Rouble trouble could stymie SA's Russion export aspirations

Questions have been raised about the department of trade and industry’s (dti) efforts to increase SA export trade to Russia, at a time when that country is definitely very much on its back foot economically. It’s all going downhill for Russia. Its central bank has just cut interest rates by 1% to 14%, highlighting the dire state of the country’s economy. It has also slashed its growth forecast – expecting the Russian economy to contract by between 3.5% and 4% in 2015, worse than its January prediction of 3%. There is plenty to worry about. Low oil prices and Western sanctions crushed the economy, and the rouble has plunged 40% against the dollar in just six months. Inflation is soaring, having hit 16.7% in February, with food prices jumping by 23% compared to last year. Cutting rates could push prices even higher, but leaving them at elevated levels might mean an even deeper and longer recession. Also, industrial activity and consumer demand is slowing, according to the World Bank. If Russia continues on its current trajectory “experts warn that the nation’s economy could hit a breaking point as early as the end of this year”, said CNN Money. And entering into this economic mire of despond, the dti last week led a delegation of 25 SA business people to the 6th Investment and Trade Initiative (ITI) in Moscow and Novosibirsk. “This trade mission is an opportunity to advance SA’s export and investment agenda in the sectors of agriculture and agro-processing and also food-related products,” said deputy minister of trade and industry, Mzwandile Masina. And, he added, the immediate opportunities for SA suppliers to Russia would be in the increase of fresh produce exports. “With an already established export base of over US$250m (R2.75bn at the average exchange rate for 2014) per year for fresh fruits, especially citrus,” he said, “SA could easily expand to fresh vegetables through the existing export networks.” Where Masina plucked that figure from is hard to say, because fresh fruit exports to Russia in 2014 only totalled R1.02bn, according to his own dti’s trade stats. And, he added: “SA’s exports to Russia are showing positive signs, having grown by 11% between 2012 and 2013.” But, once again, the government was only telling the attractive part of the truth about total SA exports to Russia. Masina failed to mention that, again according to the dti stats, the year-onyear growth had actually dropped from 11.03% in 2013 to only 1.46% in 2014. And Masina was remiss in not pointing out that growth had already plunged from 59.09% in 2012 to that 11.03% in 2013. Another thing the dti omitted to mention in its promotional spiel, according to Ron Frick, MD of DAL Agency, was the serious devaluation of the rouble in the latter half of 2014 and during the early part of this year. So bad was this that – amongst the world’s emerging nations’ currencies – the rouble has taken an even bigger nosedive against the rampant dollar these last few months than our own poor old rand. This meaning SA exports will cost Russian buyers that much more in their local currency than before. It also, of course, pushed up the freight costs significantly (always quoted in US dollars), when paid out in in roubles. Also, Frick added, there was the questionable ability of the Russian traders to pay for imports from SA and elsewhere. “Therefore, fruit exporters in SA should be getting very nervous about whether they will get paid for the product they are placing into the Russian market,” he told FTW. And he supported this statement by telling us that some of the fruit exporters that use DAL’s reefer capacity for exports to Russia had told him they were having problems getting payment out of Russia. SA certainly does have an advantage on the fruit and vegetable export side of things. And that is Russia’s August 2014 ban on imports of all European fruit and vegetables in retaliation for EU sanctions. They were by far the biggest buyers, buying about 21.5% of EU vegetable exports and 28% of the bloc’s fruit exports. And, in the year before the ban, EU farm exports (including fruit and vegetables) to Russia were worth the equivalent then of about R145.2 billion. That may explain, or partly explain, the 4.4% increase in SA fresh fruit exports to Russia in 2014 to R1.022bn. INSERT 40% The rouble's depreciation against the dollar in six months.