In A Car, A Lesson In Russian-European Trade

BERLIN — The Skoda, a Czech-made car that was long the butt of jokes across Eastern Europe, has become popular in Moscow, a sign that trade between Eastern Europe and its giant neighbor is at last beginning to pick up, economists say.

Martin Winterkorn of Volkswagen, foreground, and Sergei Naryschkin, a Russian official, left, with a Skoda Octavia.

Skoda, the Czech automobile company that was bought and revamped by Volkswagen of Germany in the 1990s, was hardly ever seen in Russia before the collapse of communism or even a decade later, when Russia was in economic turmoil.

It took until 2005 for 7,500 of the redesigned Skodas to be exported to Russia. But in the first 11 months of this year, sales reached over 28,200 cars.

Skoda’s success is part of a trend in the region as consumer spending and the economies in Eastern Europe and Russia grow apace.

During communism, the region’s economies were closely linked in the Comecon trade pact, but those ties broke down completely after the collapse of the Iron Curtain in 1989. Now a turnabout is under way to the benefit of companies in Eastern Europe that sell not only low-priced cars but also household appliances, food and agricultural products, and machinery.

Overall exports from Eastern Europe to Russia increased to more than $10 billion last year in 2006, from $2.3 billion in 2000, according to Natalya A. Volchkova, economist at the Center for Economic and Financial Research, an independent policy research organization in Moscow.

Trade has become so important to the region that when Russia imposed an embargo 18 months ago on Polish meat products, claiming they did not meet the European Union’s strict standards, there was real concern among Polish meat producers. Exports to Russia accounted for a third of Poland’s annual meat exports, or 350 million euros a year ($505 million), according to Poland’s trade ministry.

The embargo was lifted in December, giving Poland’s new center-right government hope that it can improve trade and political ties that had been strained under its previous, conservative-nationalist government.

For its part, Russia’s exports to Eastern Europe surged to $24.1 billion in 2006, from $14.5 billion in 2000.

But what Eastern Europe is buying from Russia is mostly gas and oil to satisfy its growing demand for energy. That imbalance underscores both Russia’s slowness in diversifying its exports and the extent of Eastern Europe’s dependence on Russia for energy.

Poland and the Baltic states have been trying to reduce that dependence for political and national security reasons. Their efforts intensified after price disputes caused Russia to briefly halt gas shipments to Ukraine in late 2005, and to Belarus the following winter. But they have had little success, mainly because of the lack of practical alternatives, according to Poland’s economics ministry.

Still, both sides are benefiting from rising exports. “There is now a kind of contradiction in the relationship between Eastern Europe and Russia,” said Vasily Astrov, regional economic expert at the Vienna Institute for International Economic Studies. “While political relations have been poor, trade is definitely improving.”

Russian energy companies like Gazprom and Lukoil are benefiting from general economic growth. Newly flush Eastern Europeans are buying new cars and electrical goods for their homes, pushing energy consumption to new levels just as energy prices reach record highs.

“For once, it seems there are winners on both sides,” Mr. Astrov said. “The rise in consumer spending in Eastern Europe and Russia helps both sides.”

On average, the economies of the new European member states grew by 4.9 percent in 2005 and 6.5 percent in 2006. According to the Vienna Institute, growth will slow to around 6 percent for 2007 and perhaps dip to 5.5 percent during 2008, partly because of an acute labor shortage. But consumer spending is expected to remain buoyant.

The Russian economy grew by 6.7 percent in 2006 and 7.5 percent in 2007. Mr. Astrov reckons it will grow by 6.1 percent in 2008 as consumer demand continues.

The increase in trade does not stem from the countries of Eastern Europe becoming members of the European Union in 2004. Once several of them joined the now 27-nation bloc, the tariff regime between Russia and the region actually increased for certain products — which suggests that trade should have declined as a result. But it did not.

“Enlargement itself did not improve the access by Russia to the new member states of the E.U.,” said Maryla Maliszewska, economist at the Center for Social and Economic Research in Warsaw. “What explains the revival of trade since 2004 is the higher oil and gas prices in the case of exports from Russia to Eastern Europe, and higher economic growth in Russia in the case of imports from Eastern Europe.”

Indeed, trade within the region may jump again over the next few years once Russia joins the World Trade Organization, analysts said. That would spur Russian companies to invest and become more competitive. Analysts expect trade to be spurred even more by a planned strategic partnership between Russia and the European Union that Brussels and Moscow hope to conclude in 2008.

In the meantime, Europe and organizations like the European Bank for Reconstruction and Development are urging Eastern European countries to do more to promote energy conservation and independence.

Little progress has been made across the former Warsaw Pact toward modernizing infrastructure so as to improve efficiency, according to the development bank. An exception is new manufacturing plants established in recent years, mainly by West European and American companies.

They are also the reason Skoda has been able to shake off its image as an unreliable car.

“The quality of the goods have improved markedly,” Mr. Astrov said. “The Russian consumers knows they are buying quality goods. They know that Skoda, for example, really is made by Volkswagen.”

Tag Cloud

External Information

Additional Information

Where Am I?