Kazakhstan, Uzbekistan, Armenia
German economy realigns trade with the East
By Nils Kreimeier
02/25/2023, 06:09 p.m
Even without Russia as a partner, German trade with Eastern Europe and Central Asia is celebrating records. The focus is shifting to countries that traditionally do not necessarily belong to the front row.
There are sentences that come as a surprise these days, when Russia’s attack on Ukraine has marked the first anniversary: ”We have record results in Eastern trade,” said Michael Harms, Managing Director of the Eastern Committee of German Business this week in Berlin. In other words: while Ukraine is sinking into war, business with Russia is falling away and sanctions are being imposed for whatever the toolbox allows, German companies are achieving their best results ever in exchanges with Eastern Europe and Central Asia. 562 billion euros were turned over in 2022, 11.5 percent more than in the previous year. According to Harms, retail has been “surprisingly robust”.
Now that’s the thing with numbers. Since an important part of the exchange with the region consists – or at least consisted of – in the import of fuels such as coal, oil and gas, the sharp rise in prices for these goods in the past year is of course also having an impact on the result. However, not only have imports increased, but also German exports, the bottom line being a whopping eight percent. And this despite the fact that direct exports to Russia have collapsed by almost half.
So what happened there? Harms speaks of a “shifted emphasis in Eastern trade”. Instead of trading with Russia, German companies are now trading even more with Poland, Slovakia or Serbia. This is actually happening, and Poland in particular is increasingly becoming one of Germany’s most important economic partners. However, the largest increases are occurring in a number of countries that traditionally have not necessarily been in the front row. German exports to Kazakhstan rose by almost 100 percent in 2022, by 130 percent to Uzbekistan and by almost 166 percent to Armenia.
Behind this is often simply a diversion of German business with Russia. “There is a reorientation of the logistics and financing routes,” says Harms. This means that German companies that have previously worked for Russia in Russia are relocating their production and logistics to other countries, from which they in turn deliver to Russia. For all goods that are not subject to the sanctions, this is perfectly legal. The big question, however, is whether sanctions are not also circumvented on these transport routes – for example, by diverting militarily relevant goods such as semiconductors or mechanical engineering components.
Russia is absent as a trading partner for a very long time
“We categorically rule out a deliberate circumvention of the sanctions by German companies,” says Harms, even if the issue is taken “very seriously”. However, according to the Eastern Committee managing director, German companies tend to act “over-compliant” in the sanctions regime, i.e. to stop doing business that is not prohibited at all. In addition, the percentage increases with Central Asia or the Caucasus are considerable, but in absolute figures these new trade sales are far from sufficient to compensate for the slump in business with Russia.
The Committee on Eastern European Economic Relations is sure of one thing anyway: Vladimir Putin’s Russia, which has been the association’s most important topic for decades, has been a thing of the past as a business partner for a very, very long time. Harms said a lot about Russia this Wednesday, including things that one shouldn’t quote, but one thing is clear from his point of view: “In the boardrooms of German companies, the topic of Russia has been strategically written off.” The Eastern Committee itself no longer maintains any official contacts in Moscow, and it is not assumed that this could change again under the current leadership.
And even if the political situation were to change again one day, the Committee on Eastern European Economic Relations and its members would probably find themselves in a different country: Harms speaks of the “toxic effect” that the sanctions, the withdrawal of foreign companies and the emigration of hundreds of thousands of well-trained workers are having : “We are witnessing a disintegration of Russia from the world economy and an unprecedented reversal of market economy and technical achievements of the last 30 years,” he says. A sentence that Harms, who worked in Moscow for years, probably never thought he would say. And another one of those sentences that you can only marvel at at the moment.
This article first appeared on Capital.de