Russian Winter

German Exporters to Russia Feel the Pain, But See Little Gain

CEO_russia unhappy kaeser next to putin
Company heads such as Joe Kaeser of Siemens must prepare themselves for the financial impact of sanctions.
  • Why it matters

    Why it matters

    Losses in exports caused by sanctions against Russia and diminished trade with embattled Ukraine will slice at least €10 billion from German companies, with heavier losses expected if the political situation doesn’t improve.

  • Facts

    Facts

    • Sixty-two percent of companies say they will have to take radical action to cope with sanctions in Russia.
    • Twenty percent plan to lay off employees.
    • China is taking advantage of the sanctions to do more business with Russia.
  • Audio

    Audio

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The Ukraine crisis will have harsh consequences for German business, the country’s leading business group said.

The Association of German Chambers of Industry and Commerce estimates a drop of up to 20 percent in exports to Russia by the year’s end. This would amount to €7 billion ($9.05 billion) in losses. The decline in exports to Ukraine will cost Germany another €3 billion. Companies are bracing for the worst.

“We see very clear economic effects from the Russian crisis and the German economy is preparing itself for another downturn,” said Rainer Seele, president of the Hamburg-based German-Russian Chamber of Foreign Trade.

A survey of German firms doing business in Russia conducted by Mr. Seele and Volker Treier, deputy chief executive officer and foreign trade expert at the chamber, known as DIHK, in Berlin, reaches some dramatic conclusions.

Among companies polled, 71 percent describe economic sanctions against Russia as recessive and bad. As a result, 62 percent are planning radical measures such as canceling projects in Russia (26 percent), laying off employees (20 percent), introducing shorter working hours (8 percent) or abandoning Russia altogether (8 percent).

According to Mr. Treier, if the economic situation doesn’t improve within six months, the trend toward layoffs will “gain momentum.”

“We see very clear economic effects from the Russian crisis and the German economy is preparing itself for another downturn”

Rainer Seele, German-Russian Chamber of Foreign Trade

It is a case of much pain and no real gain for many of the survey respondents, with 78 percent of them convinced the EU sanctions against Russia are “not effective.” According to Mr. Treier, “The changes in behavior in Moscow expected by the politicians have not yet been achieved. The cooperation of the Russian leadership is not perceptible.” He added that sanctions imposed by the West would “only develop their full effect over the coming stretch.”

Of the companies surveyed, 54 percent have not yet felt a change in the relationships with their Russian partners, though one in three already sees evidence of restraint.

While German companies start to feel the fallout, China is rushing in to take advantage of the decline of Russia’s trade with Germany and Europe, said Mr. Seele. Still, the long-term risks for Russia are obvious if the sanctions remain in place.

“There are very clear effects on investment behavior,” Mr. Seele said. Russia has been the fourth-largest destination for German investors after the United States, China and Switzerland, but that activity has fallen steeply after a strong first half of the year.

 

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The European Union has not yet implemented increased sanctions. New measures directed against the financial and oil industries have been put on ice to allow Russia a chance to change its course and to see if the ceasefire in eastern Ukraine holds, said Herman van Rompuy, president of the European Council.

The targets of the proposed new sanctions include banks with strong ties to the government: Sberbank, which is 51 percent owned by the Central Bank of Russia, and VTB Bank, which is 61 percent owned by the Russian Federation.

Other targets will be companies involved in the production and transportation of oil including oil producer Rosneft, which is 69.5 percent owned by the government, and pipeline companies Transneft and Gazprom Neft. Additional sanctions also will target three arms manufacturers.

This article was translated by David Andersen. Jeff Borden also contributed to this story. Contact the author: brueggmann@handelsblatt.com

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