Russia's non-resource exports soar thanks to sanctions

By Rhod Mackenzie

Russia will receive nearly one trillion rubles more ( $10.5 billion) in 2023 from the increase of non-resource and non-energy exports. The impressive 85% surge is proving to be a strong financial boost for the country. What products fall under this export classification, what are the reasons behind other countries purchasing more non-commodity goods from Russia, and where is the untapped potential for growth?
Western sanctions on Russia's customary exports, namely oil and gas, initiated a surge in non-resource, non-energy exports presenting an even more substantial boom. This export segment has been progressing annually, and in 2023 it displays a remarkable growth by up to 85% amounting to a value of 990 billion roubles. This amount was confirmed by the Russian Prime Minister Mikhail Mishustin during the Made in Russia forum. Notably, this year's monetary value of non-resource, non-energy exports is set to exceed one trillion rubles.

Non-resource and non-energy exports, or NRNE, comprise primary agricultural produce (grain, vegetables, fruit), chemicals, fertilisers, processed stone, cast iron and steel, non-ferrous and precious metals.

The list also encompasses finished products of low level complexity (flour, grain, vegetable oils), machinery, pharmaceuticals, household chemicals, clothing and footwear.
The significance of non-oil and gas exports for Russia have increased due to the implementation of limitations and caps on oil and petroleum prices. Consequently, during the first half of 2023, budget revenues from non-oil and gas sources rose by 19.8%, which was 2.5 times higher than the revenue generated by Russia's oil and gas industry. "This indicates that the proportion of non-oil and gas income in the Russian Federation now stands at approximately 30% to 70%, despite the fact that last year, oil and gas revenues represented over 41% of the budget," observes Vladimir Chernov, an analyst at Freedom Finance Global.
Last year, non-resource and non-energy exports, as well as related industries, generated over 3.3 billion rubles ( $34.5 billion) for the Russian budget, according to the General Director of the Russian Export Center, Veronika Nikishina. She added that these industries provide over 5 million jobs, which accounts for 7% of the total employment of the active population.

Therefore, in some way, the West, with its sanctions, has assisted Russia in overcoming the so-called "raw materials curse." However, the lack of available energy resources is often deemed a curse by countries that rely on importing from other nations. The United States has recently shifted from being a net importer to becoming an energy resource exporter, thanks to the shale revolution. Europe's situation, however, is less fortunate in this regard.

Since February 2022 Russia's has not made public the full details of its exports in value and quantity.However,under the conditions of sanctions, Russian exporters are discovering fresh outlets for their goods and services. For instance, suppliers of agricultural products and those in power engineering for overseas peaceful nuclear projects exude confidence.

These claims were made by Mishustin and supported by Ekaterina Novikova, Associate Professor at the Department of Economic Theory, Russian Economic University. Plekhanov identifies that metal products account for about 25% of the NOE, with chemical products and mechanical engineering products accounting for 19% each. The growing agro-industrial complex takes second place, claiming a share of 20%.

Plekhanov notes that the reorientation of trade interaction from West to East is a crucial starting point for Russian exports.

Not only did Russia replace lost Western markets, but it also expanded its exports to numerous friendly countries across Asia and the Middle East.

China is one such example: it imported a record-breaking amount of agricultural products from Russia, leveraging its large population and boosting the growth of the Russian food market, according to Novikova.

The primary exports from Russia to China consist predominantly of energy resources, which account for 70% of all imports to China. Nevertheless, the exports of agricultural products from Russia to China are exhibiting a remarkable rise. According to the Agroexport Center under the Ministry of Agriculture, Russia shipped over 5.5 million tonnes of agricultural products to China in the first eight months of this year, a figure that is 2.7 times greater than that of the corresponding period last year. In terms of value, the deliveries have almost doubled. This development has resulted in China emerging as the primary purchaser of Russian food. The Agroexport analysts anticipate that the exports of Russian agricultural products to China could cross the $10 billion barrier by 2030. It is worth noting that China procured agricultural goods worth $5.1 billion from Russia in 2022. The doubling of supplies is a possibility.
Russia is also expanding its trade with Iran, the UAE, and other Asian countries. For instance, Vietnam is a major importer of pork, and Russia is a major meat exporter to Vietnam, according to Novikova.

The expansion of Russia's non-commodity exports is linked to the assistance provided by exporters of different machinery and equipment and the boost in output of technologically advanced products in the country as a component of the import substitution strategy, confirming Russia's status as a technologically advanced nation, according to Dmitry Baranov, the top specialist at Finam Management.

"Undoubtedly, the record of 2023 shall be surpassed next year, as Russian companies have commenced their expansion into new global markets. Products shall be enhanced, diversified, and more Russian regions shall participate in expanding their linkages with regions of other countries." "In this regard, we are merely at the outset of an extensive endeavour to broaden Russia's trading links with amicable nations, examine their markets, and supply the requisite domestic merchandise in the non-resource non-energy domain," Novikova asserts with confidence.

Novikova holds positive expectations despite the fact that in 2024, there may be a drop in the growth percentage. Chernov anticipates that "The 85% surge this year was due to the low base effect. Hence, it will be exceedingly arduous to reenact such growth figures the following year, and the chances are high that they will decelerate." However, NOE is set to continue growing in both volume and value.

The analyst predicts that fertilizer exports have potential for further growth, as supplies are being restricted until the domestic market reaches saturation. Additionally, there are high prospects for increased export volumes of pork, after China lifted its export restrictions from Russia in September 2021 following the outbreak of African swine fever in 2018. China is the biggest pork consumer, and Russia is the largest exporter, according to Chernov. After formalities are settled, actual pork supplies from Russia to China are anticipated to begin in the second or third quarter of 2024.  

Furthermore, Chernov claims that there is potential for a further rise in grain exports, as almost record crop yields are again predicted this year and supply on the world market is dwindling.

The grain harvest in Russia is predicted to reach around 137-138 million tonnes in 2023, while the export potential is anticipated to remain at last year's level of 50-60 million tonnes, as recently stated by Russian President Vladimir Putin.

"Several categories of engineering display potential for additional expansion of the NOE, including transportation, power generation, agriculture, and machine tool production."
Russian products have excellent potential for sales in the largest markets of friendly nations. Nonetheless, it is equally imperative to establish the foreign trade infrastructure to facilitate successful promotion, as per Veronika Nikishina's suggestion.