Russia’s on the rise and the rouble is getting its second wind – As Matthew Brooks discovers, this renewed economic vigour is reshaping Russia’s place in the world and driving an insatiable appetite for all things Australian. Great news for our exporters!
The New World Order, in terms of emerging trading nations, has been labelled the BRICs, an acronym for the expanding economic impact of Brazil, Russia, India and China. After an extremely rapid and often violent and traumatic transition from communist superpower to capitalist country, Russia is back on track. With gross domestic product growth now averaging 6 percent, Russia’s economy is not only stable but growing at a pace that brings it into the benchmark arena of countries such as China.
When the Berlin Wall fell in 1989, Europe embraced a new age of freedom. Two years later the former Soviet Socialist Republic seemed destined to step straight back into its bloody history as hardliners attempted to restore a communist regime in the Kremlin. The coup failed but the aftermath was no less ugly as a succession of ill-conceived, swift privatisations of former state-owned utilities replaced one demagogic regime with another, and as mafia-style oligarchs quickly moved into the space formerly held, vice like, by the all-powerful state regime. The situation was untenable and in 1998 a series of serious financial shocks, including the collapse of the rouble, sent Russia into a social and economic spin.
With the help of foreign aid, investment, and a heightened awareness of the need to restore a business culture to the country, Russia, in the intervening seven years, has come full circle. According to Tim Harcourt, Austrade’s chief economist recently returned from Moscow, one of the great drivers in Russia’s restoration has been the growth of a consumer conscious, wealthy middle class, and the development of an entrepreneurial spirit.
"In the sharp shock of capitalism, corporate governance, transparency and business ethics were hard to find among the cartels which emerged to seize control of many of Russia’s largest utilities, such as oil and gas," Harcourt says. "There was also very little in the way of business development, particularly in the small to medium business sector. So there was no platform on which to base further business growth. My recent trip proved this is no longer the case. The entrepreneurial spirit, particularly across small to medium businesses, is flourishing in Russia. Greater transparency has also led to not only a stable economic platform but a rapidly expanding one."
This greater transparency, particularly in Russia’s plentiful commodity sector, has been opening up opportunities for Australian heavyweights with expertise in oil, gas and mineral exploration, such as Xstrata and BHP Billiton. This, in turn, is leading to increased demand for allied services, including engineering, equipment, specialised computer software, building and construction, and education and training. Many smaller Australian companies with niche products and processes in these areas are helping to meet this demand.
Growing Opportunity
Russia remains a traditional, industrial-based economy but as it is taking a firmer footing in the global marketplace, and on the back of its large reserves of natural resources, other sectors are beginning to enjoy the benefits of this economic expansion.
"The reputation Australian companies, expertise and products enjoy in Russia is first class," Tim Harcourt explains. "This reputation, earned in the commodity and associated services sector, is now filtering down to more specialised, consumer-driven niche areas, such as food and beverage, textile, clothing and footwear, cosmetics and art."
Christine Gibbs Stewart, international trade manager at Australian Business Limited, says the recent interest her team has received in an expanding range of Australian goods and services is good news for small to medium exporters. "The overwhelming popularity of Australian food, wine and art, as initial indicators, proves beyond doubt that Russia is increasingly recognising Australia as a source of quality," she says.
"This is particularly true for Australian food and wine. Russians just love it, and I expect this to lead to increasing opportunities for more Australian SMEs producing quality products. The next generation of Russians are avid, well-educated consumers and far wealthier than their parents. They are global consumers and Australia ranks highly on their international scale of world’s best."
The Russian Consul General, Georgy Toloraya, based in Sydney at the Russian Consulate, encourages Australian exporters, or potential exporters, to look beyond Asia and investigate thoroughly the increasing opportunities in an expanding Russian market. "Owing to Russia’s economic resurgence the opportunities for further Australian export and investment are increasing," he says. "Both big and small Australian companies are already well established in Russia but there is plenty of room for more and this can be an additional, or alternative, market for Australian goods and services to Asia."
Toloraya also says Russia is determined to be regarded as a world’s best trading partner and to leave the past where it belongs, in the past. "President Putin is ensuring Russia is a stable and positive influence in the new geo-political landscape. This is demonstrated by how highly Russia values World Trade Organisation (WTO) membership. Because of this, Australian enterprises can be assured they will not only be viewed favourably—as Australia’s reputation for quality is already well established in Russia—but treated with both respect and courtesy."
FACT FILE
Population: 145 million
Status: Awaiting approval for WTO membership
Gross domestic product (GDP): In 2003, US$435 billion
Average GDP growth over last decade: Between 5 and 7 percent
trade with Australia. In 2003/04 Australia exported more than $80 million worth of goods and services to the Russian Federation, covering meat, raw hide and skins, toys, games and sporting goods, butter and specialised machinery. In return Australia imported just under $30 million worth of goods and services, dominated by aluminium and pig iron.
Australia Week in Moscow
The Russian Federation has posted its fifth successive year of GDP growth, averaging an impressive 6.75 percent. Recognising the fact Russia is one of the strongest performing and fastest growing emerging markets in the world, the Australian Trade Commission, the Australian Embassy and the Russian Academy of Business hosted the inaugural Australia Week in Moscow, in May this year. The event was Austrade’s largest yet staged, and generated significant media interest, both here and in Russia. Gregory Klumov, Austrade’s senior trade commissioner in Moscow and one of the driving forces behind the initiative, told DSB the week-long trade exhibition and conference could not have been better timed.
After the smoke had cleared, the didgeridoos had quietened, the indigenous dancers had stopped and the dinners, speeches, and handshakes had all been completed, Russian industry and business got a first-hand look at what Australia offers and, according to Gregory Klumov, it was very exciting.
"Australia Week in Moscow could not have been held at a better time, for both Russia and Australia and where the two countries are in terms of economic development. Certainly Russia is a traditional industrial, commodity-based economy but this is evolving and changing fast. Foreign investment is increasing, disposable incomes of Russians are escalating, Russian business spending has risen dramatically and as the country is not locked into any long-term trade pacts Australian enterprise has equal opportunity to enter Russia’s expanding market."
Marketing Message
Some 30 Australian companies representing the oil and gas, mining, construction, leisure, tourism and hospitality, agribusiness, cosmetics, fashion, education, environment, food and wine, medical, financial services and
ICT sectors, took part in the trade exhibition. It was a who’s who of Australian industry with exhibitors including Xstrata, Qantas, and the Queensland and West Australian Governments.
"Besides the trade exhibition there was a full conference program, a series of networking events and an Australian film festival, all of which was washed down with exceptional Australian wine and food," Klumov says.
"Of course the focus was on business but the cultural aspects of the week-long landmark event can’t be underestimated. Russians have a real fascination with Australia and the country has a great reputation for quality and honesty."
So what message did Australian businesses take away from the week?
"In the expanding Russian retail, IT, food, wine, and tourism sectors Australia’s reputation for quality is assured," Klumov explains. "However, Australian companies wanting to successfully penetrate the Russian market and capitalise fully on the enormous opportunities must effectively market themselves against European rivals. Australian companies can tend to put a first class product in cheap packaging. This is no good because Russians are big on presentation. It is worthwhile spending the little extra time, money and effort on these things because once you have secured Russians as customers they will stay with your product or service forever."
*Matthew Brooks writes for Australian Business Limited. For further information, call 132 696 or visit www.australianbusiness.com.au
