Minister Lavrov’s speech to a packed hall in Moscow of top level European business people went down rather well, however it seems that there is little appetite for change in Brussels. This can be seen to show the disconnect between EU elite policy making and the realities of local business environments. We live, however, in a changing world, and the looming prospect of possible policy change in Europe after the US elections is one of the topics discussed in this programme by our two guests: Jon Hellevig, managing partner of the Awara Group, a leading business administration and outsourcing firm in Russia, and Reto Foellmi, Professor of International Economics in the Department of Economics, University of St. Gallen in Switzerland. Here are a few highlights from the program.
Q. Are the sanctions really having an effect on the Russian economy or not?
Jon Hellevig: “Certainly the sanctions have had an effect, mainly in terms of financing Russian state owned corporations, which had an effect on the overall financial condition of the country. However we don't know if the sanctions or the dramatic fall in oil prices are the major factor in this…I would say the collapse on oil prices is the more major factor. I said that there has been an effect, but I would not say that the effect is huge. Russia’s economy is fairly healthy. There has been a small drop in GDP, much less than for example in Finland, in terms of industrial production. Unemployment is very low, at 5% whereas in Europe it is 10% or much more actually if you look at the real figures.”
Professor Foellmi agreed: “I agree with Jon, it is always difficult to identify the impact of sanctions. Commodity prices indicate a trend, and the current political situation in Russia doesn’t help the investment climate into Russia. I wouldn't say that the Russian economy is healthy, I would say the opposite. Of course unemployment is not high, but the Russian economy is not diversified.”
Jon Hellevig expressed a completely different view about diversification of the Russian economy.
Jon Hellevig: “Russia’s economy is hugely diversified. The oil and energy sector makes up only 14% of the GDP. Even educated people do not understand the difference between diversified exports and a diversified economy. The Russian economy is hugely diversified. Imports into Russia are only about €10 billion or €11 billion per month, only 2.5 times more than Finland….This means that Russia produces almost everything internally. It is one of the most diversified economies in the world…Overall, the Russian economy is doing quite well, apart from imports from the EU, which have been halved. Businesses which are not producing in Russia see their business suffering, but those who are producing in Russia, which moved their production here before the sanctions and after the sanctions, they are euphoric, their businesses are going very, very well.”
Q. But Central Bank reserves are down by a third, the EU accounted for 75% of FDI into Russia!
Jon Hellevig: “…There are problems. Central Bank reserves are still high, much higher than the government debt, they have been reduced by more or less the amount that went to pay off western banks.”
Professor Foellmi: “In general, these sanctions against Russia are not that harsh, certainly not as harsh as the sanctions against Cuba. They only affect some sectors, however they could be made worse in the future.”
Q. With the outcome of the US elections impact the sanctions against Russia?
Jon Hellevig: “The impact of the US on Europe is massive…Now it looks like Donald Trump is going to win, and I think he will win with a landslide. Donald Trump, in spite of the political establishment and the mainstream mass media, actually wants to have good relations with Russia. He has acknowledged that Crimea belongs to Russia, he has criticized the Ukrainian regime, and so on… there are all the signs that there can be a new approach.”
Professor Foellmi: “It is unlikely that Trump will win, but I never would have said that it is impossible. I never thought that Brexit would happen. What would happen if he wins?…It is worth looking at his policies towards emerging economies such as Russia and China, they have some serious openings. Hillary Clinton would continue with what is seen as the ‘old style,’ the position of the US is changing in the world order…”
Further discussion was held on the effect of the sanctions that Russia imposed against businesses in western Europe, and through discussion, the picture emerged that western Europe is suffering in general terms, more from the sanctions than Russia. Jon Hellevig pointed out that EU economies were in a very dire state before the sanctions. “Sanctions were the last straw…” Professor Foellmi agreed that the EU economies are in trouble but: “…this has nothing to do with the EU/Russia sanctions…” The lobbying of the Brussels elite by EU countries to abolish the sanctions was also discussed. Jon Hellevig’s final comments was that the “sanctions are actually an act of warfare, the same as shooting. It is a very aggressive act. Russia has been very pragmatic in responding to this. The EU sanctions have not had the effect that they were designed to have.”
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