The economic and financial crisis is clearly over for German companies active in the Russian market. An overwhelming majority of German firms expect Russia to experience stable economic development in 2011, and one in nine even foresee a strong business upturn, according to a survey conducted at the end of last year by the Committee on Eastern European Economic Relations and the German-Russian Chamber of Commerce. Modern Russia asked Michael Harms, executive director of the German-Russian Chamber of Commerce, what the main reasons are for this optimism.
Positive growth and earnings prospects in 2011 and beyond
A total of 137 companies took part in the survey which showed clear signs of a broad economic upturn. About two thirds of the respondents plan to hire new staff in 2011, and 43 percent are planning specific investments amounting to about €700 million. Such figures were last seen in the record-setting pre-crisis year 2008. “In spite of all the day-to-day difficulties, Russia remains a highly attractive long-term market,” Michael Harms told Modern Russia. “High-quality and hi-tech products are indispensable to the modernization of the Russian economy – German exporters can meet this demand, as Russia’s consumer market grows unabated.”
From the point of view of German companies, the Russian market’s main strengths are its favorable growth and earnings prospects, its high level of consumer demand and its well-educated workforce. Survey respondents also see sectors such as energy (power generation, oil, gas), automobiles, transport and logistics, agriculture and food, retail and construction as Russia’s main growth drivers. “The outlook is good for German businesses wherever there is demand for qualitative, technologically sophisticated products that can be marketed around the world, with good after-sales service,” said Harms.
German investors’ attention is also increasingly focused on two major upcoming sporting events: the 2014 Olympic Winter Games in Sochi and the 2018 FIFA World Cup. After Moscow and St. Petersburg, the Krasnodar region, where Sochi is located, is already the third most popular area with German investors.
Germany remains Russia’s preferred modernization partner
The fiercest competitors to German businesses in Russia come from Asia: For two years now, China has surpassed Germany as Russia’s largest trade partner, with engineering and plant construction companies increasingly feeling the pinch. German firms are also skeptical about the government’s modernization endeavours. They see red tape, corruption and a lack of transparency as persisting obstacles to their activities in the country. Michael Harms therefore advises that “public administration reform is indispensable if the ambitious objective of modernizing the country is to be achieved within a realistic timeframe.”
Yet Harms remains optimistic, arguing that German companies still lead in terms of market penetration. He also points out that efforts to improve the business climate and the conditions of doing business vary widely from region to region. He notes that the region of Kaluga, where Germany’s leading carmaker Volkswagen has a major plant, is a good example of how to attract foreign manufacturers.
“Thanks to the very high proceeds from its raw material exports, the Russian state has good public finances and is ready to invest heavily in the modernization of the country,” and Germany remains Russia’s “preferred partner” and one of its largest investors.
Germany Trade & Invest expects 4 percent growth for Russia in 2011
A study conducted by Germany Trade & Invest (the foreign trade and inward investment agency of the Federal Republic of Germany), confirms Russia’s positive economic outlook in 2011. The country’s GDP should grow by 4 percent this year, with gross asset investments increasing by 10 percent according to “economic trends Russia 2010/2011.” Economic activity is expected to be boosted in particular by new projects in sectors such as energy efficiency, infrastructure and telecommunications. With increased real income, Russian citizens’ purchasing power is most likely to follow this positive trend.
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