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The events in the Ukraine and Russian Industry – The Opinion of Russia’s Minister of Industry and Trade

08 April 2014

 

 

The Head of Russia’s Ministry of Industry and Trade Denis Manturov told Kommersant newspaper about the impact of western sanctions on Russian industry.

-Many today have reasonable concerns that as the foreign policy situation becomes more acute Ukraine may limit its delivery of machine-building products (for example, aircraft engines and shipbuilding nodes)to Russia. Based on your assessment, how critical will this be? What options do we have as far as seeking imports elsewhere?
-It would probably be deceiving if I said that we are not afraid of the wolf nor the owl. But this is not true. I can’t say that we are 100% sure of our partners in Ukraine, and I’d rather express hope in their reliability. For now, no actions on the part of our Ukrainian colleagues limiting deliveries have occurred. We must all understand that what we have is a two-way street. Each year we sign agreements under which deliveries of parts both from Russia to Ukraine as well as from Ukraine to Russia are established. Because of this, it would be illogical on the part of Ukraine to impose restrictions on products delivered to us, because after all they cannot de facto manufacture them without our participation. To be honest, I don’t have any doubts that sober-thinking manufacturer’s will not agree to it. It would disturb the entire production cycle.

- Also attention should be paid to the issue of who can financially compensate their risks if such a scenario be realized. At the same time we have enough mechanisms and options today to find alternative opportunities to get out of the situation if they decide to restrict deliveries.

- What can be said of European colleagues? Is there an understanding under the so-called third-wave sanctions under which the machine-building and production partnership with Russia could be restricted?

- We see that until now no political statement has been heard relative to concrete measures of a restrictive nature in the economic sphere. As far as our partners are concerned—managers at European enterprises—I have spoken on the subject with many of them and haven’t heard any “alarms”. What’s more, it was really important for me to host our industrial conference that was held in March (“New industrial environment”). Our partner foreign enterprises arrived to participate in it. The Japanese came, the Koreans, and there were representatives of practically all countries from the Middle East, and Europe was represented: France, Germany, Italy, Poland, the Netherlands—if I forgot to mention someone, please don’t be offended. I have had conversations with the main speakers who took part in our panel discussion and all of them say that we consider business as business, and politics is separate from it.

- Of course if not Ukraine, then Europe has measures of pressure, but I want you to pay attention to the fact that sanctions are measures with two sides, one will affect both enterprises with foreign capital that are located within our country and enterprises located in the European part, and cooperative supply projects. Our country today is a very important market for western companies to stop or even limit their cooperation with Russian partners. This is the difference from the times of Cold War, when Russia was not part of the global market. It has been said many times that now the economic interests of different countries have become tightly linked: the world’s economy is a single organism, and you can’t exclude one organ without hurting another. At the same time, it needs to be taken into consideration that the U.S. and Europe no longer have the ability to isolate anyone, because now new major economies have appeared, especially in Asia.

- How strong might the impact of the events in Ukraine on our auto industry be?

- Concerning the impact of the events in Ukraine on the Russian auto industry, we see two groups of risks. The first group, of which we have already spoken, is the termination of cooperative technological processes—when machine-building must shut down due to a lack of a component part produced by a different enterprise. In this sense, Russia’s auto industry is self-sufficient, and that means that the risks are insufficient.

-The second group is commercial risks. The largest Russian car exporters to Ukraine are AvtoVAZ and KamAZ. If Ukraine fixes obstacles to the sale of Russian products on their market, then certain commercial losses would be unavoidable. For example, not long ago, following the events we all know about, a KamAZ Warehouse was expropriated from a Ukrainian dealer: 50 vehicles were seized. It should be noted that by today KamAZ OJSC has managed only to recover the rights of its property. The vehicles were moved to the auto centre, but they are not allowed to be sold on the market. Such group of risks is probable, but I wouldn’t exaggerate its significance for our manufacturers. The number of deliveries of automobiles made in Russia to Ukraine is quite small. According to the 2013 results, 6,800 automobiles from AvtoVAZ and less than a thousand KamAZ trucks were sold in Ukraine. These numbers do not play a significant role in overall production numbers.

 

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