other countries, identifies key products and services which can be provided for at a lower than standard rate, dismiss the danger of being taxed in both countries for the same service, and provide mechanisms for the reduction of profits tax by permitting the substitution of withholding taxes as a mitigating factor. This can save as much as 10-15% of the total tax burden. (Professional advise is required when doing this, and it is better to structure this into your export drive before selling produce).
The good news for Russian exporters is that these same markets are all growing. Take a look at these GDP growth figures and per capita income level for these same countries:
|Country Territory||GDP Growth (2018)||Per Capita Income (PPP$ per annum)|
There are obstacles to overcome – Russian standards do not always comply with those in ASEAN, where climatic issues can be markedly different from those experienced in Russia. These are issues currently being discussed between ASEAN and the Eurasian Economic Union, which I wrote about in the recent article “The Eurasian Economic Union & ASEAN. How The Blocs Intra-Regional Trade Is Developing”
Regardless, this is a minor issue. There are additional boosts to Russian-ASEAN and India exports coming down the pipeline in the form of Eurasian Economic Union Free Trade Agreements – of these, India, Indonesia, Singapore and Thailand are all at advanced stages of completing negotiations and can be expected to start their respective ratification processes from early next year. This means that a combination of positive GDP growth figures, existing DTA structures and enhanced trade capabilities given the upcoming EAEU FTA should see Russian export trade volumes in markets such as Hong Kong, Indonesia, Malaysia, Thailand and Vietnam hit the US$ Billion club in the next two years, while India and Singapore will be on target to consume Russian exports amounting to the US$5 billion mark over the same period.
What To Read?
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As can be seen, Emerging Asia represents an opportunity for Russian investors to develop businesses with higher rates of return than is currently possible in Russia with the exception of perhaps the Russian Far East. Yet there are some practicalities to consider. When looking at an investment base for Russian companies in Asia, Singapore is probably the best option. This is due to several factors, not least a more sympathetic banking regime which although while it will impose “know your customer” protocols we have found is usually easier to deal with than Hong Kong. Singapore also has, through the ASEAN Free Trade Agreements, free trade capabilities with all other ASEAN nations as well as with China and India. These are important because these FTA are applicable to companies invested in ASEAN (such as Singapore) even though the shareholding might be Russian.
We wrote about taking advantage of ASEAN’s Free Trade Agreements in the recent issue of our ASEAN Briefing magazine, entitled “Export & Import Procedures In ASEAN” A similar publication for India is also available, “Importing & Exporting In India” and for China “Importing & Exporting In China: A Guide For Foreign Trading Companies”. An E-Commerce Guide to doing business in China is also available in Russian
Russia’s push east will invariably develop and opportunities will emerge for Russian investors into the Asian region. As always, Dezan Shira & Associates Russian desk is on hand to assist, from initial market intelligence, to legal, tax, and operational issues.
Russia Briefing is produced by Dezan Shira & Associates. The firm advises international businesses on investing, setting up businesses and administering them throughout the Eurasian region, including Russia, China, India & ASEAN, and maintains offices and partners in each of these countries and regions. For assistance with investing in Russia, or for Russian businesses wishing to invest in Asia, please contact Maria Kotova at email@example.com or visit us at www.dezshira.com.