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Russian sanctions have cost Italy €4 billion

by Laura Cavestri

A €4 billion bill to pay, and 80,000 direct jobs lost.

So far, these are the costs—just to Italy—of the trade sanctions that the EU and the US have placed on Russia, in retaliation for the annexation of Crimea and Moscow’s subsequent role in the war in Eastern Ukraine.

This bill—which, aside from the sanctions, was also inflated by the collapse in oil prices and the depreciation of the ruble—hit certain ‘Made in Italy’ sectors harder than others. Like textiles/footwear (€1 billion), industrial machinery (€700 million), and food (€300 million), to name just a few.

Even tourism has suffered the after effects. According to Banca d’Italia, in 2015, Russian tourism in Italy fell by more than a quarter, in comparison with the previous year (and has been falling since 2013).

The Scenario in Italy
In 2013, Italy was the second largest exporter to Russia among countries in the EU (behind Germany) with €10.8 billion in sales towards Moscow, and €30 billion in interchange (the sum of both imports and exports), which grew at a rate of 9.4% over the previous year.

Overall, 400 Italian companies have offices in Russia, almost half of them located in Moscow and the surrounding areas. However, 2016 ended with €6.5 billion in exports to Russia (-8.3%, compared to 2015). This continued the negative trend that saw 2014 end at -11.8%, and 2015 at -25.4%.

ISTAT’s report on non-EU sales for December (which was published a week ago) offers a little consolation: over the course of the month, sales in Russia bounced back by 9%. This was not enough to compensate for the rest of the year, but it could signify that Italy is finally overcoming the crisis (in 2017, the GDP is expected to rise by 0.7%, the first increase after two dark years).

Italy wasn’t the only country stuck with this hefty sanctions bill. According to the Vienna Institute for International Economic Studies , over the last few years the entire EU lost around €44 billion in exports and 900,000 jobs.

A maelstrom of import duties, oil, and the ruble
The trade war began with food, but it created a domino effect in investments and purchasing power among the Russian middle and upper classes, seriously halting the flow of investments.

In fact, the Russian embargo (in retaliation for the EU and US’s sanctions regarding the situation in Ukraine) consisted of an entire list of banned imports: all fruits, vegetables, cheeses, meats, and fish coming from the EU, USA, Canada, Norway, and Australia. The ruble fell drastically in 2014, almost in tandem with petroleum prices. For an economy based entirely on barrel prices, they immediately felt the loss of revenue from exports of crude oil and natural gas (the latter’s prices are calculated according to oil prices).

And since Russia offers very little else to the foreign markets, the sanctions only hastened this decline. These sanctions, however, have sparked many other effects.

Effects and market shares
First and foremost, the European market has suffered depressive and deflationary effects. The surplus of fruits, vegetables, meats, and cheeses—without the Russian market as an immense outlet—has caused a collapse in prices for many European products.

But food isn’t the only sector affected. In the shoe-producing area of Marche, which catered almost exclusively to the Russian market, many firms have either closed or are suffering greatly—they have been replaced by other manufacturers in places like Turkey. Textiles, machinery, and furniture products have met the same fate. Their leading competitors are based in Argentina, Armenia, Azerbaijan, Belarus, China, Egypt, Israel, Morocco, South Africa, and Turkey.

“The sanctions have forced the Russians to wake up and devote themselves to technology,” states Confindustria Russia President Ernesto Ferlenghi, “In the meantime, business strategies have changed. Italian exports to Russia have shrunk by more than 40% over the last three years. However, other countries’ salespeople have been able to adapt to these changes—like the French who, in 2016, increased the amount of their investments. Or the Chinese, who have successfully replaced European businesspeople. Thus, we need a new outlook on Russia. And we have to find it quickly.”