Closer CIS economic ties: What next?

The development of a free trade zone across the CIS nations is likely to have major benefits for Russia including increased exports and investment, as well as a larger stage for the rouble according to key economists.

The signing of an agreement between Russia and former CIS nations in St Petersburg will benefit Russian companies, already familiar with much of the terrain with the increased scale of trade the biggest upside according to Aleksey Devyatov, chief economist at Uralsib Capital.

“Increased trade turnover between the countries is the first and most obvious advantage.”

Chief economist at Otkrytie FC, Vladimir Tikhomirov, says the familiarity of Russian companines and products, plus extensive use of Russian in the zone will be a major benefit to corporate Russia.

“Russian goods will certainly be in a favorable position, as all the countries that signed the agreement are former USSR states, where Russian goods are well known and popular. Sure there also be increased imports from those countries but we’ve always exported more there. So, we will retain a positive trade balance with them.”

Tikhomirov added that the larger market Russian companies will now be participating in will encourage global investment.

“I don’t think this agreement will influence Russia’s investment attractiveness any time soon, as making the country a more attractive destination for foreign investors is more a subject of a more transparent and more investor friendly domestic legislation. However, in a longer run the companies that have always wanted to get access to these markets could start opening up their representative offices here more actively.”

Uralsib’s Devyatov, says the creation of a Free Trade Zone could be the start of a much larger process.

“I want to believe this decision to create a free trade zone with some of the CIS states is the first step of something bigger – a currency union or something else. A single state in a post Soviet area would be very good, as a breakdown of USSR was a disaster for the economies of the countries of the Union. I think, Russia should consider the experience of the European Union, learn its mistakes and don’t repeat those. Namely, to set a currency union without having a single fiscal policy was that very dramatic mistake that resulted in the current Eurozone turbulence.”

But Devyatov also added that Russian companies will need to increase their competitiveness if they are to become bigger players in markets they will have increased access to, and that they may not become bigger players in the new markets.

“Investment into other CIS countries will increase to some extent, but I don’t expect any dramatic change. There’s a tendency of Russian companies moving their businesses to other countries, as high taxes and corruption don’t let them work efficiently here in Russia. But even given this tendency I don’t expect a massive flow of Russian countries relocating their businesses to the CIS countries, as Russian products are still not competitive enough to perform well in those markets.”

Both economists thought that the rouble will benefit from greater regional usage with Devyatov noting, “I think, increased volumes of trade in Russian goods will certainly strengthen Roubles position in an international arena,”but Tikhomirov added that further bilateral agreements would be needed before the Russian currency became more globally prominent.

­James Blake, Anastasia Kostomarova, RT

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