Economy, Business And Markets

Opportunity Beckons as Russia Nixes Turkish Imports

Opportunity Beckons as Russia Nixes Turkish ImportsOpportunity Beckons as Russia Nixes Turkish Imports

The Russian government has announced the preparation of a list of countries that can replace Turkey to supply goods imported by the country.

Russia has targeted Turkey’s economy with a range of sanctions in retaliation for the Nov. 24 downing of a Russian fighter jet near the Syria–Turkey border by the Turkish air force.

Rosselkhoznadzor, Russia’s agricultural and food security watchdog, said all agricultural and food products imported from Turkey would now be subjected to laboratory checks and the country’s consumer protection agency, Rospotrebnadzor, said it had pulled Turkish products, including meat and fruit, from shop shelves following health safety checks.

Experts believe this would open up a golden opportunity for Iranian traders and farmers to send their agricultural products, dairy, leather and even clothes to the neighboring country and expand Iran’s non-oil exports, the Persian weekly Tejarat-e Farda reported.

Asked about hurdles in the way of Iran’s exports to Russia, Qadir Qiyafeh, the deputy head of Iran-Russia Chamber of Commerce, said, “To begin with, we need to assess our capabilities. Given Iran’s agro infrastructure, it is highly improbable for us to be able to meet all their requirements, but it is possible to partly satisfy their need for agricultural products.”

In Iran, production has always been aimed at meeting domestic needs, therefore the infrastructure needed for exports has not been established adequately.  

“Another barrier is the financial limits for exports. Iranian producers have to take out loans at interest rates of 30%, which reduce their profit margin and consequently dampens their motivation. This is while banking facilities in China are granted at interest rates of 1.5%,” he said.

“Transportation and shipping infrastructures for food and fruit exports are weak, making transit expensive.”

The official said Iran is facing a shortage of refrigerated trucks and freighters for transporting food and meat products.

“Our products are only competitive at factories. The closer they get to the ports, the more they lose their economic viability,” he said.

Qiyafeh also recalled Russia’s high tariff rates on Iranian imports as the main hurdle in the way of trading with the neighboring country.

Russia offers zero tariff on items it imports from neighboring countries, hence Iranian goods are first transferred to one of these countries before being shipped to Russia—a process that is costly and uneconomical, according to the Iranian official.

  Missed Opportunity

A bit of history is instructive. Food import restrictions, which are often blamed on health code violations, are a time-tested weapon for the Russian government.

After western countries imposed sanctions on Russia, Moscow retaliated last year with an all-out ban on their food products. But Iran failed to capitalize on that opportunity and transactions with Russia stayed around the same $2 billion of recent years.

Turkey had been one of the beneficiaries of Russia’s food embargo against the West then. In 2014, bilateral trade in agricultural products increased by 19% to $4 billion as Turkish shipments of fruit, vegetables and nuts to Russia grew. This time around and in the absence of Turkey, can Iranians meet the Russian demands?

Asadollah Asgaroladi, chairman of Iran-Russia Trade Commission, says Tehran can bank on Moscow’s unwillingness to participate in economic activities with Ankara as an opportunity to increase trade with Russia and outdo other rivals such as Egypt.

“We could increase trade with Russia from the current $1.6 billion to $3 billion in the next four months,” he said.

But he echoes Qiyafeh’s remarks on the barriers down the road and said, Russia’s selective approach in setting tariff rates should be replaced by a preferential trade tariff with Iran.

Asgaroladi said tariffs on Iran’s exports to Russia stand at 5-15% while Azerbaijan Republic, Armenia, Georgia and Kyrgyzstan pay nothing for their exports.

He also believes that trade visa validity for both Iranian and Russian traders must be extended to one year, adding that the Russians have promised to resolve this problem in the latest meeting of Iran-Russia Trade Commission in Moscow three weeks ago.

Referring to the sanctions western countries imposed on Russia over the Ukraine crisis, which reduced the value of their currency, Asgaroladi said Russia’s payments in rubles is constantly affected by currency fluctuations.

“Trade with Russia is hobbled by the limited number of banks tasked with carrying out banking exchanges with Iran. Iranian exporters can’t wait long to receive their rubles. Otherwise, they would incur losses due to the continuous depreciation of the ruble,” he said.

Latest data show Iran exported 296,422 tons of goods worth $92.5 million to Russia in the seven-month period ending October 22, which registers a 52.52% drop in terms of weight and a 40.85% decline in terms of value compared with last year’s similar period.