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Hopes of economic thaw in Russia

Saturday is election day in Russia. Despite sanctions, a currency under pressure and falling oil prices, everything suggests that Vladimir Putin will remain president. Danish business has been hard hit by the Russian crisis - but perhaps an economic thaw is now underway.
Russia is a huge market located close to Denmark. Growth and consumer confidence are on the rise and that's good news for Danish compamies.

Publiceret: 15.03.2018
Af Jeppe Bo Rasmussen mail

In just four years, Danish goods exports to Russia were halved, falling from DKK 12 billion to 6 billion per year.

But the Russian economy is expected to grow by nearly 2 per cent this year and that creates opportunities for Danish companies - even if the icy relations between the Kremlin and the West should continue.

“Russia is a huge market located close to Denmark. Growth and consumer confidence are on the rise, so no matter the result of the presidential election, there will be opportunities for Danish companies. The political confrontation between the West and Russia is particularly challenging for some of the Danish sectors that have been hit by Russia’s import restrictions and the tightened export controls from the EU and US. But there are also opportunities to expand business without clashing with the sanctions,” explains Peter Thagesen, Deputy Director at the Confederation of Danish Industry.

See also: DI Analysis - Russian potential for Danish companies 2018 (in Danish)

Russian embargo on foods

Just five years ago, Denmark had big dreams of increasing exports to Russia significantly - a growing middle class would buy quality products from Denmark.

The political crisis put a freeze on such ambitions.

Particularly the foods industry has suffered as a result of the agricultural embargo that Russia implemented as a response to EU sanctions in connection with the crisis in Ukraine.

“At DI, we estimate that around 80% of food products that were supposed to have been exported to Russia have been sold to other markets at lower prices. It has been expensive for the food industry to adapt so quickly after Russia imposed its import ban,” says Peter Thagesen.

See also: Business Europe - respond to protectionism with more free trade

Frozen optimism begins to thaw

Already in 2017 there was - albeit starting at a very low level - a slight increase in Danish exports to the more than 140 million consumers in the Russian market.

And the frozen Danish optimism from the early 2010s is slowly beginning to thaw.

“The political situation is at a standstill as a result of the situation in Crimea and Eastern Ukraine, which doesn’t appear to be changing significantly. But we can see that there is still a demand for Danish products among Russian consumers. However, Putin has a targeted strategy to strengthen national manufacturers, so some of the potential for Danish business involves investing in local production,” says Peter Thagesen.

In particular, the weak rouble and relatively low wages may make Russia an attractive country for some companies to locate their production in.

“For certain Danish companies, there may be obvious growth opportunities to be had by moving production to Russia, where they will have access to low production costs, a skilled workforce and an increasingly integrated Eurasian market (the union between Russia, Belarus, Kazakhstan, Kirghistan and Armenia),” says Peter Thagesen.

See also: Strong Danish krone pose challenge for export

We can see that there is still a demand for Danish products among Russian consumers.
PETER THAGESEN, DEPUTY DIRECTOR AT DI
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PUBLISHED: 3/15/2018 LAST MODIFIED: 3/15/2018