RIAC, a leading Russian think-tank is holding a series of round tables devoted to changes that COVID-19 is bringing into relations between the economies. CREON participates and sees new business opportunities opening up despite the political contradictions globally. The key points to focus include changes in trade and investment, relocation of production, and green transition. Fares Kilzie, head of the Group, has published his input into discussion.
Source: CREON Group
Contradictions are inevitable in politics, they drive changes, and hence capital growth opportunities for businesses. The main tenet businesspeople and investors understood at the very beginning of current crisis was Donald Trump’s statement that the final breakdown in relations with China would save the United States $500 billion a year. These were the words of the American president.
I am sure that these words do not belong to Trump himself, but the institutions that determine new economic model. Business realized that the economic reality of the next decades is the withdrawal of large industrial corporations from the Chinese market. At the same time, American companies are likely to develop the Indian subcontinent, while European business will try to relocate production capacities from China back to Western, Central and Eastern Europe.
Central and Eastern Europe coming to the forefront of the EU
Overall, Trump’s words are true: China as a manufacturing site has become a disadvantageous partner for both the United States and the European Union, since the level of development of the Chinese economy has grown significantly, and the level of wages has caught up with countries such as Albania, Romania or Slovenia. India has come to the fore as a promising manufacturing site. Over several years many Western European countries have been practicing investment opportunities in the countries of the Balkan Peninsula, in Central and Eastern Europe. They have been increasing their presence in this regions and simultaneously reducing the financial burden these countries receive in the form of aid.
Changes in the global distribution of labor have great potential for Russia. In the new formation, the country has a chance to go beyond the traditional framework of commodity trade and replace free niches in the production chain, becoming a supplier of intermediate goods, structural features and components. Imagine that the pattern of development that we witnessed in China over the past 20 years will be repeated in Russia.
Regarding the Balkans and, more broadly, the countries of Central and Eastern Europe, the region can become a springboard for expansion of economic cooperation between Russia and the EU through joint investments in industrial production. At the same time, Russia will remain the main supplier of hydrocarbons to the European market anyway. These strengths of our relationship need to be deepened and expanded.
Relationship will be mutually beneficial, but their tone will remain cool
At the same time, the tone of relations between our countries will remain cool. There will no longer be the warmth had been before. But there is no need for it: based on hard business deal, Russia and the European Union would be able to build completely understandable and transparent relations. This pragmatic approach will rather increase opportunities for joint investment in Central and Eastern Europe.
Particular attention should be given to the green transition process of the economy and concerns about its success due to collapsed oil prices. The CREON Group is directly involved in environmental issues, annually evaluating the efforts of oil and gas companies to greening on the basis of the “Transparency Rating of Environmental Responsibility” jointly conducted with WWF Russia.
Today, the EU is providing enormous funds to tackle the economic impact of the COVID-19 pandemic. I am sure that most of these funds will be spent specifically on sustainable development, green technologies and greening the industry. In terms of level of financial injections, the current situation is comparable to the crisis of 2008, when the principal recipient of aid was the allegedly unprofitable shale industry in the United States, which made a giant leap over the next 10 years.
Green technologies in Europe would have similar support and success. €500 billion French-German initiative has already been announced (there will be more), and this does not pose a threat to the interests of the Russian economy. Although a green economy will reduce hydrocarbon consumption in certain segments, this will not affect the demand for oil and gas in European industries. Other hydrocarbon suppliers would be affected more likely due to high logistics costs.