Status: 02/25/2022 11:28 am
The federal government has suspended guarantees for exports to Russia and investments by German companies in the country. The stop on Hermes guarantees makes business for German companies in Russia more difficult.
After the Russian attack on Ukraine, the federal government stopped guarantees for German companies’ exports to Russia and for investments in the country. “The approval of Hermes guarantees and investment guarantees for Russia has been suspended until further notice,” said a spokeswoman for the Federal Ministry of Economics. This is not part of the EU sanctions against Russia, but was decided by Germany after coordination between the ministries.
With Hermes guarantees, exports from German companies to countries where there is an increased risk of non-payment are secured. However, they are also a safeguard against the consequences of warlike events or against government confiscation of export goods. Medium-sized companies in particular are supported by such credit guarantees, which the Federal Republic has been granting to companies since 1949. The same applies to direct investments by companies in countries in which the risk is cushioned by investment guarantees.
The federal government bears the majority of the risk for guarantees
In the event of damage, the money comes from the federal government, which, with the Hermes guarantees, assumes most of the risk in the event of a payment default. The damaged exporters only have to pay a deductible of five to 15 percent. As the “Handelsblatt” reported, German companies that exported goods to Russia received new cover commitments of 820 million euros in the first half of 2021 alone.
The suspension of the Hermes guarantees is now making business in Russia considerably more difficult for many German companies. This also applies to goods that are not on the European sanctions list. However, almost half of the original 6,300 companies with German capital have withdrawn from the Russian market since 2011. According to the Chamber of Commerce Abroad (AHK), around 3,650 German companies are still active on site. These companies employed more than 277,000 people in 2019.
German companies investing billions in Russia
Last year goods worth almost 27 billion euros were shipped to Russia. Machinery (EUR 5.8 billion), motor vehicles and motor vehicle parts (EUR 4.4 billion) and chemical products (EUR 3.0 billion) were the most important products. Due to the trend towards localization, German direct investments in Russia have increased in recent years. They amounted to around 25 billion euros. German companies are thus among the most active foreign investors in Russia.
In addition to the high need for modernization in the country and the positive image of the “Made in Germany” brand, the comparatively high profit margins for German companies have proven to be tempting, according to the Association of German Chambers of Industry and Commerce (DIHK). The extended internal market of the Eurasian Economic Union (EAEU) with 180 million consumers was also one of the arguments for commitment there.