Intensive negotiations are underway to try to cushion the impact of the Ukrainian crisis on Czech exporters. The Agriculture Ministry has estimated this year’s loses at around 300 million crowns while the Confederation of Industry is talking about billion crown losses due to disappearing contracts, problematic funding and heightened competition from Asian exporters on the Russian market. One of the officials attending the government-led anti-crisis talks is Radek Špicar, vice-president of the Czech Confederation of Industry. I asked him for his assessment of the present situation.
“It is quite serious, I would say, because although most of our exports end up within the EU Russia is considered to be the most important third market for Czech exporters and therefore this situation is a sensitive matter for us. We – the Confederation of Industry – assume that the direct impact of the sanctions will be in the realm of a few billion crowns in the short term, both in terms of industry and agriculture, but we also have to take into account the indirect costs –and according to our estimate that could amount to tens of billions of crowns. There are several reasons – first, we know from our members that Russian banks are having difficulties financing already signed deals, then we are facing problems with re-exports, when Czech suppliers are supplying a German manufacturer of heavy machinery and the end product then goes to Russia – that becomes problematic, and last but not least, it seems that our exporters will be losing their position on the Russian market to Asian exporters who are becoming very active.”
The first to feel the bite of these sanctions –or rather Russia’s retaliatory food ban – are Czech food exporters –which companies or exporters are worst affected?
“There are quite a few companies that are very active on the Russian market –for example the Hamé company considers the Russian market very important – and these companies have obviously been hit by the sanctions. When you talk to officials at the Agriculture Ministry their estimate is losses of approximately 300 million Czech crowns as a result of the sanctions for the agricultural sector.”
Hame is actually one of the Czech companies which have a factory inside Russia and are thereby more protected from the sanctions. Is that the way to go?
“Of course it helps. When you look at the automotive industry there are a lot of companies that produce cars in Russia and logically these producers are not too nervous about the possibility that Russia could take these retaliatory measures further and ban car imports since they cannot be considered as importers. So that helps of course. But generally speaking all companies are nervous about what is going on – because no one really knows where it is going to stop.”
Looking at the big picture, could the expected glut in Europe be a serious set-back for Czech food producers?
“Well, I am not an expert on agriculture but according to what we are hearing from both local manufacturers and the government it will negatively influence a number of companies, but if you consider the overall situation it should not be life-threatening.”
Damage to food exporters looks to be just the tip of the iceberg –Russia has already said it is planning to replace Czech engines with its own for Russia’s light aircraft and damage caused to the military and mining industry is being estimated at 2.2 billion crowns next year –who are the main exporters at risk and how serious could this be for them long-term?
“As you probably know we are now in the middle of a very intensive discussion with the Czech government, export associations and trade unions on anti-crisis measures, in other words about what we all can do to find new export outlets and help Czech exporters negatively influenced by the sanctions. And one of the agreements that we made there is not to name specific companies because if we name them they might find themselves in trouble with banks or their shareholders etc. So you will not hear any specific names when it comes to companies influenced by the sanctions, but there are quite a few and if I were to name one sector which in my opinion will be hit the hardest – I would definitely say machinery – especially heavy machinery.”
“We proposed three major anti-crisis measures and it seems that the government will agree to implement all of them. First of all, we would like to see the government and the president to be very active in helping us find new export markets –in other words we would like to see a more effective approach towards economic diplomacy when it comes to constitutional and institutional support in that area, secondly, and that is even more important, we would like to see both institutions that are crucial for export financing –the Czech Export Bank and EGAP to be very active and help Czech exporters overcome the current difficulties and thirdly we think that an early adoption of a really effective kurzarbeit agreement would be a good idea because at least in some cases companies will have to reduce the number of workers and since this may only be a temporary problem kurzarbeit as it is used in Austria and Germany in such circumstances would be really useful.”
The ministries of trade and foreign affairs are mapping alternate export destinations for the export commodities and articles at risk –have you seen this list and how realistic do you think it is?
“Yes, of course, it is closely related to the new Czech export strategy which we also worked on with the government, so those alternate destinations are known and they include countries such as Colombia, Ethiopia, Vietnam and so on, but although this is a good thing to do and we are glad that the government is willing to help us in this respect we are stressing the need to be realistic. So we are telling the government “look guys, what you are doing here is great, but to establish a company on these markets –Vietnam or China – takes a long time and for it to become profitable there is a task that can take years. So we are saying, great, let’s start with this initiative as soon as possible, but let’s be realistic –it will take months and even years for Czech exporters to do successful and profitable business on these markets.”
What is your own prediction of developments – this crisis could be drawn-out and there could always be political upheaval around Russia. Is it high time to diversify or is the government’s strategy to hang in and maintain as tight business relations with Russia as possible until this blows over the right decision?
“Well, I think it is always smart and wise to diversify all the time. We are too dependent on the EU so Czech exporters need to seek new markets but at the same time I think that Russia was, still is and will be the most important third market for Czech exporters. So I hope that the problems we are now facing will disappear one day –hopefully in the short-term – and that Czech exporters will again do successful business in Russia as they have in the last few years.”