Russia: a new promised land
After a difficult three years, also because of EU and US sanctions and a reduction in GDP, sales of Italian tiles onto the Russian market are expected to rise during 2017 and 2018. Meanwhile, distribution is also being enhanced from Moscow up to remoted areas.
Date:March 20, 2017
by Nicola Tedeschini
Russia is still a Promised Land for the Sassuolo-based ceramic district. Last December’s Prometeia Forecasting report for the ceramic tile industry clearly states so. If it can’t be denied that over the last three years exports towards the Euroasiatic giant from the Tile Valley have diminished, it is on the other hand true that recovery is approaching. This year, according to Prometeia analysis, the ceramic tile industry will see its exports onto the Russian market increase by 2.7% compared to 2016, while in 2018 a further 4.1% increase is expected. History will tell how the current picture will be affected by the new set of international relations resulting from Donald Trump’s election as President of the United States, and the consequent new balance between the West and Vladimir Putin.
Data, at the moment, seem to confirm that the trade war triggered by the Obama Administration and the European Union against Putin has led to Russian national wealth rapidly dropping. Of course there are multiple causes to such drop: among them, oil and gas price dynamics to which Moscow is rather sensitive. It is a fact that in 2014, when the US and the EU imposed sanctions on Russia following the Crimea and Donbass events, which Moscow promptly reciprocated, Russian GDP first slightly rose (+ 0.7%), and then heavily fell the next year (-3.7%), unable to recover during 2016 (-0.85%).
But Prometeia analysis and forecasting further indicate that Russian negative growth has found a long wave in the sudden halt of the construction industry. If back in 2014 investments in residential property were still able to lift your spirits, with a full 6 point rise, in the following years they crumbled: -4% in 2015 and -3.2% last year. The reduced house spending has had an impact on national consumption of tiles, which fell from almost 220 million square metres in 2013 to less than 200 milion per year. And although they are not concerned with the sanctions imposed on Moscow, Italian tiles were particularly penalized, sales falling over a three year period from 5.6 to 2.6 (in 2016) million square metres.
But now the sun is indeed shining again on the Federation sky. Prometeia forecasts a positive 2017 with a rise in both GDP (+1.7%) and residential housing (+1%), with a further acceleration expected in 2018 (respectively +2.5% and +2.3%). With the tile market recovering, Italian tiles too are supposed to increase exports towards Russia, to 2.7 and then 2.8 million square metres. Sales are not back to five years ago but there’s a trend reversal, with graphics and diagrams going upwards.
As to sanctions, last December the EU further postponed a definitive choice, opting for a new extension until July 31st. But please note that other than geoeconomics, Italian ceramics needs a better comprehension of the Russian Federation new market dynamics.
The distributing system is getting more and more sophisticated and, while competition in the metropolitan areas is growing, it is now able to reach remoted areas. Foreign manufacturers willing to get onto or protect their shares in the Russian market are required not only a big investment in human and financial terms to establish direct connections with wholesale dealers and mediators; they’ll also need to consider the new channels of supply: big hardware stores or small specialty shops offering full package, combining interior design integrated solutions with after-sales service. And there’s more: the commercial power of a trade show network driven by the Batimat Russia’s international prestige.