ASSIGNMENT ONEXPORT FINANCE OF RUSSIA
Submitted By:Aman ParakhMBA-General112E49A0101912056
INTRODUCTIONRussia recorded a trade surplus of 17742 USD Million
in January 2013. Balance of Trade in Russia is reported by the
Central Bank of Russia. Historically, from 1997 until 2013, Russia
Balance of Trade averaged 8338.23 USD Million reaching an all time
high of 20647 USD Million in December 2011 and a record low of -185
USD Million in February 1998. Russia runs regular trade surpluses
primarily due to exports of commodities. Russia main exports are
oil and natural gas (58 percent of total exports), nickel,
palladium, iron and chemical products. Others include: cars,
military equipment and timber. Russia imports food, ground
transports, pharmaceuticals and textile and footwear. Main trading
partners are: China (7 percent of total exports and 10 percent of
imports), Germany (7 percent of exports and 8 percent of imports)
and Italy. This page includes a chart with historical data for
Russia Balance of Trade.Exports in Russia decreased to 39038 USD
Million in January 2013 from 48568 USD Million in December 2012.
Exports in Russia is reported by the Central Bank of Russia.
Historically, from 1994 until 2013, Russia Exports averaged
18668.83 USD Million reaching an all time high of 51338 USD Million
in December 2011 and a record low of 4087 USD Million in January
1994. Russia is the fifth largest economy in the world and is a
leading exporter of oil and natural gas. In Russia, services are
the biggest sector of the economy and account for 58 percent of
GDP. Within services the most important segments are: wholesale and
retail trade, repair of motor vehicles, motorcycles and personal
and household goods (17 percent of total GDP); public
administration, health and education (12 percent); real estate (9
percent) and transport storage and communications (7 percent).
Industry contributes 40 percent to total output. Mining (11 percent
of GDP), manufacturing (13 percent) and construction (4 percent)
are the most important industry segments. Agriculture accounts for
the remaining 2 percent. This page includes a chart with historical
data for Russia Exports.Imports in Russia decreased to 21296 USD
Million in January 2013 from 31436 USD Million in December 2012.
Imports in Russia is reported by the Central Bank of Russia.
Historically, from 1994 until 2013, Russia Imports averaged
11392.06 USD Million reaching an all time high of 31553 USD Million
in October 2012 and a record low of 2691 USD Million in January
1999. Russia main imports are food (13 percent of total imports)
and ground transports (12 percent). Others include:
pharmaceuticals, textile and footwear, plastics and optical
instruments. Main import partners are China (10 percent of total
imports) and Germany (8 percent). Others include: Italy, France,
Japan and United States. This page includes a chart with historical
data for Russia Imports.In 1999, exports were up slightly, while
imports slumped by 30.5%. As a consequence, the trade surplus
ballooned to $33.2billion, more than double the previous year's
level. In 2001, the trend shifted, as exports declined while
imports increased. World prices continue to have a major effect on
export performance, since commodities, particularly oil, natural
gas, metal, and the timber comprise 80% of Russian exports. Ferrous
metals exports suffered the most in 2001, declining by 7.5%. On the
import side, steel and grains dropped by 11% and 61%,
respectively.[citation needed]Most analysts predicted that these
trade trends would continue to some extent in 2002. In the first
quarter of 2002, import expenditures were up 12%, increased by
goods and a rapid rise of travel expenditure. The combination of
import duties, a 20% value-added tax and excise taxes on imported
goods (especially automobiles, alcoholic beverages, and aircraft)
and an import licensing regime for alcohol still restrain demand
for imports. Frequent and unpredictable changes in customs
regulations also have created problems for foreign and domestic
traders and investors. In March 2002, Russia placed a ban on
poultry from the United States. In the first quarter of 2002,
exports were down 10% as falling income from goods exports was
partly compensated for by rising services exports, a trend since
2000. The trade surplus decreased to $7billion from well over
$11billion the same period last year.[citation needed]Foreign trade
rose 34% to $151.5billion in the first half of 2005, mainly due to
the increase in oil and gas prices which now form 64% of all
exports by value. Trade with CIS countries is up 13.2% to
$23.3billion. Trade with the EU forms 52.9%, with the CIS 15.4%,
Eurasian Economic Community 7.8% and Asia-Pacific Economic
Community 15.9%.[80]Trade volume between China and Russia reached
$29.1billion in 2005, an increase of 37.1% compared with 2004.
Chinas export of machinery and electronic goods to Russia grew 70%,
which is 24% of Chinas total export to Russia in the first 11
months of 2005. During the same time, Chinas export of high-tech
products to Russia increased by 58%, and that is 7% of Chinas total
exports to Russia. Also in this time period border trade between
the two countries reached $5.13billion, growing 35% and accounting
for nearly 20% of the total trade. Most of Chinas exports to Russia
remain apparel and footwear.[citation needed]Russia is Chinas
eighth largest trade partner and China is now Russias fourth
largest trade partner.[citation needed]China now has over 750
investment projects in Russia, involving $1.05billion.[citation
needed] Chinas contracted investment in Russia totaled $368million
during JanuarySeptember 2005, twice that in 2004.citation
neededChinese imports from Russia are mainly those of energy
sources, such as crude oil, which is mostly transported by rail,
and electricity exports from neighboring Siberian and Far Eastern
regions. Exports of both of these commodities are increasing, as
Russia opened the Eastern SiberiaPacific Ocean oil pipeline's
branch to China, and Russian power companies are building some of
its hydropower stations with a view Russia recorded a trade surplus
of 17742 USD Million in January 2013.docx of future exports to
China. Despite all this Russia still exports more to China by
amount of 21.23 billion US dollars in comparison to an Foreign
direct investment, which includes contributions to starting capital
and credits extended by foreign co-owners of enterprises, rose
slightly in 1999 and 2000, but decreased in 2001 by about 10%.
Foreign portfolio investment, which includes shares and securities,
decreased dramatically in 1999, but has experienced significant
growth since then. In 2001, foreign portfolio investment was
$451million, more than twice the amount from the previous year.
Inward foreign investment during the 1990s was dwarfed by Russian
capital flight, estimated at about $15billion annually. During the
years of recovery following the 1998 debt crisis, capital flight
seems to have slowed. Inward investment from Cyprus and Gibraltar,
two important channels for capital flight from Russia in recent
years, suggest that some Russian money is returning home.A
significant drawback for investment is the banking sector, which
lacks the resources, the capability, and the trust of the
population that it would need to attract substantial savings and
direct it toward productive investments. Russia's banks contribute
only about 3% of overall investment in Russia. While ruble lending
has increased since the August 1998 financial crisis, loans are
still only 40% of total bank assets. The Central Bank of Russia
reduced its refinancing rate five times in 2000, from 55% to 25%,
signaling its interest in lower lending rates. Interest on deposits
and loans are often below the inflation rate. The poorly developed
banking system makes it difficult for entrepreneurs to raise
capital and to diversify risk. Banks still perceive commercial
lending as risky, and some banks are inexperienced with assessing
credit risk.[citation needed]Money on deposit with Russian banks
represents only 7% of GDP. Sberbank receives preferential treatment
from the state and holds 73% of all bank deposits. In March 2002,
Sergei Ignatyev replaced Viktor Gerashchenko as Chairman of the
Russian Central Bank. Under his leadership, necessary banking
reforms, including stricter accounting procedures and federal
deposit insurance, were implemented.Pre-export Financing The Bank
issues preexport loans to Russian companies that export their
products and services to maximize the quality of integrated
services provided to exporters to increase their export
capabilities. In this area, the Bank lends to companies to finance
their costs of manufacturing and marketing their products and
providing exportoriented services. The Bank domestic businesses
whose products are included in the List of Industrial Products
whose exports are eligible for government guarantees considers as
priority borrowers in this group, subject to a successful track
record of the exporter in the respective area and its stable
relations with foreign counteragents.The Bank issues preexport
loans to Russian exporters that operate in such industries as the
utility and transport engineering, aircraft engineering,
shipbuilding, woodworking and pulp and paper industries, leather
and textile industries.
Bank Guarantees and Counter-guaranteesThe Bank has acquired vast
experience in trade finance and, among other things, bank
guarantees (counter-guarantees). The Bank accepts respective
applications by Russian and foreign companies, and by Russian and
foreign banks, and issues bank guarantees (counter-guarantees) of
all types both to Russian and foreign beneficiaries.The Bank has
provided guarantees to beneficiaries from Russia, including
competent federal authorities, and beneficiaries from Belarus,
Bulgaria, Vietnam, Germany, Hungary, China, Cuba, India, Syria,
Norway and Finland.Russian exporters that need bank guarantees to
implement export projects, such as tender/bidding participation
guarantee, advance payment return guarantee, guarantee of due
performance under contractual obligations, guarantee of guarantee
deduction return, etc., may take advantage of a unique opportunity
to apply for a government guarantee of the Russian Federation with
respect to the principals obligations to the bank. Eximbank of
Russia grants this opportunity as an agent bank of the Russian
Government for providing government financial (guarantee-based)
support to exports of Russian industrial products. The government
guarantee allows the Bank to minimize risks related to the bank
guarantee issued by it and, in its turn, to minimize the Banks
commission fee payable for the bank guarantee.The Bank has used
government guarantees to issue bank guarantees to beneficiaries
from Bulgaria, Vietnam, Cuba and Norway.
TRADE FINANCE IN RUSSIA The total value of Russias foreign trade
in 2001 was $142 billion according to the State Customs Committee.
Obviously, this volume of trade generates ample trade finance
opportunities. The size of Russian banks, small by Western
standards, and their high interest rates result in demand from
local exporters and importers for less expensive western capital.
However, from both a commercial and legal standpoint, Russia
remains a high-risk environment for trade finance products.
As is common in many other emerging markets, the legal system of
Russia imposes stringent currency exchange controls upon its
residents. A limited number of transactions (e.g., payments for
exports or imports of goods, including those involving commercial
credits of up to 90 days) may be carried out without a license from
the Bank of Russia.
Pre-Export Loans In this legal environment, pre-export loans,
secured by export receivables, remain a major tool for financing
Russian commodity exports. A typical pre-export finance transaction
would involve a syndicate of banks, the borrower (either a producer
or its affiliate), an off shore trading company controlled by the
borrower, and final off-taker(s). A 180-day limitation on the term
of loans that may be obtained without a currency license has
recently been lifted; however, financings are still affected by the
requirement that export proceeds be repatriated and partially sold
for Rubles in the local currency market.
Factoring and Forfeiting The use of factoring and forfeiting as
export finance vehicles is also hindered by currency regulations.
The Bank of Russia has traditionally viewed an assignment of export
receivables as a transaction involving the movement of capital and,
thus, a licensable transaction. Similarly, a forfeiting structure
requires a Russian exporter to obtain a license for receiving and
endorsing a foreign currency-denominated note.
Letter of Credit Import finance is primarily based on financings
provided by Russian banks. Sometimes a financing takes the form of
a letter of credit facility, whereby a western advising bank defers
reimbursement from a Russian issuing bank, with recourse against a
policy from a western export credit agency. Given the immaturity of
Russian commercial legislation and unclear prospects of enforcement
through Russian courts, western financiers are normally reluctant
to take the direct credit risk of a Russian importer in substantial
amounts relying solely on collateral that is located in Russia. The
absence of registration systems for most types of collateral as
well as controversial laws on security interests often detract from
the value and effectiveness of security in Russia generally.
Russia economic and trade relations EU-Russia economic relations
are increasingly important for both sides. The European Union is
the major destination for Russian exports and more than 50 % of
Russias total external trade is with the EU. The EU is also the
main source of technology, know-how and investment for Russia. In
turn, Russia has immense resources and a qualified labor force.
Furthermore, Russias energy supplies to the EU can help to enhance
Europes energy security. The EU favors the integration of a
prosperous Russia into the global economic system and, in
particular, Russias accession to the World Trade Organization. In
this context, the EU also fully supports the ongoing reform of the
Russian economy, with its aims of increasing performance and
efficiency as well as diversification and broadening its
manufacturing base.
The EU enlargement opens new challenges and opportunities for
Russias economy. Russia is well positioned to take advantage of the
EU enlargement, given its geographical proximity to the expanding
markets. The majority of the new EU Member States are traditional
economic partners of Russia, including in the trade field. This is
reflected in the overall trade relations between Russia and the EU.
Most importantly, EU enlargement gives Russia direct access to one,
larger, harmonized EU market of some 450 million people. This
opportunity should lead to an increase in Russias welfare.
Since 1997, EU-Russia economic relations have been governed by
the Partnership and Cooperation Agreement (PCA). PCA implementation
is the keystone for developing the relationship between the EU and
Russia. The far-reaching liberalizing thrust of the PCA, envisaging
the eventual setting up of a free trade area, reflects the mutual
importance of relations between the two economies. Under the terms
of the PCA, Russia receives far better treatment from the EU than
from its other major trading partners, as the EU grants
Most-Favored-Nation (MFN) status, whereby no quantitative
limitations are applied except on exports of certain steel products
(which represent only 4% of bilateral trade). An efficient dispute
settlement mechanism under the PCA has been adopted in April 2004.
This will improve the predictability and transparency of trade
relations and, should this eventually be required, it will allow
for the resolution of a number of long-standing trade
disputes.Russia Bilateral trade Russia is the EU's fifth trading
partner (after the US, Switzerland, China and Japan), while the
enlarged EU is Russia's main trading partner accounting for more
than 50 % of its total trade.
Total EU trade with Russia in 2003 amounted to ? 84 billion and
the EU had a trade deficit of ? -18 billion. Main EU imports from
Russia are energy, agriculture and chemicals. Main EU exports are
machinery (34%), chemicals (13%), agriculture (11%), transport
material (11%) and textiles (6%).
However, Russia's manufacturing and trade structures continue to
be unbalanced. In 2003, energy and fuels accounted for more than 50
% of Russian exports to the EU and EU-Russia trade in services is
still rather limited in value terms: around ?10 billion in 2002 in
total, around 2% of total EU trade in services.
A significant proportion of Russian goods entering the Community
market benefit from the EUs Generalized System of Preferences
(GSP). GSP and other trade publications are available on the Europe
website.
In November 2002, recognizing the great efforts that Russia has
made in its transition to a fully-fledged market economy, the EU
granted market economy status to Russian exporters, which
substantially increases their ability to defend their interests in
the context of anti-dumping proceedings. It should be noted that
anti-dumping is not a major aspect in EU-Russia trade at
present.
EU imports from Russia are to a very large extent liberalized.
Remaining EU restrictions notably in the steel sectors are being
regulated under a bilateral agreement. Negotiations on an agreement
on trade in nuclear materials will be launched in 2004.
The pattern of bilateral trade reflects the comparative
advantages of the two economies, with fuel and primary products
representing the bulk of Russian exports as opposed to capital and
finished industrial and consumer goods imported from the EU. Russia
now provides over 20% of the EUs needs in imported fuel. Trade in
services retains great potential for growth and the dynamic
services sector will undoubtedly be increasingly important to the
trade relationship in the future. The recovery of the Russian
economy since 2000 has attracted growing imports from the EU, which
are now running at levels exceeding trade before 1998.Russias
accession to the World Trade Organization (WTO) The EU recognizes
the fundamental role that membership of the WTO can play in
anchoring and solidifying Russia's economic reforms. Advantages
stemming from Russia's accession to the WTO will be reciprocal. It
will provide more stability and predictability, and better terms of
access for EU businesses willing to export or establish in Russia.
And, on their side, Russian exporters will have guaranteed channels
of exports to all markets of WTO members.
The EU has supported the acceleration of the WTO negotiations.
Russia received the complete list of EC requests in December 2001
and a long series of meetings at technical and political level have
taken place since. The EU is also contributing to the acceleration
of the drafting of working party report on Russia's accession.
The EU Trade Commissioner and the Russian Economy Development
and Trade Minister signed on 21 May 2004, in the margins of the
EU-Russia Summit, the agreement concluding the bilateral market
access negotiations for the accession of the Russian Federation to
the WTO.
Special Economic Zones of the Russian FederationSpecial economic
zones (SEZs) are areas eligible for special business regulations
and were created in 2005 with the aim of attracting investment into
the regions of Russia.Russian legislation outlines four types of
special economic zones: Industrial and development zones
Technological implementation zones Tourist and recreational zones
Port zones.SEZs offer a simplified procedure of land assignment, as
well as special free customs regime and a number of tax preferences
for SEZ residents.Russia has two industrial and development zones,
four technological implementation zones and seven tourist and
recreational zones. Following competitive tender results, bids have
been approved for the creation of three port SEZs.The locations of
SEZs in Russia are as follows:Technological implementation zones
Zelenograd, Moscow Dubna, Moscow Region St. Petersburg
TomskIndustrial and development zones Elabug (Tatarstan)
LipetskTourist and recreational zones Stavropol Territory
Zelenograd District, Kaliningrad Region Irkutsk Region Krasnodar
Territory Altai Region, Altai Territory Baikal Region, Republic of
BuryatiaPort zones Krasnoyarsk (Emelyanovo Airport) Ulyanovsk
(Ulyanovsk-East Airport) Seaport in Khabarovsk Region
