27 May 2010
Russia on the Road to Recovery Despite Global Recession
More Diversified Economy Creates Opportunities: HKTDC Report
27 May 2010 – The recent global recession has increased the pace of economic diversification in Russia and put it back on track for growth after the nation’s dependence on oil and gas exports left it as one of the world’s worst-hit economies, according to new research by the Hong Kong Trade Development Council (HKTDC).
The HKTDC report “The Changing Face of Russia” reveals that a recent oil price jump has put the country and its consumer market on a growth track, triggering an upward revision of the World Bank’s 2010 forecast for Russia’s gross domestic product (GDP), from 3.2 per cent to five or 5.5 per cent.
“On the bright side, the global recession has had the effect of speeding up the country’s pace of economic diversification and development of a knowledge-based economy,” said HKTDC Assistant Chief Economist Daniel Poon. He said the change impact was greatest in the fields of energy, information and communications technology or ICT, bio-medical, space and atomic or nuclear technologies.
Mr Poon noted that Russia is also making an effort to localise production by slashing import duties on components. “Such measures have successfully encouraged a number of international giants to scale up their production facilities in the country. This situation brings increased demand for materials such as electronic components as well as skin and hides, presenting new opportunities for Hong Kong suppliers of industrial parts and components,” he said.
Fashion and Quality
The Russian middle-class of some 50 million people represents around 35 per cent of the nation’s total population. In tandem with improved living standards and rising consumerism, the middle class are now spending more on consumer goods such as branded fashion items.
“Given the lack of production of local consumer goods, the best opportunities for Hong Kong companies lie in supplying products such as consumer electronics, fashion, giftware, jewellery and toys and games,” said Mr Poon. He explained that the fashion items included mainly garments, footwear and travel goods.
“Russian consumers are much more fashionable and quality-conscious nowadays. They are looking for better designs and brands with better workmanship and fabrics, instead of just eye-catching labels or the prestige that the brands are selling,” Mr Poon added.
Demand for Services
Hong Kong services providers should also adopt a more proactive approach toward exploring niche opportunities resulting from Russia’s soaring demand for services, said Mr Poon.
“A number of Russian companies such as aircraft leasing company Ilyushin Finance Corporation and Russian Railways are considering listing in Hong Kong. Financial services providers should further explore the resulting opportunities,” he said.
Having set a goal of transforming the country into the world’s fifth largest economy by 2020, Russia has taken steps to clamp down on its cumbersome customs administration system and its underground economy. In a bid to demonstrate its determination to improve trade, Russia has signed a package of agreements with Belarus and Kazakhstan to establish a customs union and a common economic space. Russia also continues to apply for membership in the World Trade Organization (WTO), a move that would make it easier for overseas companies to cope with trade regulations.
But despite Russia’s return to upward economic momentum, and its government’s attempts to promote trade, Hong Kong companies should also be wary of new challenges.
“Although the Russian government is improving its economy and customs administration, Hong Kong companies should understand the importance of knowing the financial track records of their buyers, and the difficulties posed by a fragmented distribution landscape,” said Mr Poon.
“Demand for consumer products is surging, but Russian consumers have only limited awareness of Hong Kong products at present. Therefore, it is easier for Hong Kong traders, brand owners and designers to gain market access by partnering with Russian distributors such as nationwide retailers or chains that have extensive dispatching networks.”
Please contact the HKTDC's Corporate Communication Department:
Tel: (852) 2584 4216
About the HKTDC
A statutory body established in 1966, the Hong Kong Trade Development Council (HKTDC) is the international marketing arm for Hong Kong-based traders, manufacturers and service providers. With more than 40 global offices, including 11 on the Chinese mainland, the HKTDC promotes Hong Kong as a platform for doing business with China and throughout Asia. The HKTDC also organises trade fairs and business missions to connect companies with opportunities in Hong Kong and on the mainland, while providing information via trade publications, research reports and online. For more information, please visit: www.hktdc.com.