Drawing Iron Curtains

THE LARGEST COUNTRY IN THE WORLD COVERING ONE EIGHTH OF THE WORLD’S INHABITABLE LAND, Russia is steeped in history, war and violent political change.

Today, low pay, idle or closed manufacturing capacity and a reliance on the export of oil and gas characterise the economy which also includes: mining, aerospace, arms, electric engineering, pulp-and-paper production, cars and agriculture. Foreign exchange comes from exports of oil and natural gas which comprise nearly 60 per cent of Russia’s total exports, mainly to Europe and Asia.

Statistics encapsulate the key feature of the Russian economy, its link to energy prices. The break up of the Soviet Union some 25 years ago gave hope to the populace that the country would move from a command economy to a market economy. These hopes were dashed by the reality of the struggle and grasping of ownership of government assets by those with the power to do so.

In the 90’s, the uninterrupted increase in the oil price saw the Russian economy grow by around 7 per cent per annum on average. Despite the energy crisis hitting Russia in 2008 and 2009, Putin oversaw from 2000 to 2012, a rapid expansion in the economy. It was fueled by energy exports. Disposable income rose by 160 per cent during those years and living standards improved rapidly.

However, the decline in energy prices and the international, partial political isolation of Russia following its annexation of the Crimea, peeled back some of that progress as another recession took hold in 2015. The economy has improved since the end of the recession in 2016, and in February this year, S&P Global Ratings upgraded Russia debt to investment grade status after three years with junk status.

Russia is not a market economy. It is volatile both economically, as it tied to natural resource prices, and because of the concentration of economic power, as oligarchs continue to hold onto the natural resource assets and utilities.

The concentration of power and sheer disparity of wealth between the haves and have-nots, has meant Russia has been fertile soil for the importation of the very best for the very few. In sporting guns this used to mean the finest English shotguns and rifles were in demand.

Russia’s own expertise in gun making is best summed up by its production and sale of inexpensive, workman-like shotguns, like Baikal, and the eponymous, combat weapon, the AK- 47 rifle. Produced by Kalashnikov, the AK-47 was, until sanctions were imposed by the Obama administration in July 2014, a very successful export to the US. Despite attempts by the company to get around sanctions, as recently as February this year, the US declared a freight company in breach of sanctions[1] imposed at the time of the Ukraine war and annexation of the Crimea.

This illustrates the difficulty in doing business with Russia. Sanctions were imposed against Russia by the US before the Ukrainian crisis. In 2012, following the death of a Russian tax accountant in prison in 2009, the US passed a law which prohibited some 18 officials it deemed responsible for his death, from entering the country or using its banking system. In 2016, the US passed the Global Magnitsky Act, this enabled sanctions to be imposed on foreign government officials implicated in human rights abused anywhere in the world. In December last year this added 13 additional names to the sanctions list, not just Russians this time.

Meanwhile, during this time, the EU-US sanctions imposed because of the Ukrainian crisis were extended and joined by other countries, despite being subject to demands for lifting by Hungary, Poland, Czech Republic, Greece and Switzerland amongst others. New sanctions have been imposed and there is a bewildering list of individuals and organisations with whom you cannot do business as the UK has joined some of the sanctions imposed.

Credit: Global Panorama

What started with the USA’s sanctions, imposed because of the Ukrainian crisis, and supported by the EU and some other countries, against individuals, businesses and organisations in Russia and the Ukraine, has gained a life of its own. There is a vast list of countries that have imposed sanctions. Russia has responded with its own sanctions, including a total ban on food imports from USA, EU, Australia, Canada and Norway.

The imposition of sanctions are widely believed to have caused the collapse of the Rouble in 2015, an estimated loss of over 100 billion Euros to Russia and an internal financial collapse. In 2016, the US imposed further sanctions against Russia for its interference in US elections and, in August 2017, passed the Countering America’s Adversaries through Sanctions Act. Importantly, this stops the lifting or easing of sanctions without Congressional approval. It brought in Russian involvement in Syria also.

The close alliance of the UK with the US, particularly in relation to Russia and its moves in Syria, mean that doing business with Russia, is potentially hazardous. If you at any point cross swords with US sanctions, despite being in the UK, you could cause yourself a problem in the future. Do you want to get arrested the next time you are at Shot Show?

Starting to trade with Russia? I would have to ask: why bother? There are other, better, less hazardous markets to be gained for your products first. If there are Russian products you are desperate to sell, buy them from an authorised distributor in the UK.

But do not under estimate the prospect of falling foul when sending or receiving funds to and from Russia as Russian banks are on the list of businesses included in sanctions. You will, no doubt be told that you can deal via Cyprus but, unless you want to bring yourself under the severest scrutiny, I would advise against this.

If and when, sanctions are lifted, to sell in Russia, you need a Russian distributor, not just to deal with the normal, commercial sale and distribution of product but also the bureaucracy and, I suspect, the “irregular permissions.”

On the other side of the coin, buying from Russia has been in the past relatively easy however the choice in sporting guns is limited. Although, in recent years, there have been many, small producers of airguns. Specifications of these vary widely but of commercial concern is the ability to obtain spares. But all of this I suggest should be a worry for a dim and distant future.

Visit www.gov.uk for a list of embargoed military weapons and dual-use products to trade.

[1] www.theloadstar.co.uk – 16 February 2018

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