In 2020, Russia announced the twin goals of reducing its dependence on the global hydrocarbon market and diversifying its exports. The official target for the next decade is to increase non-resource non-energy exports by at least 70%, with the bulk of this growth expected to come from industry and the agro-industrial complex.
Moscow is a key part of Russia’s non-resource export plans. Between January and August of this year, the city exported USD 20.13 billion in non-resource goods, an increase of 32% year-on-year. All told, Moscow accounts for about 17% of Russia’s non-resource exports.
Export by category
Local companies export industrial products to at least 180 countries around the world, with Kazakhstan, the United States, Belarus, and Germany demonstrating the greatest demand. Moscow’s non-resource non-energy exports to Africa jumped more than 50% to USD 1.34 billion in the first eight months of 2021.
Machinery, automotive equipment, electrical equipment, communication equipment, and chemical products were the city’s top industrial export categories. Polyethylene and polypropylene stood out among chemical products, with sales of the former more than quadrupling year-on-year and sales of the latter nearly doubling.
Export sales of local companies’ high-tech products – primarily turbo engines and gas turbines, equipment for nuclear reactors, and telecommunications equipment – posted significant growth in 2020.
Some segments of local industry, such as mechanical engineering, were affected by the general pandemic-induced economic decline but saw sales rebound in early 2021.
“In the first half of the year, mechanical engineering exports jumped an impressive 50% from the same period of 2020,” reports Alexander Prokhorov, head of Moscow’s department for investment and industrial policy. “As the global market begins to recover, we are seeing a surge in demand for machinery and parts, and local manufacturers are stepping up to meet that demand by increasing production. Both of those factors are driving export growth.”
Top export categories for local mechanical engineering companies include lighting equipment, electrical devices, furniture, watches, and communication equipment, with key importers in China, Hong Kong, Kazakhstan, Belarus, Azerbaijan, and Germany.
Details and difficulties
Unlike exporters in many other categories, exporters of industrial products often have to open offices in the countries where they sell, especially when customers cannot wait for items to be delivered from Moscow.
“We launched our business in Asian markets by opening offices in China and India,” says Anton Belyakov, CEO of TechnoNICOL, an exporter of building materials and systems. “Speed and mobility of materials are key when your customers are running large construction sites. Shipping goods from Russia quickly is almost impossible, and it doesn’t make sense for customers to buy one or two containers per year. That’s why we’ve invested in warehouse facilities and having employees on-site. In our industry, that’s the only way to build a reputation.”
Exporters of industrial goods also have to obtain quality certificates for their target markets, a process that can involve overhauling their facilities.
“In the oil and gas industry, companies invest serious money and time in obtaining certificates,” says Artem Nikolaev, head of export projects for Moscow-based Mercator Holding. “And many oil and gas or engineering companies require manufacturers to go through an authorization process before they can bid on tenders. For example, Shell Corporation’s Type Acceptance Test requires that each individual item manufactured by a Russian company be certified by Shell specialists. Obstacles like this have to be overcome, and there are different ways to do it: one way is to apply for government financial support; another way is to focus on markets with less onerous certification requirements. That said, even though industrial exports require a lot of up-front work, especially in heavy engineering, there are a lot of success stories.”
The Russian government provides exporters with certification assistance, including compensation for up to 90% of the cost of obtaining certificates. Non-financial support is also available: the Mosprom Export Support Center consults with local entrepreneurs and provides detailed research on markets of interest, including certification requirements.
Finding partners
The search for buyers and distributors is one of the most difficult tasks exporters face. “For a company based in Moscow, any international tender involves a lot of preliminary work. Part of that work is looking for reputable partners since in many countries, especially in the Middle East, you can run into unscrupulous buyers. Finding suitable counterparties and establishing cooperation with them requires effort by the company, but it also takes outside assistance,” Mercator’s Nikolaev notes.
The Mosprom Center runs a buyer program with multiple stages of preparation. First, the Center’s experts get to know the company and assess its readiness to enter international markets. After that, the Center provides full support through contract-signing or delivery of goods.
“During the first stage of preparation, we are learning about the company,” explains Mosprom’s specialist. Is it ready to export to foreign markets? What kinds of products does it offer? We also do research on the target market and make a list of steps to take to overcome barriers, if any. During the second stage, we look for buyers that would be a good fit for the company. And in the last stage, we stay with each company until it signs the export contract, sometimes even until delivery. One of our local manufacturers sent their products under the contract, but then the world locked down and the goods were stuck in a port in Cuba. We managed to resolve the situation so that the supplier avoided penalties and delivered the goods on time.”
Mosprom’s buyers program organizes business missions and trade shows for local companies. Before each event, the Center’s experts search for potential buyers, verify their reliability, adapt manufacturers’ presentation materials, and conduct pre-sale activities. During the pandemic, the Mosprom Center moved to hosting virtual events. In the first ten months of 2021, the Center held 13 business missions for 86 Moscow-based manufacturers and helped 29 exporters participate in eight international trade shows.
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