Mixed signals have been sent by the West to Russia and Ukraine during the recent crisis and no more so over trade and business relations. Strangely enough, crucial Czech state support for trade with Russia is being maintained but that to Ukraine remains on hold.
The two main protagonists in the ongoing crisis, Russia and Ukraine have been given different treatment regarding the business terms they are offered. That holds good for most of the European Union including the Czech Republic.
Politics apart, the simple message is that two-way business with Russia is too valuable to sacrifice while that with Ukraine is marginal at best. Western and Czech exposure to possible Russian default on loans and cancelled contracts is far greater than anything threatened in Ukraine.
Czech state export insurer EGAP announced at the height of Ukraine’s conflict at the end of February that it was halting all new activity helping to cover the risks of doing business in the country until further notice. No announcement has been made since that the situation has changed with Ukraine still listed by the export insurer as a number seven risk country, the worst possible rating.
Basically, EGAP works hand in hand with the Czech Export Bank, which provides loans to customers in high risk countries which help them buy Czech services or products. EGAP provides the insurance safety net in case the projects and loans start turning sour and defaults start to occur.
On Ukraine, EGAP general manager Jan Procházka said in an interview with the news server Česka Pozice published on May 26 said that it is senseless to send money to a country whose very own prime minister admitted it was technically bankrupt and where the cash would be lost. When stability returned the situation could change, he added.
Russia, however, is a much lower risk proposal. It is evaluated at three on the seven point rating and Czech state aid to smooth business there is still continuing. Indeed, in the interview Procházka pointed out that the current slowdown in the Russian economy might limit the opportunities on that market foreign companies but that might, on the other hand, spark an upturn in interest from Czech companies in getting some of their potential risks covered by the state export insurer. It is still too early to say how the situation will evolve, he added.
Up till now EGAP has covered 80 billion crowns worth of Czech business with Russia although some of the projects have turned sour. Last year Russia took first place in the countries helped by the Czech state insurance company with the country accounting for 19 percent of its total activity. Azerbaijan followed a close second with 18 percent of business.
EGAP’s export credits totalled a record 2.7 billion crowns last year. Russia accounted for around 5.0% of Czech exports in 2012 and was the Czech Republic’s fifth most important trading partner. Czech exports to Ukraine account for less than 1.0% of outward trade flows.