VDMA: Russia sanctions need to be reconsidered

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It is becoming increasingly difficult for the European mechanical engineering industry to maintain its position on the Russian market. The weak ruble exchange rate, the volatile oil price, protectionism and not least the sanctions are causing exporters great headaches. VDMA President Carl Martin Welcker therefore advocates to reconsider the sanctions.

The EU and the German government should reconsider their sanctions policy with a view to Russia. "Even after five years, the sanctions are still politically unsuccessful. This is why a repositioning must be considered and discussed in the EU," said VDMA President Carl Martin Welcker at the association's members' meeting in Moscow.

In addition to the EU sanctions, the American sanctions also increasingly burden trade with Russia. Since the US also applies its sanctions to legal entities in other countries, many companies fear negative consequences if they do not comply with them. More and more financial service providers are already showing restraint in doing business in Russia. Welcker called on Berlin and Brussels to protect EU companies from the impact of these so-called extra-territorial sanctions: "Especially the bank accounts for Russian business, which are legal under EU law, must be kept open. Our government must create the conditions for this."

Even after five years, the sanctions are still politically unsuccessful.

China's position in Russia is growing

The competitor China took advantage of the political and economic situation and replaced Germany as the most important foreign machine supplier to Russian industry as early as 2016. "The Chinese do not have to observe any sanctions and often bring the financing for their business with them. Financing is often the bottleneck," warned Welcker. For this reason, the VDMA is committed to supporting companies in difficult markets with better export financing conditions for order values below 5 million euros.

Receivables from Russia

German technologies are still highly valued in Russia, especially robotics and digitisation have special priority, assured the Russian Industry Minister Denis Manturov at a meeting with the VDMA President. Nevertheless, more and more German mechanical engineering companies are feeling the effects of the measures to favour Russian producers. "In Russia, too, we demand equal market access conditions for all market participants. This is the only way Russia can produce goods, which are also in demand in the global competition," emphasized Welcker.

After a recovery in 2017 (plus 22 per cent), German machinery exports to Russia slowed down again sharply in the second half of 2018. For the year as a whole, therefore, only a disappointing plus of 2.6 percent was achieved. This negative trend continued in the first three months of 2019, with exports falling by 13 per cent. Thus the former top export market Russia slipped in the last five years from place 4 to current place 12 of the German machine exports.