Last year, Polish exports to Ukraine increased by almost a quarter. In turn, the value of sales of goods from Poland to Russia returned to the level before the annexation of Crimea eight years ago. I predict that this time the collapse of exports as a result of Russia’s current aggression against our neighbor will be incomparably deeper. The effects will be felt not only by companies directly involved in trade with the East, wrote in the comment Jakub Makurat, country manager Poland, Czechia, Slovakia, Baltic States, Ebury
Serious delays in payments, unrecovered receivables, cut off from credit limits and insurance of receivables, the breakdown of some supply chains, logistic problems and a sharp increase in transport costs – these consequences of the Russian invasion must be taken into account primarily by Polish entrepreneurs who have been trading with Ukraine in recent years , Russia or Belarus.
Meanwhile, only last year Polish exporters sold products worth PLN 36.6 billion (+ 15% y / y) to Russia, PLN 28.9 billion (+ 24% y / y) to Ukraine, and PLN 8 billion to Belarus (+ 13% y / y) y / y). In the case of Russia and Belarus, these values returned for the first time to the levels prior to the occupation of Crimea by Russian troops in 2014.
The products exported to the East were dominated by, among others, machinery and equipment, chemical products and ready-made food products.
This time, however, we are dealing with a completely different scale of aggression and devastation in the economies of both countries. The scope of the fighting is much wider, the sanctions against Russia are much more serious, and their effects are much more severe. The reputational risk should not be forgotten either – companies wishing to maintain trade with Russia and Belarus must take into account a high risk of boycott by consumers all over the world.
Simply put, everything related to the aggressor will be treated as toxic for a long time to come.
The drop in exports is much deeper than in 2014. The first effects are already visible
I know directly from entrepreneurs that Polish exports to eastern markets have stopped sharply, and in the coming months it will most likely experience a permanent slump. However, it is not about a decrease of about a third, as was the case after the annexation of Crimea. This collapse will be much deeper and will last longer. All the more so as Belarus has just been affected by trade sanctions after Russia, which has supported the Russian aggression in Ukraine. We are only one step away from the rematch of these countries and the introduction of another Russian embargo on further Polish and European products. The prospect of importers seems to be even worse, because here there is public outcry about indirect financing of the Russian budget, and thus spending on war.
Shortly after the beginning of the Russian aggression against Ukraine, it was mainly those Polish entrepreneurs who were in the process of executing commercial orders with partners from eastern markets facing a difficult situation. These are, for example, importers who have transferred prepayments to their suppliers’ accounts in recent weeks – they must take into account that they will not receive the ordered goods on time, and perhaps never again.
The problem was also the recovery of receivables after the goods had been shipped to contractors. Already on the first day of the war, Ukraine introduced a payment moratorium – thus preventing, inter alia, entrepreneurs to carry out foreign transfers. The sanctions and the mere announcement that Russia would be cut off from the interbank SWIFT system also raised a number of concerns about the recovery of Russian receivables.
These events were quickly reacted by export receivables insurers, including KUKE, which insured the receivables of around 1,000 Polish entrepreneurs trading on the Ukrainian and Russian markets.
According to Janusz Władyczak, president of KUKE, recent events have forced financial institutions to cancel credit limits for companies selling to Ukraine and Russia. At the same time, KUKE made it possible for its clients to extend the time of payment of receivables by their contractors. This can make a big difference in maintaining business relationships as soon as fighting is over and some payment moratoria are lifted.
These are valuable activities, because the problems of companies with a very large business exposure to the East may cause a classic domino effect in the entire economy.
Will the recent SWIFT blockade actually cut off Russia from international trade?
First of all, in view of the many erroneous information, it is worth explaining that under the currently implemented decisions, this will not lead to a complete suspension of financial transfers. Why?
First, the widely discussed cut-off of Russia from the SWIFT system will not enter into force until March 12. It will only cover seven Russian banks, not all of them. Secondly, it is worth remembering that the so-called exclusion from SWIFT is not tantamount to complete exclusion from foreign transfers. You it is enough for Russian banks to launch other channels of communication with foreign entities (which is technically feasible) to carry out transactions.
The implementation of Western trade restrictions imposed on Russia and Belarus will, on the other hand, be a huge challenge for banks and payment institutions, which are obliged to monitor their clients’ transactions as part of their compliance activities.
In practice, each payment institution will very carefully analyze the transactions of customers and their business partners, e.g. to suspend the transfer to or from the sanctioned entity in time. This is an extremely difficult task, because the suspension of the transaction requires confirmation in a number of documents to prove, for example, that the goods – for which the payment is made – have been subject to restrictions, or that the owner or a person in the management of a particular company is on the “black list”. Therefore, the effectiveness of the implementation of the sanctions imposed on Russia and Belarus is partly in the hands of financial institutions.
Regardless of this, Polish companies should remember that trading with contractors from these countries poses a risk of serious delays in the execution of transactions.
War across the eastern border. Is it time to look for new markets?
Regardless of the emotions that have been bothering us for several days, Russia’s attack and its long-term consequences for Polish foreign trade seem clear today. Every Polish company that imports or exports to Russia and Belarus should completely re-evaluate the risk of doing business. It is worth answering the following questions immediately:
• Does my company have significant direct or indirect trade ties with Russia and Belarus?
• Does he trade in goods that have been or may be subject to sanctions or embargoes?
• Does it have cash on hand and will it remain liquid in the event of further escalation?
• Is it in danger of losing raw materials from the East?
• Are the logistics chains secure?
These are fundamental issues that entrepreneurs should consider today. But one action is obvious: Polish companies, so far associated with eastern markets, should start looking for alternative markets or new suppliers in their own interest.
In this context, the declaration of KUKE seems to be very important: “To entities that have been cut off from supplies from Russia, Belarus or Ukraine, and who are looking for alternative suppliers of raw materials or components they need in other countries, we can offer payment guarantees that will make them credible in the eyes of their new business partners. . At the same time, in consultation with other support institutions, such as PFR and PAIH, we analyze the possibilities of supporting Polish entrepreneurs, among others by helping to find new markets. There is also a question to consider offering temporarily lower insurance costs to markets outside the EU to encourage exporters to expand into other destinations, but in a safe manner. ”
In addition, entrepreneurs should remember that the war in Ukraine means that the zloty will continue to fluctuate strongly, as will fuel and energy prices, and the prices of raw materials will be high. In practice, this means that we should expect further interest rate hikes – and, as a result, higher costs of loans.
There are several difficult years ahead of Polish enterprises. History shows that it is worth making the first strategic decisions today – as usual, those who are more agile and faster than the competition will win.
Source: Ebury and ISBnews
