Understanding German trade interests in Russia
Dear Reader,
In recent weeks we have heard a lot about the German government still being reluctant to put the lives of Ukrainians civilians ahead of its own economic interests.
Last month I looked at energy dependency and at how much German industry relies on natural gas.
There is another aspect to this too, though. Ukrainian officials have called out German companies for refusing to end their business interests in Russia.
Alexander Rodnyansky, an advisor to the Ukrainian president, has said that German companies like Bayer and Henkel are helping to finance the Russian war.
So, what role do trade relations play? I’ve put together some charts and background information that might be enlightening.
How important is trade with Russia?
The above chart shows that the value of German trade with Russia actually peaked at €81 billion in 2012 before the EU imposed sanctions over the annexation of Crimea. In fact, energy prices have had more of an impact on this trade relationship than sanctions.
Because of the fact that fossil fuels make up roughly 60% of German imports from Russia, the value of trade is highly dependent on global energy prices. This explains the peak in 2012 and the slump in 2020 when oil prices hit an 18-year low.
How important is Russia to German businesses in the grand scheme of things though?
Russia is Germany’s fourth largest trading partner outside the EU. But it is not nearly as important as China or the US.
How important is trade with Ukraine?
Ukraine is becoming a more important trading partner, but the value of trade is still much smaller than that with Russia.
Total trade with Ukraine last year reached a value of €8.5 billion, ranking it 41st on the list of German trade partners.
Since the EU signed a cooperation treaty with Kyiv in 2014 in which the two sides agreed upon the progressive elimination of customs duties, overall trade has increased. According to the Bundeszentrale für politische Bildung, the collapse in Kyiv’s trade with Russia since the annexation fo Crimea has been made up for by closer ties with the EU.
Last year’s figure of €8.5 billion of trade with Germany was a new record.
While Ukraine is primarily associated with grain production, car parts are becoming an important source of revenue. Ignition cables were the second most valuable export to the EU in 2018 after corn.
Business interests on the ground
The importance of Russia to German businesses in comparison with interests in Ukraine can also be seen in terms of foreign direct investment.
Last year some 470 German companies employed 130,000 staff in Russian and generated €38 billion in revenue.
At the same time there were 164 Russian-owned companies operating in Germany. While they employed relatively few people (8,100 employees) they generated a handsome €31.6 billion in revenue. Among these companies was the Gazprom subsidiary Gazprom Germania, which typically generates over €20 billion in annual income. (The German government took over the management of the Gazprom subsidiary this week in order to protect key infrastructure.)
By contrast there were just eight Ukrainian companies with operations in Germany with combined revenue totaling just €41 million.
German investments in Ukraine have been expanding quickly in recent years. In 2019 German companies generated €4.1 billion in the former Soviet state - a 90% increase on three years previously. Still, with 37,000 local staff, this is small compared to investment in Russia.
Lobbying by German industry
There is no doubt that German industry pushed the Chancellery for years to deepen economic ties with Russia and end the sanctions that had been imposed after the annexation of Crimea.
As recently as December, the German-Russian Chamber of Commerce ran a survey which showed that 36% of its members wanted an immediate end to all sanctions, while another 57% wanted the new government to start lifting them step-by-step.
“The sanctions against Russia have now been in place for seven years. German companies doing business with Russia continue to see them as one of the biggest disruptive factors,” the chamber’s chairman, Mattias Schepp, said at the time.
Since the beginning of the war some major German firms, such as Volkswagen and Mercedes, have said they will pull out of Russia.
Others have chosen to stay there and some are still lobbying the government to put the brakes on the type of sanctions that many observers believe could truly hurt the Kremlin.
The chemicals giant BASF for example has chosen not to close its operations in Russia. Meanwhile its CEO, Martin Brudermüller, has made the alarmist claim that an energy embargo would “destroy the German economy” and unleash “the worst economic crisis since the Second World War.”
Economists believe that such an embargo would lead to a drop in output similar to that seen at the start of the pandemic.
Other German companies which have chosen to remain have argued that their business is essential for the wellbeing of ordinary Russians. Pharmaceutical company Bayer and the supermarket Metro have both said that they would be putting the welfare of their Russian customers at risk were they to pull out now.
Chocolate manufacturer Ritter has claimed that stopping its business in Russia would put African coco famers out of work.
I think you may not have been here in the 1990s. At that time there was a lot of good will to get Russia transform itself from a failed communist state to a democracy exercising captitalism. The 90s were a free for all and the role of Putin privatising state-owned companies first in St. Petersburg and then later for all of Russia for Jelsin. He sold these companies to his future oligarchs, who often were Russian mafia. They had the money to buy companies since the communist world was a closed system and they had a lot of cash to spend. During the 90s Germany assisted Russis setting up production plants and helping them to start companies. So at that time an interest n Russian energy seemed to be helping Russia on the road to capitalism. What the West failed to realise is how Putin bit by bit rolled back the beginnings of democracy and instituted his kleptocracy with himself as the head autocrat. Reading on this Fiona Hill's book on Putin and Mascha Geesen's book the Man with No Face: Vladimir Putin. The West meant well but the Russians have reverted back to allegiance to a strong man as they did under the Tzars, Lenin and Stalin.