Investment News Analysis Trade

It’s not just bananas

Philippine exports to the markets of the Russian Federation just leapt by a mercurial 5,335% – that’s five thousand three hundred and thirty five percent.  Following Philippine President Rodrigo Duterte’s historic meeting with Russian President Vladimir Putin at the Asia-Pacific Economic Cooperation forum in Lima, Peru last weekend, Moscow is to import US$2.5 billion worth of Philippine goods – largely fruits, vegetables and grains – reducing last year’s paltry shipments of US$46 million worth to a virtual irrelevancy.

Of course, bilateral trade between the two is coming from a low base; as Trade and Industry Secretary, Ramon Lopez, put it: “I mean there’s nowhere to go but up because it’s really a relationship that offers a lot of opportunities because hardly anything happens when it comes to trade and investment with Russia”.

Now, all that seems to be changing. And in no small part due to efforts by the previous administration to reach out to Russia and bolster economic ties. This resulted in the Philippines-Russia Joint Commission on Trade and Economic Cooperation agreement last November. Duterte’s efforts in Lima have built on that and ramped it up a few levels.

The Russian Federation is a huge marketplace and its opening-up to Filipino traders will provide the country’s struggling exports – and its slumped agricultural sector – with a much needed booster-shot in the arm. The country’s embattled banana growers will be especially buoyed by this news – most Philippine banana to reach the Russian Motherland up until now has been in the form of banana chips.

The growers, largely from the southern island of Mindanao, desperately need a new market for their products, though opportunities for them from the Lima talks don’t come as a big shock. The Volatilian™ outlined this possibility back in August – The banana war’s Russian theatre.

Ironically, for its change in fortunes, Manila can thank Washington and Brussels – two governments with which, over the past few months, it has had strained relations.

In July, the US and the European Union (EU) imposed swingeing sanctions on Russia following its annexation of Crimea and its military involvement in Ukraine. In response, Moscow applied trade sanctions of its own on the US and EU. Part of that vacuum is what the Philippines’ traders will now seek to occupy. One other area where we might see movement is in labour relations with Russia opening to import greater numbers of Filipino workers.

But the meeting in Lima, with ministers from both sides present, went well beyond trade. The Russians expressed their interest to invest in the Philippines; not least in heavy engineering – railways (long haul); monorail systems, light-transit transportation, and port infrastructure as well as machine engineering and industrial upgrading. It’s also looking closely at committing funds to the Philippines’ energy, agriculture and tourism sectors.

Outside trade and investment, the two countries agreed to work together on law-enforcement issues, particularly in the areas of counter-terrorism and counter-narcotics operations. Likely, officer training and weapons supplies could form part of the law-enforcement package which is being discussed.

Moscow, however, will be looking for more than law-enforcement cooperation with Manila; it would like to formalise a defence treaty which would provide Moscow with additional clout in the region while allowing Duterte to diversify his defence policy, further sidelining the Philippines’ military arrangements with the US. There is, undoubtedly, interest on both sides to pursue closer defence cooperation. And arms sales from Russia – particularly with credit facilities that delay payment until 2025, as has been offered – will sweeten the pot. Russia has also offered to provide expertise in securing the Philippines’ long and very porous borders.

In 2012, Filipinos were able to see Russian military power up close and personal when vessels of the Russian Navy’s Pacific Fleet, led by the anti-submarine destroyer, Admiral Panteleyev, arrived in Manila from their bases, in and around Vladivostok in the Russian Far East, for a three-day port visit. Looking back now, that may have been a dry run.

All in all, forging close ties with the Russian Federation, in terms of trade, investment and defence, is good news for the Philippines. It allows Duterte to broaden his recalibrated foreign policy which seeks to build an East Asia nexus, and provides an export potential for Philippine goods that up until a few days ago could only be dreamed of.

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