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Russia is seen as a key market in mechanical engineering. What is the status quo and what are the predictions for the future? VDMAimpulse spoke to VDMA's Russia expert Sven Flasshoff.

By Christoph Götz

Sven Flasshoff © VDMAA lot of people are advocating global free trade, competition and growth. But when it comes down to it, many countries are putting up trade barriers and acting egoistically. The situation in Russia is difficult. VDMAimpulse delves deeper with the Managing Director of the VDMA representative office in Moscow, Sven Flasshoff.

How important is the Russian market for the industrial companies organized in VDMA?
Russia is currently in ninth place in the export ranking of German mechanical engineering, so it remains one of the most important markets worldwide. Between 400 and 500 VDMA members have subsidiaries there, including a few dozen who produce locally. There are few countries outside the EU where German and European mechanical engineering companies are represented that well.

What do you see as the biggest obstacles currently facing mechanical and plant engineering companies who want to do business between Moscow and Vladivostok?
One obstacle is the market itself. The Russian market for mechanical engineering products shrunk temporarily by more than 50 percent between 2013 and 2016, calculated in euros. Consequences were inevitable. A second obstacle, and one that is only likely to grow, is the protectionism involved in the import substitution policy. The "buy Russian" regulations do not make life easier for mechanical engineering companies. Issues also always arise in other areas, such as with taxation, bureaucracy and supervisory authorities. But foreign mechanical engineering companies even managed to do business successfully in the Soviet Union. It is therefore fair to assume that mechanical engineering companies know how to exploit the opportunities on the modern Russian market.

But there are some positives, too. A high Russian court recently ruled in favor of an international manufacturer or agricultural machinery after they complained that Russian competitors were being given an unfair advantage in the awarding of state subsidies. So there does seem to be at least some legal certainty. Is it therefore reasonable to hope that the situation might change in the foreseeable future?
I’d like to say there was "at least some legal certainty" for foreign investors even in the early 1990s. Russia has moved on 25 years since then. Then only rudimentary, there is now a proper legal framework for business activities. Even the oligarchs now have their conflicts decided by Russian courts, which would certainly seem an indicator that the mechanisms of the legal system work. Legal certainty does not mean that incorrect decisions are never made - merely that there are binding, transparent rules and a judiciary that ensures that rules are followed in specific cases. But even in Russia, courts cannot take action against rule breakers on their own volition. Someone has to make a complaint to set the mechanism in motion.

How do you see Russia's economic policy agenda developing over the next five to ten years?
One core aim of Russian economic policy is to develop a modern, diversified industrial sector that will become a strong exporter in the medium term. The government is actively driving the mega-trend for digitalization of business and the state. In some fields, such as digitalization and infrastructure projects, Russia is already moving faster than Germany. The aims of Russian economic policy are generally very ambitious, but there are still some questions when it comes to how these goals can be achieved. For example, we are seeing increasing protectionism. Examples from economic history in other countries tend to show that protectionism does not automatically lead to a mechanical engineering sector that is competitive on the world market.

Where do you see VDMA's role? What is the Association already doing, and what does it need to do in the future in order to influence Moscow’s economic and industrial policy to benefit mechanical engineering?
We are involved in economic policy discussion processes in the fields in which VDMA has particular expertise, such as technical regulation and standardization, the market economy framework for foreign investors, and the establishment of the environment for Industrie 4.0. My impression is that these fields are open to suggestions backed up by objective arguments. That is why we want to expand our activities further. This kind of thing is a classic topic for Association work.

Further Information

VDMA Foreign Trade   |   VDMA Russia   |  VDMA Agricultural Machinery   |   VDMAimpulse 02-2018: "Trade policy reaches a crossroads"   |   VDMAimpulse 02-2018: "Trade after Brexit: A matter of cake and cherries"   |   VDMAimpulse 02-2018: "Sanction policies have let to uncertainty for exporters to Russia"   |   VDMAimpulse 02-2018: "China on course for expansion, but more openness needed"   |   VDMAimpulse 02-2018: “Moscow is ready to use protectionism”


Christoph Götz, VDMA Agricultural Machinery.