22


Issue 1 2014 Freight Business Journal


///RUSSIA/EASTERN EUROPE


Full of eastern promise


Russia, the CIS, Eastern Europe – call it what you will, it’s an unusual freight market. Rail is still the dominant mode for long- distance transport in many countries. Modern logistics concepts like containers have a relatively short history, although they are now rapidly gaining ground. And it’s one market where efficient – or otherwise - customs clearance is a major factor in the smooth running of international freight services. What also marks it out from the rest of Europe is that it was a booming market, until very recently at least.


Taking to the streets for trade The normally prosaic matter


of trade pacts had crowds demonstrating


on the streets


of the Ukrainian capital, Kiev in November, and December, with opposition leader, Yulia Tymoshenko, even threatening to go on hunger


strike until


the country’s president, Viktor Yanukovych signs a deal with the European Union. There is more than just trade


at stake in Ukraine. The east European country is being torn between two worlds – the European Union to the west and the Russia-influenced bloc of former Soviet countries to the east. Ukraine had been all set a few months ago to sign a Deep and Comprehensive Free Trade Agreement (DCFTA) with Brussels at the Eastern Partnership summit in Vilnius on 28 November, but then politics intervened: Russia came up with alternative proposals for a deal with its own customs union of former Soviet bloc


nations, which currently


includes just two other countries - Belarus and Kazakhstan.


There are economic pressures that next-door neighbour Russia can exert on Ukraine and it appears that these assumed


greater


importance to the Yanukovych administration than the longer- term prospects of integration with the EU. There is also the question of whether, ultimately, Brussels’ heart was in a deal with a country that has become increasingly authoritarian. Prior to the Vilnius summit, negotiators had hinted that the deal was off until matters improved. Officially at least, though, both


sides claim that the negotiations are merely suspended and will be resumed at a later date. The deal remains on the table, the European Commission has said, provided Ukraine has the political will to do so. For Ukraine’s part, Ukrainian Prime Minister Mykola Azarov said that preparations for the association agreement with the EU are continuing. At the Eastern Partnership


summit in Vilnius on 29 November the EU did however initial Association Agreements


with Georgia and the Republic of Moldova, including provisions for DCFTAs. The agreements focus on support for core reforms, democracy and human rights, economic recovery, governance, sectoral cooperation, as well as the far-reaching liberalisation of trade with the EU. News that Ukraine would not be


signing the DCFTA will come as a disappointment, if not a surprise to EU-based traders but what of Russia itself? Business with the country has been pretty brisk lately, even though it is only four short years since it was mired in the economic doldrums. Since then, the EU has had to weather its own economic crisis while Russia’s economy, boosted by record oil, gas and commodity prices, has gone from strength to strength. There are though, sentiments, if


not exactly clear signs, that things may be slowing down. According to Bloomberg, Russia’s Economy Minister Alexei Ulyukayev has predicted that Russia’s economic growth will soon start to trail the world average and will continue


to do so over the next 20 years unless there is a radical change of policy. Even Prime Minister Dmitry Medvedev is now warning that Russia’s export-driven economic model is nearing exhaustion. That might signal less of a


dependence on energy and raw material exports, fewer imports, more domestic manufacturing and perhaps even an increase in manufactured exports from its current low base. As the World Bank pointed out in a recent


forecast, heavy


dependence on oil and gas revenues is a two-edged sword. While the economy has boomed as long as global energy prices remained high, it is very exposed to any reduction in prices. The World Bank also notes that a lot of Russian industry is not globally competitive. The country is suffering from


ageing infrastructure and has gained a reputation as a difficult place in which to do business, which has deterred foreign investors. Freight operators, who have for years had to contend with frequent and inadequately


explained changes in customs policy and procedures – including the latest debacle over the TIR system – will know this better than most. The European Bank for


Reconstruction and Development (EBRD) also


criticised Russian


President Vladimir Putin’s ‘state capitalism’ policy which, it says, has concentrated power among a small number of politically well- connected firms. EBRD sees a similar economic


stagnation in the rest of eastern Europe, with increasing state interference in the economy and economic progress stalling or slowing to a crawl, although the countries of Central Europe and the Baltics are likely to do slightly better, closing the gap in living standards with Western Europe. East Europe has suffered from


the woes of the Eurozone but is also being affected by the Russian economic slowdown, points out EBRD. The latter was the main factor in the banks’ downgrade of its growth expectations from 3.2% to 2.8% in 2014.


EU moves east


EU European affairs ministers have confirmed a decision taken in June 2013 to open accession negotiations with Serbia, although there is as yet no exact date for the talks - the decision will be taken by the next Greek Presidency of the EU Council. And a decision on whether


to give Albania EU candidate status will not be taken before June 2014. The Commission recommended Tirana be given candidate status in October 2013, but ministers want to see evidence that corruption is being tackled. On 20 December, the


European Council announced that the EU will sign association agreements and free trade deals with Moldova and Georgia by August 2014 – a clear move that Brussels has been stung by the pressure from Russia on other former Soviet countries to join its own trading club.


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