Russia Seeks a Bite of LatAm

Russia’s Foreign Minister Sergey Lavrov courted Cuba, Nicaragua, Colombia and Guatemala during his four-day visit to the region in March 2015 to boost bilateral trade, as food shortage is hitting hard the country.

Last year, Moscow banned for one year agricultural products from the European Union, the United States, Canada, Norway and Australia, in an economic war. The U.S. is isolating Russia for its policies in Ukraine, where a bloody conflict still rages, and for the annexation of Crimea in March 2014.

Embargoed products include beef, pork, poultry, fish, cheese, milk and dairy products, fruits and vegetables.

This radical policy has led to significant losses for Russia, which heavily depends on food imports to feed its 143.5 million stomachs.

In 2013, Russia imported nearly US$23 billion worth of the banned products from the United States and the European Union mainly, according to Trade Map data. Europe is Moscow’s largest trading partner.

Products like French cheese, German sausage, Norwegian salmon or basmati rice have today vanished from Russian supermarkets.

Russia’s economy is going through the worst turbulence in President Vladimir Putin’s leadership due to Western sanctions as well as plummeting oil prices. Inflation runs at 10% and living standards have significantly fallen.

The Russian central bank imposed a steep interest-rate hike to halt the ruble’s collapse – it lost more than 45pc of its value against the dollar since the beginning of 2014.

Food scarcity in Russia, opportunities in Latin America

Lavrov hence met with presidents Raúl Castro in Cuba, Juan Manual Santos in Colombia, Daniel Ortega in Nicaragua and Otto Pérez Molina in Guatemala, to get agricultural goods denied to the Russian market – behind the diplomatic rhetoric.

It is his second visit to the region since the war in Ukraine broke out.

During this 24-hour visit to Guatemala, the Russian envoy reaffirmed Moscow’s continued support for the Central American nation. He also lambasted the United States’ sanctions against Venezuela and called for ending the American trade embargo on Cuba.

He also said that Russia wanted to set up a regional center to train Central American security officials to fight drug trafficking and terrorism.

In Nicaragua, Lavrov suggested that Russia might be keen to help build a waterway to rival the Panama Canal.

In Colombia, the Russian foreign minister and his counterpart agreed to increase bilateral trade, without saying by how much.

“We want to expand that market [Russian] and to work together [taking advantage of] the different opportunities. We all have a job to do, but also a commitment to improving trade relations,” said the Colombian Foreign Affairs Minister Mary Angela Holguin.

Lavrov expressed Moscow’s willingness to be a pillar in the development of a multipolar world order. He sought to build ties with regional unions like the Southern Common Market (MERCOSUR).

“The selection of countries is based on the USSR’s old links with the region,” said Sergio Berenzstein, a political analyst in Buenos Aires.

Communist Cuba and sovietico-sandinista Nicaragua are the United States’ historical foes and Russian allies. In 2002, Russia and Nicaragua inked a deal to ax the Central American country’s debt with the USSR.

Russia is reaping the benefits of the anti-imperialist and anti-American tendencies of these populist governments – aside from Colombia.

Yet, Nicaragua, Colombia and Guatemala are above all a pragmatic choice as Russian senior officials rarely visit these countries.

“There is a need to negotiate visa-free travel – it it hasn’t been introduced already – and expand bilateral trade,” explained Igor Danchenko, Program Research Manager on Russia and Eurasia at Sidar Global Advisors, a markets research company in Washington D.C.

Food supplies wanted

“Russia’s goal is to turn to new food suppliers as well as promote Russia’s technology and energy in developing countries with shortcomings in these areas,” said Matias Garcia Tuñón, Coordinator at the Russian Argentine Chamber of Commerce and Industry in Buenos Aires.

Boosting trade with Latin American countries would help Moscow get the foreign reserves it needs for exports while the breadbasket region would reap the benefits of a larger consumer market.

For instance, Nicaragua exports meat, seafood, milk, cheese, peanuts and coffee to the Russian market. Moscow is interested in importing vegetables and tropical fruits it cannot grow due to its harsh climate.

Since 2013, both countries began negotiating a free trade agreement as exports to Russia are relatively low. In 2013, Nicaragua exported over US$18 million to Russia – it is still a one-third increase compared to the previous year.

Cuba – Russia’s largest sugar cane supplier – exports citrus, concentrated juices, rum, tobacco and drugs in exchange for oil, auto parts and machinery and fertilizers. Russia is Cuba’s 10th trading partner.

The trade balance between the two economies grew by 17% during the first six months of 2012, compared to the same period in 2011, when it reached US$224.7 million.

Guatemala remains an under-developed market for Russia – although Guatemalan goods enjoy customs preferences in the federation since 2007. In 2013, the Central American country exported about US$29 million worth of products to the Russian market and imported about US$72 million.

Guatemala exports sugar, coffee, tobacco and cardamom to Russia and imports fertilizers, steel and zinc.

Finally, Colombia exports coffee and flowers (almost 60% of all exports) to Russia while Moscow supplies fertilizers and technology. Both countries are also in talks for a free trade agreement since 2013.

Moscow’s strategy in Latin America

Clearly, Moscow will not rely on these four markets only as they are too small to feed Russian customers.

Besides, distance is a challenge. “The logistical challenge to send to Russia perishable goods is mainly the time for maritime transport to San Petersburg (Russia’s main port with Vladivostok and Novorossijk),” explained Mr. Tuñón.

“If we estimate an average of 30 days for sea transit, in addition to the time to produce the food and sell it in Russia, it is very complicated to commercialize short-life products,” he added.

Air transport would be an interesting – albeit costly – option because Russia wants to minimize imports’ extra-costs.

Although Moscow expects to capitalize on long-term relationships with Latin American countries, “Russia’s position in Cuba is destined to weaken because of sheer proximity to the United States and a large Cuban diaspora [there],” said Mr. Danchenko.

In addition, “since Latin America can’t be an alternative source of loans to replace the West and China/Asia, interests are limited,” he added.

 

This piece was published in International Finance Magazine on April 2, 2015. Click here.


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