Mike Graham had heard about Russia’s cash economy, but on a business trip to Moscow he was still taken aback to be handed a brown paper bag filled with US dollars after securing a $25,000 export order for electric security fencing.
Fortunately his client, specialist bank security company IRA-PROM, also sold banknote counting machines, saving him the job of manually checking the bundles of cash.
Graham’s Auckland-based JVA Marketing is one of a growing number of New Zealand businesses targeting the enormous spending power of Russia’s 141 million consumers.
New Zealand Trade & Enterprise (NZTE) covers Russia from its Hamburg office and consul general and trade commissioner Jen Scoular says interest in trade with Russia has picked up over the past eight months, albeit from a low base.
In 2008 New Zealand sold $229 million worth of goods to Russia (up from $156 million the previous year) making it our 38th largest export destination, but trade remains below levels achieved in the late 1990s and is still heavily dominated by butter and meat.
The Russian economy, which grew an average of 7% annually in the decade to 2008, has felt the impact of the global economic crisis and GDP growth is expected to fall 7.5% this year.
However, Scoular says it is anticipated Russia will come out of the recession sooner than other countries because it was hit early on.
“When we talk to people in Moscow we hear that some of the oligarchs have lost a significant amount of money, but at the end of the day the middle classes are still affluent and still consuming.”
According to NZTE, areas offering opportunities for New Zealand exporters include food and beverage products (Russia is the eighth largest grocery market in the world), hi-tech cold weather clothing, and agricultural technology to support the Russian government’s goal of boosting farm output.
Old Russian hands like Rocklabs founder Ian Devereux say while Russia has huge potential for experienced exporters, it is a very challenging market and no place for novices.
For starters language is a major barrier because older Russians running companies or placing orders often do not speak English at all, or not well enough to do business.
Devereux’s breakthrough in selling laboratory equipment to the Russian minerals and metals industry more than a decade ago came after he hired a Russian geologist who had been driving taxis in Wellington, and through him developed a relationship with an excellent distributor in St Petersburg.
For exporters needing help in making Russian contacts, assistance is available from the Russia-New Zealand Chamber of Commerce, established just over 12 months ago to forge links between companies in both countries.