Economic impact of Russian ire unclear, though several companies to take a hit

  • 2007-05-09
  • By TBT staff

BARRED CHOCOLATE: Estonia's famous confectionery, Kalev, saw its candies and chocolate swept off Russian store shelves, though company executives are downplaying the loss of the eastern market.

TALLINN - Now that the dust has settled from the unprecedented rioting and mayhem in downtown Tallinn, economists and businessmen are waiting to see the extent to which an enraged Russia will punish the Baltic state for its decision to relocate the World War II monument and grave. By May 8, it was clear that individual Estonian exporters would definitely lose the Russian market for their products, while the outlook for the transit industry, which relies heavily on Russian exports, was still murky.

According to one report, Russia was set to slash exports of oil products via Estonia over the next couple months. An industry insider told Reuters that Russia's exports of oil products to Estonian ports by rail would be reduced by 2 million tons, which is slightly less than one-half of April's total cargo turnover in Estonia (including coal, timber, fertilizer and containers).
By contrast, Russia exported 1.9 million tons of oil products via Estonia in March.
The source said cargo owners had begun redirecting exports via St. Petersburg, whose port is however already reaching capacity.
At the same time Russian Railways said it was not closing its route to Estonia, while Eesti Raudtee (Estonian Railways) said that the May delivery schedule has not been amended.

Speaking May 3, Prime Minister Andrus Ansip expressed confidence that Russia could not impose sanctions on Estonia since the Baltic state is a member of the European Union.
He did, however, admit that administrative instruments could be used to divert transit flows in other directions. But even this would have minimal impact on the Estonian economy, which was the second strongest in the EU last year in terms of GDP growth.
"Not a lot of people are engaged in the transit sector, and possible job losses would be modest and the effect on the Estonian state budget practically non-existent," Ansip told reporters, adding that an affordable, high-quality service would eventually keep Russia's exporters in Estonia.

Ansip also played down the fears of a boycott of Estonian goods and services, which has been reported in the Russian media, since many Estonian-made goods were not sold with a "Made in Estonia" label. As an example, he said Estonian fish producers recently circumvented a Russian ban by exporting to Belarus and Ukraine, which in turn sent the product to Russia.
"Inconsistent threats like that are made to get businesspeople active in Estonia to become their allies and get them to act against the Estonian government and sow panic among residents," Ansip said.
Economy Minister Juhan Parts said that a transit blockade would backfire and hurt Russia. "Roughly speaking, the transit blockade would not affect the Estonian economy but rather specific businessmen, above all Russian entrepreneurs as well as Russian state budget revenues," Parts was quoted by the Baltic News Service as saying.
Rather than evoke concerns from Brussels, with which Moscow is preparing a major summit in Samara this month, the Kremlin is likely to apply a system of "peer pressure" among Russian companies to get them to unilaterally alter their business dealings in Estonia.

It has already yielded its first results. Acron, a Russian developer of fertilizer terminals in the Sillamae and Muuga ports, announced on May 4 that it would suspend further investments following the Bronze Soldier ordeal. Estonia stands to lose a new 50 million euro fertilizer terminal due to the decision.
"Understanding the significance of the events related to the relocation of the monument, we are forced to suspend the financing of our investment projects in Estonia until the situation is settled," the company said in a statement. The company's management slammed Estonia's actions, saying they "violate universal human and democratic principles."
Acron holds an 85 percent stake in Baltic Chemical Terminal, a company that handles liquid mineral fertilizers in the Sillamae Port. Last year the company was granted building rights for 50 years in the eastern part of the port.
Port of Tallinn officials were cautious in their assessment of a de facto embargo. He said there were indications that transit volumes would decline, though no official information had been received.

Kalev, Estonia's leading confectionery and a traditional favorite in Russia, will suffer. The company announced May 3 that its Russian clients canceled their distribution agreement, effectively depriving the Estonian company of the eastern market, which accounted for some 50 million kroons (3.3 million euros) annually.
Still, sales in Russia account for only 7 - 8 percent of Kalev's total sales. Owner and CEO Oliver Kruuda put a positive spin on the development, reminding that Kalev had once declined to build its own production and distribution system in Russia, which at one point had been discussed.
Noo Lihatoostus (Noo Meat Processing Plant) has reportedly admitted receiving a letter from its Russian distributors banning the sale of Estonian meat.

"Russian retail chains received a letter from that country's veterinary department on Wednesday [May 2] saying that Estonian meat products do not correspond to valid requirements," manager Toomas Kruustuk told the Postimees daily.
The company on April 29 canceled a shipment to its St. Petersburg partner, a retail chain, and is not going to ship the next scheduled batch on Monday either.
The meatpacker, based near Tartu, produces some 40 tons of meat products weekly and started exporting to Russia two years ago. Recently monthly sales of sausage in Russia amounted to 3 - 4 tons.