Record growth of non-primary exports of Russia: pandemic plays into the hands of producers

Russia has increased non-primary non-energy exports (NNE) to record values — by 36%, supplying $191 billion worth of products to foreign markets last year. This is a historical maximum, growth has been recorded in all commodity segments, especially in ferrous and non-ferrous metals, fertilisers, woodworking products, chemicals, plastics, power equipment. Apparently, the pandemic has created favourable conditions for our companies to enter and gain a foothold in international markets, says Artur Safiulin, a Realnoe Vremya columnist, economist with many years of banking experience.

What is non-primary non-energy exports?

The main importers of Russian non-primary products last year were China, Kazakhstan, Belarus, Turkey and the United States. And the main export goods in the structure of the non-primary non-energy exports were semi-finished products made of iron and wheat.

Non-primary non-energy goods are divided into three groups according to the degree of conversion:

  1. The non-primary products of lower conversion include goods characterised by a low degree of processing and its simplicity: primary crop production (grain, oilseeds, industrial crops, vegetables, fruits, and so on), basic large-tonnage chemicals (inorganic: ammonia, sulphuric acid, caustic and soda ash, and the like, and organic: hydrocarbons, alcohols, esters), fertilisers, lumber, processed stone, cast iron and steel, untreated non-ferrous (basic) and precious metals.
  2. Non-primary products of medium conversion include the following: intermediate products that are the result of multi-stage and sufficiently deep processing of raw materials. For example, meat (chain: crops — feed — live cattle — meat), cellulose (deep processing of wood, cost increases significantly), rolled steel (chain: ore — cast iron — steel — rolled); finished products of low complexity. For example, flour, cereals, vegetable oils, sugar, soap, wooden construction products, facing tiles, building blocks, pipes and the like.
  3. The non-primary products of the upper conversion are mainly finished goods that are the result of deep processing of raw materials: mechanical engineering products, pharmaceutical products, household chemicals, clothing, shoes, furniture, toys, printing, many food products (canned food, confectionery and flour products, cheeses and others).

It also includes some high-tech materials and intermediates, such as radioactive compounds and drug components. All non-primary energy products, except electricity, can be attributed to the products of lower conversion, electricity — to the products of medium conversion.

“The exports of non-oil products is already approaching the volume of commodities exports”

Traditionally, Russian exports are dominated by commodities, primarily fuel and energy ones. In the past, the share of commodities in exports often reached 80%. The desire of the authorities to get away from dependence on commodities exports seems natural — Vladimir Putin's May Decree of 2018 set goals to achieve $350 billion in non-primary non-energy exports by 2024. Including, the export of goods was supposed to reach $250 billion (including $50 billion in machine-building products, $45 billion in agricultural products), the export of services — $100 billion.

The pandemic made some adjustments to the plans, in particular, the projection for services had to be adjusted, so it included a rapid development of the tourism sector, which, for obvious reasons, is now suspended.

For the rest of exports, the picture is still positive — in 2020, exports from Russia amounted to $337 billion in total, including NNE amounted to $161,3 billion (or 47,9%). This was a historical maximum, which was broken in 2021 and reached $191 billion. In 2021, exports increased in all sectors — chemical industry — by 54%, metallurgy — by 52%, forest sector — 43%, mechanical engineering — by 31%, food — by 23%. The main importers of our products are China — $15,6 billion, Kazakhstan — $14,4 billion, Belarus — $11,4 billion, Turkey — $10,9 billion, the United States — $7,9 billion.

It is worth paying attention to that the export of crude oil from Russia in 2021 amounted to 99,4 billion dollars, petroleum products — 61,7 billion dollars, gas — 55 billion dollars. In fact, the NNE is already approaching the volume of commodities exports.

The main export goods in the structure of the NNE are semi-finished products made of iron ($8,2 billion), wheat ($8 billion). Unfortunately, there are very few really high-grade goods exported — for example, engines and turbines were sold for $2,44 billion over the year, and passenger cars for $1,44 billion.

Why is the NNE growing?

The main reason for the significant increase in the share of the NNE in Russia's exports is a decline in global demand for oil and petroleum products due to the pandemic. We started selling less oil as part of the OPEC+ deal.

On the other hand, both the government and the businesses themselves itself do a lot to promote Russian exports.

For example, within the framework of the Russian Export Centre (REC), a digital platform has been operating for 2 years, working for exporters on the principle of “one window” to facilitate the entry of Russian goods abroad. Over 2 months after the start of work, 1,500 companies have registered on it, 6,000 companies are expected by 2024. Twelve departments are connected to the platform, including the Federal Customs Service, Federal Tax Service. Another 20 are planned to be connected.

The REC notes that the further development of exports will also be associated with the growth of e-commerce, a service will be launched in “one-window” system that gives the opportunity to place goods on several marketplaces at once. It is worth noting that all these initiatives are aimed at representatives of small and medium-sized businesses, which is good news. Larger companies have already learned how to trade for the currency.

Besides, the REC supports exports through the insurance of export transactions through its subsidiary, Export Insurance Agency of Russia (EXIAR), which is several tens of billions of dollars a year. Almost 30% of the volume is accounted for by new customers. Besides, the agency, which was previously specialised in supporting large companies, is increasingly working with small and medium-sized businesses. If large companies have their own risk management system, then for small companies, insurance is a matter of survival. If such an exporter makes a large contract and does not receive revenue, then, in addition to financial difficulties, he gets problems with currency legislation and debt repayment.

Another important reason for the growth of non-commodity exports was the favourable price environment on world markets — due to breaks in global logistics chains, prices for many goods broke records. For example, the price of wheat futures in the United States in 2021 increased by 32% — from $601 to $795 per tonne. Aluminum increased in price by more than 30% — from 2,2 thousand dollars to 3 thousand dollars per tonne.

Besides, prices are affected by global inflation, which arose due to the infusion of a huge amount of printed money into the world's economies in the fight against the consequences of the pandemic.

In conclusion, it should be noted that the pandemic has made exports very profitable for our producers. A weak ruble also helps exporters — their production costs are in rubles. The support of the government plays its significant role, the example of the REC is very indicative. They moved from words to deeds, which is good news.

But in the coming years, the products of the agro-industrial complex (grain, sugar and food products), metal products, chemical cargoes will still remain the basis of the NNE. The current distribution by type of cargo within the NNE will remain the same: agro-industrial complex — 52%, metal products — 42%, chemical cargo — 2%. The remaining 4% will fall just on new types of goods and leaders, about which we still know.

Artur Safiulin

The author's opinion may not coincide with the position of the editorial board of Realnoe Vremya.