Despite the difficult economic and social environment caused by the COVID-19 pandemic, the Russian factoring market’s volume expressed in the country’s currency increased by 15 per cent in 2020, and funds in use (FIU) at year-end increased by 38 per cent exceeding RUB 1tn for the first time, explain Corneliu Robu, CEO of GPB-factoring. In many ways, the difficult economic conditions contributed to a wider spread of factoring and especially supply chain finance instruments, which turned out to be a very efficient facility for supporting SME suppliers to large corporates.
If expressed in EUR, the factoring market in 2020 contracted by 12 per cent, following a significant depreciation of the country’s currency. The GDP penetration rate increased from 2.8 to four per cent.
Factoring Industry Environment
The Russian economy contracted by 3.1 per cent in 2020, though it performed better than forecasted at the start of the pandemic. The restrictions imposed to combat COVID-19 and the plunge in oil prices accompanied by the fall in global demand for energy resources were the main reasons for this negative development. The decision not to impose a second and consequent lockdown contributed to a faster recovery. The government launched several support programs, which eased the effect of the crisis for the business community and prevented massive bankruptcies and staff lay-offs. The most affected sectors were the extracting industries (-9.5 per cent), transportation (-10.6 per cent), and hospitality (hotels, restaurants and cafés) down by 24.5 per cent.
In order to support the economy, the Bank of Russia significantly and rapidly decreased the interest rate – from six per cent to 4.25 per cent in the period from April to July 2020.
The level of inflation, which had been steadily decreasing for several years, embarked on an upward trend, reaching 4.9 per cent. In response, later in the year the Bank of Russia started a series of interest rate increases bringing it up to five per cent as of May 2021.
Russian exports decreased by 4.3 per cent to USD 338.2bn, mainly due to restrictions on oil production in accordance with OPEC agreements and general weak external demand. On the other hand, the changes in domestic consumption led to a reduction in imports of 12 per cent to USD 233.7bn. Hydrocarbons’ share of total exports decreased to a record low of 51 per cent, a level previously registered in 1999. At the same time, the exports of foodstuffs and precious metals increased by 50 per cent. It is worth mentioning, that the rise in the export of foodstuffs meant that exports and imports of foodstuffs and raw materials for food production were in balance – for the first time in the history of modern Russia.
China, Germany and Belarus remain the main trading partners of Russia. The significant increase in exports of precious metals moved the UK to fifth place in this regard.
There was no change in the legislative environment of the factoring industry in 2020. Russia does not have a specific factoring law, factoring operations are conducted in accordance with the Russian Civil Code. There are several legal and administrative impediments to the development of the market. For example, receivables originating from contracts concluded with public institutions (commonly referred to as procurement according to law 44-FZ) cannot be assigned. The currency exchange control system, although significantly simplified over the last few years, still represents an obstacle to international factoring.
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