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Slovakia to feel sanctions
7 Aug 2014 Beata Balogová Business
RUSSIA responded to recent sanctions, the toughest imposed on the country by European Union and the United States since the Cold War, with a one-year embargo on food imports from the EU, the US, Australia, Canada and Norway on August 7.
Though Russia is not a key partner for Slovakia in agricultural commodities, Slovak farmers worry that the embargo might still affect the domestic food producing segment. Slovakia exports beef and other food products to Russia, which is by far the largest importer of fruits and vegetables from the EU. The Russian embargo applies to fruit, vegetables, milk and dairy products, meat and fish imports.
“The Russian embargo might also threaten those Slovak agricultural and food entities which do not directly export goods to this country,” Stanislav Nemec, the spokesman for the Slovak Agricultural and Food Industry (SPPK), said in an official release, adding that the EU is one of the biggest trade partners of Russia and the halt of exports will result in “unavoidable redirection of the embargoed goods to new markets, including that of Slovakia”.
According to Nemec, all this might result in an increase of imports and throw obstacles in the way of domestic production, while creating pressure on a drop in prices, which might “existentially threaten several domestic producers”.
Foreign trade results for the agricultural sector in 2013 suggest that exports to EU countries made up 96.6 percent, while 3.4 percent of Slovak exports fell to other territories, including Russia, the Balkans, China and elsewhere, the SPPK said.
The Slovak Agriculture Ministry said on August 7 that though it cannot predict the scale of possible sanctions taken by Russia towards the EU, it is taking some precautions.
“With immediate effect we are making border checks stricter so that the imported food products meet all the norms valid on Slovakia’s territory,” said Radka Kulaviaková, spokeswoman for the Agriculture Ministry, as quoted by the TASR newswire.
In response to the sanctions, Russia is also closing its skies to EU airlines, which could also negatively impact Slovak travel agencies, the Slovak Association of Travel Agencies (SACKA) suggested, as quoted by the SITA newswire.
The EU and the US imposed a third round of sanctions against Russia on July 29 after ambassadors from the 28-member EU bloc agreed in Brussels to restrictions on the trade of equipment for the oil and defence sectors, and “dual use” technology which have both a defence and civilian purpose, Reuters wrote.
Slovakia might well feel the impact of the sanctions, which in addition to specific individuals or organisations, directly target entire sectors of energy, banking and defence. Should the sanctions last long, analysts suggest that it is Slovakia’s defence capabilities that might suffer most.
Russia’s state-run banks have also been banned from raising funds in European capital markets.
No Slovakia-based banks involved
In Slovakia, the local branch of Sberbank, as a branch of the Russian Sberbank, has been mentioned in connection with the sanctions. On July 30, the National Bank of Slovakia (NBS) gave an official statement on the sanctions, stating that the sanctions are only related to big, state-owned Russian banks.
“The sanctions are thus not related to their daughter companies that are active in Europe,” the NBS wrote in the statement, adding that there is no bank active in Slovakia that would be subject to sanctions.
Sberbank Slovensko said on August 1 that the bank continues to operate without limitations, with what it called a “very good level of liquidity and capital”.
“We meet all the regulatory requirements of prudent business-making and we manage to continuously keep increasing our market share,” said Director General of Sberbank Slovensko Rastislav Murgaš, in an official release.
The economic impact
For Slovak exporters, Russia is a business partner and the Slovak economy could feel the pinch if Moscow continues with counter-measures to EU sanctions, like the produce ban. Should Slovakia’s exports to Russia drop to half of today’s volume, Slovakia could suffer a short-term loss of up to 2 percent of GDP, economist Peter Havlik from the Vienna Institute for International Economic Studies told the public-service Slovak Radio (SRo).
The sanctions will directly affect a number of Slovak companies, like automotive plants. About 5 percent of Slovakia’s exports go to Russia, SRo reported. The damage could, however, be larger if Slovak companies who act as sub-contractors for larger companies exporting to Russia are included, Peter Mihók, head of the Slovak Chamber of Commerce and Industry (SOPK), told SRo.
The exact impacts of the sanctions on Slovakia cannot be assessed due to the specific focus of these sanctions, Economy Ministry spokeswoman Miriam Žiaková told TASR.
The impacts will also depend on whether sanctions in the financial sphere will cause problems in contracts that are co-financed by Russian banks as well as secondary impacts of possible changes of trade flows within the EU, Žiaková added.
The spokeswoman, however, refused to comment on speculations on increased energy prices linked to Russia.
Nevertheless, the Sme daily reported on August 7 that industrial companies in Germany have fewer orders, according to the June data.
“It seems that the drop in orders goes across the spectrum of regions of all of Germany,” analyst with ČSOB Marek Gábriš said, as quoted by Sme, adding that it could imply that this “surprisingly bad result might be more than just a temporary swing”.
If this trend is confirmed, and the outlook for the German economy worsens, Slovakia’s open export-oriented economy might be affected as well, Sme reported.
Impact on defence
Media have recently devoted numerous reports to Slovakia’s dependency on Russia in the defence sector, which is also subject to the most recent round of sanctions.
Slovakia purchases spare parts for the maintenance of its radar system from a Russian company that will be subject to sanctions. Buying the radars from an alternative supplier might prove problematic for Slovakia, the Pravda daily reported.
Complications could be expected if Slovakia’s air force does not have enough supplies of spare parts on stock at the moment, former head of defence of Slovakia’s standing delegation at NATO, Jaroslav Naď, told Pravda.
“There can be a temporary problem to secure the protection of air space with monitoring radars,” Naď told Pravda.
The Defence Ministry did not comment on these concerns, saying that the arms embargo has not been officially introduced yet.
While all post-communist countries could have problems due to the sanctions, Slovakia and Bulgaria are likely to be hit the hardest, according to Naď.
Slovakia’s armed forces currently operate twelve MiG-29 jet planes, a squadron of Mi-17 helicopters, radio-locators and the S-300 anti-aircraft defence system, all made in Russia, Pravda reported. Many of the parts included in regular maintenance of such equipment also come from Russia.
Michaela Terenzani contributed to this reportMore from Business
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