Due to the general economic trend and political stances, the Russian market has slowed down, yet it still appears to have high growth margins and be attractive for the paper sector. Businesses only have to understand how to move to fully grasp the plenty of opportunities available.
A growing market, which in the next few years will continue growing, and a huge territory offering extremely interesting trade possibilities. This is the Russian Federation, which provides the paper industry with a variety of opportunities. First of all, this is a growing market. For some years the Russian market has been growing, especially in the retail sector, and it is expected to become one of the main consumers of paper products. Not only final demand is of great interest for the paper sector, but also Russia’s need to expand its productive sector; as a matter of fact, the country has vast forest areas and a strong push towards technological innovation. The level of internal production of equipment is rather low and the country feels the need to modernise its production technologies and installations to improve their efficiency. To this end, public policies have been envisaged, at both central and regional level, aimed at supporting and giving more room to new projects for the paper sector and the start-up of new paper plants all over the country.
Relations with Italy
«The Russian market offers plenty of opportunities to European companies, but it has to be thoroughly studied within the framework of a well-reasoned medium-to-long-term project» Leonora Barbiani, secretary-general of the Italian-Russian chamber of commerce.
Russia is a very attractive country for the paper sector international players. Yet, in order to best exploit its opportunities and avoid difficulties it is of fundamental importance to familiarize with its market mechanisms. Trade relations between Italy and the Russian Federation are, for instance, well-established and although a slowing down in trade has been registered over the last few months, also due to political decisions between Europe and Russia, they still remain very important for both countries. In particular, «2008 and 2013 have been the golden years of the trade relations between the Russian Federation and Italy. Though recent years have been fairly complicated for the world economy and trade has registered negative figures since 2014, Italy still maintains “privileged relations” with the Russian Federation» (figure 1). This data was analysed by the Secretary-General of the Italian-Russian Chamber of Commerce Leonora Barbiani on the occasion of the meeting organized at the Milan office of the same chamber to illustrate the opportunities offered by the Russian market to the paper industry.
Figure 1. Italian-Russian trade flows between 2012 and 2015. Source: Russian Customs, data processing: Italian Trade Agency ICE, Moscow Office.
Values in billion Euros
| Trade flows | 2012 | 2013 | 2014 | 2015 |
| Exports | 10.45 | 10.94 | 9.59 | 7.51 |
| Imports | 25.08 | 29.59 | 26.83 | 20.05 |
| Trade | 35.53 | 40.54 | 36.42 | 27,57 |
| Total | – 14.63 | – 18.65 | – 17.24 | – 12.54 |
Source: Russian Customs, data processing: Italian Trade Agency ICE, Moscow
«In particular, data on trade between the two countries provided by the Russian Customs show a 21,6% reduction in Italian exports to Russia between 2014 and 2015, for a total value of 20 billion Euros, an additional 25% reduction in imports, which is worth 7.5 billion Euros, as well as a 24,3% fall in trade, i.e. a reduction of 27.5 billion Euros» (figure 2). The slowing down in trade between the two countries is due to a number of factors that have generally affected the trade relations established by the Russian Federation with all its trading partners (figure 3), i.e. the slowing down of growth worldwide, the persistent decrease in oil prices, whereby oil is a major economic resource for Russia, and a strong devaluation of the rouble. These motivations, however, are independent from Russia’s relation to Italy, which is based on a fruitful collaboration. Evidence of this is the fact that in 2015 Italy confirms its position as fourth importing country and fifth exporting trading partner worldwide (figures 4 and 5).
Figure 2. Italian-Russian trade flows between 2014 and 2015. Source: Russian Customs, data processing: Italian Trade Agency ICE, Moscow Office.
| Trade flows | 2014 | 2015 | ||
| Value (billion Euros) | % variation (2014/2015) | Value (billion Euros) | % variation (2015/2016) | |
| Exports | 9.59 | – 12.4 | 7.51 | – 21.60 |
| Imports | 26.83 | – 8.1 | 20.05 | – 25.20 |
| Trade | 36.42 | – 9.3 | 27.57 | – 24.30 |
| Total | – 17.24 | – 12.54 | ||
Source: Russian Customs, data processing: Italian Trade Agency ICE, Moscow
«The main exporting industries include first the mechanical sector that is particularly important for Russia, especially the gas and oil extractive industry, for which avant-guard technologies are looked for; semi-finished products are the second most important sector, while fashion and accessories rank third. Besides technological innovation, Russia is especially interested in the collaborations with partners capable of customizing solutions, first and for most Italian firms».
Figure 3. Comparison with other countries (data of Russian trade and imports).
| Country | % variation of trade between Russia and other countries (2014/2015) | % variation of Russian imports from: (2014/2015) |
| World | -19.70% | -23.70% |
| Eu-28 | -25.10% | -29.00% |
| China | -13.90% | -17.90% |
| Germany | -21.70% | -25.60% |
| Netherlands | -28.10% | -29.70% |
| Italy | -24.30% | -21.60% |
| Belarus | -11.30% | -15.60% |
| Turkey | -11.60% | -27.50% |
| Japan | -17.10% | -25.00% |
| Usa | -13.60% | -25.50% |
| South korea | -20.80% | -39.20% |
| Kazakhstan | -14.00% | -22.80% |
| Ukraine | -34.90% | -36.30% |
Source: Russian Customs, data processing: Italian Trade Agency ICE, December 2015
Figure 4. Italy ranks fourth in trade with Russia among the main trading partners of the Russian Federation. Source: Russian Customs, data processing: Italian Trade Agency ICE, Moscow Office.
Values in billion Euros
|
Country |
Value | Country % on total trade | % variation | Position | |||||
| 2014 | 2015 | 2014 | 2015 | 14/13 | 15/14 | 2014 | 2015 | ||
| World | 590 244 | 474 227 | 100 | 100 | – 6.8 | – 19.7 | |||
| EU-28 | 283 549 | 212 475 | 48.0 | 44.8 | – 9.5 | – 25.1 | |||
| 1 | China | 66 571 | 57 317 | 11.3 | 12.1 | – 0.2 | – 13.9 | 1 | 1 |
| 2 | Germany | 52 797 | 41 344 | 8.9 | 8.7 | – 6.4 | – 21.7 | 3 | 2 |
| 3 | Netherlands | 55 042 | 39 588 | 9.3 | 8.3 | – 3.8 | – 28.1 | 2 | 3 |
| 4 | Italy | 36 416 | 27 569 | 6.2 | 5.8 | – 9.3 | – 24.3 | 4 | 4 |
| 5 | Belarus | 24 268 | 21 535 | 4.1 | 4.5 | – 6.9 | – 11.3 | 5 | 5 |
| 6 | Turkey | 23 824 | 21 054 | 4.0 | 4.4 | – 3.2 | – 11.6 | 6 | 6 |
| 7 | Japan | 23 164 | 19 203 | 3.9 | 4.0 | – 7.4 | – 17.1 | 7 | 7 |
| 8 | United States | 21 892 | 18 925 | 3.7 | 4.0 | – 5.2 | – 13.6 | 8 | 8 |
| 9 | South Korea | 20 559 | 16 290 | 3.5 | 3.4 | – 8.6 | – 20.8 | 10 | 9 |
| 10 | Ukraine | 20 712 | 13 486 | 3.5 | 2.8 | – 30.5 | – 34.9 | 9 | 11 |
Source: Russian Customs – Data processing: Italian Trade Agency ICE, December 2015
Figure 5. Italy ranks fifth among the suppliers of the Russian Federation. Source: Russian Customs, data processing: Italian Trade Agency ICE, Moscow Office.
Values in billion Euros
|
Country |
Value | Country % on total imports | % variation | Position | |||||
| 2014 | 2015 | 2014 | 2015 | 14/13 | 15/14 | 2014 | 2015 | ||
| World | 215 852 | 164 617 | 100 | 100 | – 9.0 | – 23.7 | |||
| EU-28 | 89 087 | 63 284 | 41.3 | 38.4 | – 11.7 | – 29.0 | |||
| 1 | China | 38 374 | 31 517 | 17.8 | 19.1 | – 3.9 | – 17.9 | 1 | 1 |
| 2 | Germany | 24 814 | 18 463 | 11.5 | 11.2 | – 13.0 | – 25.6 | 2 | 2 |
| 3 | United States | 13 882 | 10 345 | 6.4 | 6.3 | 11.6 | – 25.5 | 3 | 3 |
| 4 | Belarus | 9 260 | 7 812 | 4.3 | 4.7 | – 13.8 | – 15.6 | 5 | 4 |
| 5 | Italy | 9 590 | 7 514 | 4.4 | 4.6 | – 12.4 | – 21.6 | 4 | 5 |
| 6 | Japan | 8 207 | 6 157 | 3.8 | 3.7 | – 19.8 | – 25.0 | 6 | 6 |
| 7 | France | 8 009 | 5 343 | 3.7 | 3.2 | – 18.3 | – 33.3 | 8 | 7 |
| 8 | Ukraine | 8 042 | 5 120 | 3.7 | 3.1 | – 32.4 | – 36.3 | 7 | 8 |
| 9 | Kazakhstan | 5 570 | 4 297 | 2.6 | 2.6 | – 23.7 | – 22.8 | 11 | 9 |
| 10 | South Korea | 6 764 | 4 112 | 3.1 | 2.5 | – 12.7 | – 39.2 | 9 | 10 |
| 11 | Poland | 5 329 | 3 695 | 2.5 | 2.2 | – 15.0 | – 30.7 | 12 | 11 |
| 12 | United Kingdom | 5 895 | 3 357 | 2.7 | 2.0 | – 3.4 | – 43.0 | 10 | 13 |
Source: Russian Customs – Data processing: Italian Trade Agency ICE, December 2015
Economy beyond sanctions
The decisive factors leading to a reduction in trade with the rest of Europe have obviously influenced also the general trend of the Russian economy. This may be found in the general trend of the country’s GDP, which has been markedly volatile in recent years. «After the important results of 2007 with a growth of 8.5%, 2009 registered a -7.8%, yet recovery started as early as in 2010 with a growth of 4.5%, which was slight and yet continued until 2014, with the latter year registering a +0.6%. While in 2015 a negative value was again registered, i.e. -3.7%» (figure 6).
The development of trade between the Russian Federation and the rest of Europe has certainly been influenced by political events, i.e. the European sanctions against Russia that have been repeatedly applied since March 2014 and then confirmed on June 22, 2015, last. «Europe still has to express its opinion on these measures; all sanctions have namely been periodically reviewed, are not automatically renewed and have to be unanimously approved. The decision that will be made over the next few months will thus depend on the development of the current geopolitical situation», says Ms. Barbiani. European sanctions targeted the Russian economy especially in the high-technology, oil & gas and finance sectors. Conversely, Russian counter-sanctions applied as a response to the European measures especially targeted the agrofood sector, although they do not apply on all products, but on produce alone, and were extended to 5th August 2016.
Figure 6. Russian Federation GDP (2007-2015).
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | |
| Russia | 8.5 | 5.2 | -7.8 | 4.5 | 4.3 | 3.4 | 1.3 | 0.6 | -3.7 |
Room to the «Made in Russia with…»
The political context has only but further consolidated another stance of the Russian Government. The Russian Federation has, for some time now, adopted a policy of «import replacement», i.e. it has tried to make itself as independent as possible from the import of materials and products from abroad. Although this implies favouring domestic productions first, this does not mean doing without imports or avoiding trade relations with other countries. «As early as in 2014 the Russian Federation adopted measures to control and reduce imports of foreign products. Furthermore, at the end of the year, it enforced twenty decrees targeted to a corresponding number of product sectors, which went into force in 2015, whose aim was to limit the import of finished products to be specifically acquired by means of public procurement; each decree namely foresees the percentage of imported products that should be replaced with goods directly manufactured in Russia within the next four years. Also federal law Fz 488 of December 31, 2014, “On the Russian Federation’s industrial policy”, which entered into force in the summer of the following year, aims at highlighting national products by favouring them to imported ones.
As says Ms. Barbiani puts it, «the aim of this industrial policy is to increase the competitiveness of the Russian internal production and the market shares covered by Made in Russia products in the various sectors. At the moment, imports account for 60% of mechanical products and between 80 and 90% for machine tools and food and wine products. The twenty decrees and all the other measures that the Russian Federation is adopting on these issues are all targeted to reduce by 50-60% the above percentages of reliance on imports by 2020».
Another objective of these political and economic decisions is to reduce reliance on the extraction and export of natural resources, as well as to save jobs, thereby improving social well-being at the same time. Russia, though, is still partly paying for its obsolete production technologies and backward logistic systems, and it is no coincidence that their modernization is one of the main objectives of the country’s industrial policy, . This opens up new occasions of on-site collaborations in the field of production. If the Russian Government is on the one hand supporting internal production, on the other hand it does not forget the importance of collaborating with the specialized firms of its partner countries, which boast the knowledge and experience that Russian companies do not yet have. Italy has a major role to play here, as a matter of fact the buzz phrase that is very much used in Russia now is Made with Italy.
«The Russian market has be faced with a deep awareness, but it continues offering very good opportunities to Western companies», as stressed by Ms. Barbiani. The important thing is to understand how one can act and find all the necessary information early in advance, because the Russian market can be strategic for many companies.
The Customs Union
«The new Customs Union certification foresees that the company obtains a declaration or a certificate of conformity, it is therefore important to understand the framework, within which the company works» Philippe Maurer, Rustek Managing Director.
In order to establish trade relations with the Russian market, a clear view of the obligations to comply with to place products, equipment and machinery on the Russian market and to start installation is of fundamental importance. In particular, rules have changed with the establishment of the Customs Union between Russia, Belarus and Kazakhstan in 2011, which sets new rules valid for their own respective territories. The Customs Union is currently made up only of these three countries, but it is very likely to be extended to other nations, as well.
With the establishment of the Customs Union all certification measures prior to 2011 no longer apply to leave room to a new phase of certification called Customs union certification. This was the topic of a meeting held at the Italian-Russian Chamber of Commerce and specifically of the talk by Philippe Maurer, General Director of Rustek, which is a Swiss Group providing businesses with import and certification services in the countries of the Customs Union.
As Mr. Maurer explains, the first rule of this approach is the need to resort to a registered company, which should act as a representative of the foreign firm on Russian territory, i.e. the so-calledapplicant company. The applicant company acts as a guarantor together with the producer of the product that is imported and then sold in Russia, in other words it shares with it the responsibility for the product. This means that it must keep the product’s technical documentation for ten years and exhibit it to Russian authorities upon request in case of controls. As regards conformity, two different types of documents can be obtained, i.e. the Declaration of conformity (DoC) and the Certificate of conformity (CoC). Several bodies have issued technical regulations for various products, i.e. guidelines determining if a given product should be accompanied by a declaration or a certificate of conformity.
Declaration or certificate
As Mr. Maurer explains, «the declaration is simpler. This is a sort of self-certification containing the description and name of the certified products, the data of the producer and the documents submitted to obtain and issue the declaration. It is drafted by the applicant, who must then send it to the certifying body. The latter does not consider the technical documents submitted, i.e. he does not carry out a technical analysis on the product or on the content of the declaration, but he only controls the tariff codes of the product and registers and stamp the declaration». The introduction of these new rules has made customs operations faster and safer, with «the Declarations of conformity register simplifying the dossiers, as the importer no longer needs to provide a legalized copy of the declaration, which can be immediately controlled online from the site of the register». The certificate is more complex, instead. «In this case, the certifying body checks the available technical documentation and can request to carry out inspections and witness conformity tests on the product done at the producer’s site». Mr. Maurer stresses that rules have become much stricter on these aspects, «however we notice that the behaviors adopted are much more satisfactory and testify to more seriousness».
What to do in order to be on these markets
If a company decides to be present on these Eastern European markets, it should first decide the field where it is going to operate. Furthermore, some Declaration certificates have been prepared per each category of product. Depending on the product where the product fits in, it is possible to determine if the product has to be accompanied by a declaration, i.e. in the simple phase, or if it needs a certificate that also requires a check to be carried out by the inspector. Mr. Maurer adds that «for serial products it is possible to request a certificate or a declaration for certain models, which must be clearly identified; the documents obtained will be valid in the three countries for a period of five years».
As regards the declaration, it is important to remember that the final user of the product must be indicated in the certificate, i.e. «the document must contain a clear reference to the contract stipulated with the end user or the client on the territory. This aspect becomes more complicated when there are intermediaries, who sometimes come from other countries, too. In these cases it might be difficult to get a copy of the original contract». In any case, the certification is always an obligation for the supplier, who also has to bear the related costs. «The certifications necessary for the product to enter the country and be brought into service are another obligation for the producer. In case of sale of second-hand equipment or installations, the certification obligation remains and the third party will have to demonstrate that s/he is in possession of the necessary documentation to sell the machine». The certification costs are to be born by the producer or the third party that resells the product. Finally, if a company needs to obtain the certification for a whole plant, the best way to proceed is to «choose a lead company out of all the businesses involved that may serve as a reference company, carry out a certification for each product and then a final certification for the entire installation».
Taking into account all these aspects, Rustek clarifies that before starting a business relation it is important to request and obtain all the detailed documentation to clearly understand what costs are going to be incurred and how it is best to operate.