Russia-Ukraine Conflict: Creating Business Opportunities across Five Sectors
An Overview
The world war was merely recovering from the impacts of the global pandemic when the start of this year brought news of a Russia invading Ukraine. This invasion is causing not only physical damage to Ukraine, but its effects are bleak and far-reaching. The human cost is immeasurable. At the same time, it also adds to the already existing troubles about global economic and supply chain challenges. Various sanctions issued by several countries and organisations against Russia, the export bans issued by Russia as retaliation, and the crippled economy left of Ukraine after this war ends will create serious challenges in the global supply chain and disrupt world exports.
Though the situation is tense and grim, these grey clouds of uncertainty have some silver linings for certain industries. The short-term crunch of exports can create a chance for some new or existing small players to enter. There may be a scope of opportunities being opened for certain countries and start-ups that will allow them to expand and strengthen their market. This article highlights those industries’ ways in which they show prospects in the expectation that it will prove to be a guiding point for businesses to enter and make the most out of these presented opportunities.
What is causing the export crunch?
Russia’s decision to take military actions in Ukraine is condemned worldwide. Various countries, organisations, and businesses are issuing financial and economic sanctions against the country. Big companies in all the industries operating in Russia are bowing out of the country in protest. The governments are sanctioning imports from there. In retaliation, Russia has banned exports of around 200 products. These measures aim to limit trade and financial relations with Russia and cripple the Russian economy. Below are some of the major sanctions and bans issued by various authorities about the trade:
- Governments like the US and EU have banned oil and gas imports from Russia and plan to phase out of the country by the end of this year and before 2030.
- Germany has put a hold on the permission of the Nord Stream 2 gas pipeline from Russia.
- Auto companies (including Nissan, Ford and General Motors) and companies from other industries (like retail, aviation, big tech, entertainment, finance, F&B etc.) are exiting the country or have halted their operations in Russia.[1]
- Secondary trade in Russian government bonds is banned. The interaction with key Russian Banks, exports of critical technologies to Russia, and travelling for elite Russians are also banned. The western countries have frozen the assets of elite Russians.
- The UK has announced to put a 35% tax on some imports from Russia, including vodka.
- Countries like the US, the UK, Germany, Italy, European Commission, and Canada have sanctioned the Central Bank of Russia, making it difficult for CBR to access its foreign reserves.
- In retaliation, Russia has banned exporting 200 products that include telecoms, medical equipment, the auto sector, agricultural, electrical, and forestry products such as timber.
Russia’s exports amounted to a total of US$491 Billion in the year 2021. [2] is the major exporter of fuel and energy products, agricultural products such as wheat, corn and oilseeds, fertilisers, metals, and gases, which are crucial raw materials for other industries, arms, and equipment for defence, medical, and aviation.
Similarly, Ukraine is also a big exporter of defence equipment, metals, gases, and chemicals needed as raw materials for manufacturing, tech industry etc. Because of these sanctions and bans, these exports will be highly limited and may even cease completely for a short while, creating supply chain disruptions for the entire world.
Key Industry Sectors have an Opportunity to Gain.
Defence-Tech and Equipment
The demand for arms and military equipment is naturally increasing in the present war situation. The reasons are twofold. Firstly, as many countries are helping Ukraine with military armaments, there will be increased demand in the short term. Secondly, governments worldwide will focus on increasing their defence spending for protection in the coming years, guaranteeing massive profitability to the arms and military equipment manufacturers. Russia is a major supplier of these products after the US worldwide. Ukraine also contributes largely to the sub-sectors of radio communication equipment and radio-electronic components, engines for military vehicles and Optics. Supply of these products will be limited or none from these two countries at least for a short while.
Given the circumstances, manufacturers and contractors of advanced guns, battle tanks, surveillance systems, electronic systems and light engineering mechanical parts, avionics (Electronic equipment that are used in the aircraft), bulletproof accessories (vests and helmets), bomb suppression blankets, and many more such defence-tech related products face temporary vacuum to gain competitive advantage and secure larger markets. American manufacturer Raytheon and Lockheed Martin have started capitalising on this opportunity by luring in investors, which could become a turning point for many big and small players.
According to Statista, Russian arms are generally imported by countries like India (the major importer contributing 28%), China, Egypt, Algeria, Vietnam, Kazakhstan, Iraq, Belarus, Angola, and Turkey. [3] These countries will be looking for other options for their armament needs and will start becoming self-reliant. Either way, it opens a huge market as the supplies from Russia and Ukraine will be limited.
Other exporters of military and defence tech equipment and arms, such as the US, the UK, China, S. Korea, Spain, Germany etc., have a joyous opportunity of profits for their manufacturers and start-ups. Indian companies can also gain a strong foot in the market.
India already exports various military and defence tech products to countries such as Azerbaijan, Estonia, Indonesia etc. The country is focusing on reducing reliance on imports for the defence sector. The Union Budget 2022–23 also supports this idea by allocating 68% (increased from 58%) of the military’s capital procurement budget for purchasing locally produced weapons and systems, as well as setting 25% of the defence R&D budget aside for start-ups, private companies, and academia for designing and development of military platforms. Even governments like Germany and Denmark have announced that they will be increasing their defence spending. These factors make up a favourable wind of opportunities and profits for the defence-tech industry players.
Medical Equipment and MedTech
To make a fair note, neither Russia nor Ukraine are leading exporters of medical equipment or med-tech devices globally. However, certain factors offer a good amount of potential for the medical devices industry. Because of the invasion, both countries have become a potential market for medical equipment. Because of the International Humanitarian Law[4], the medical industry cannot stop its supplies to Russia. Leading companies are looking for resources to supply in Ukraine to help the needful. This short-term demand can become an opportunity for companies looking for exporting med-tech equipment and med-tech devices.
Another noteworthy factor is Russia’s banning of the exports of numerous medical devices. Although Russian exports in this category do not command a large market, it still can be a potential market to tap in.
The banned medical products for exports include devices used in medicine, surgery, dentistry, veterinary medicine, scintillation devices, and other electronic medical devices. The devices include surgical catgut, dental cement, psychological testing equipment, therapeutic breathing equipment, orthopaedic devices, etc. Russia also exports packaged medicaments to countries like Ukraine, Belarus, and Lithuania. Ukraine has a leading market for the subsectors of diagnostic imaging equipment, orthopaedics and prosthetics, laser surgery devices, stents, pacemakers, and other devices used for treating heart conditions. [5]
The countries majorly banned from export by Russia are Australia, the EU, Iceland, Canada, New Zealand, and Norway. These could be the countries that new or existing players can target for exports.
Leading global medical device exporters are the US, Germany, Netherlands, China, Belgium, Ireland, Switzerland, Mexico, France, Japan, the UK, and Singapore. India is also on its way to becoming an influential player in this area. This year, global supply chains are expected to disrupt the healthcare sector. Although it will be difficult to set foot in the already established market, the emerging short-term demand and potential markets can play a great role in new entrants or expansion.
Semiconductors Manufacturing
The semiconductor industry is still recovering from the global supply chain crisis. The recent events added to the troubles as the major exporters of some of the key raw materials for making chips were ceased. Russia supplies 40% of the world’s supply of Palladium and Ukraine supplies 70% of the global supply of Neon, as mentioned in a report by Moody’s analytics. [6] These two materials are essential to produce any semiconductor chips. Given the circumstances, the supply has been disrupted, worsening the situation for the semiconductor sector. However, having learnt from the crisis posed by the global pandemic, the manufacturers have created some stocks of these materials to deal with shortages in the short term. However, they will look for newer sources afterwards for these materials.
Almost every country that has foundries for semiconductor chips will require these materials; hence the potential market is very large. China, North America, Taiwan, Europe, and North Korea can be identified as some of the major consumers. These two are natural components; hence, not all countries can take advantage by providing them; however, countries other than Russia and Ukraine can step in to gain a competitive advantage of the current situation.
Several producers of neon gas in China are already getting the world’s attention as potential suppliers of this gas. For Palladium, producers in countries like South Africa, the UK, the US, Belgium, Switzerland, Japan, and Zimbabwe can grab this opportunity by improving their efficiency and expanding their market reach.
Automotive
Due to the invasion of Ukraine, productions and factories in Ukraine have ceased their operations, disrupting the supply chain. Car companies that are losing production due to this are looking for new sources for wiring harnesses vital for the production of vehicles, earlier provided largely by Ukraine. Moreover, Russia has issued a ban on exports of cars and automotive parts as part of its retaliation strategy, forcing the companies to look out for newer destinations for manufacturing plants and other materials. Companies like Renault and Hyundai have halted their operations in Russia in protest. Other countries can provide favourable grounds to these companies for production.
Russia is a major supplier of finished vehicles and automotive parts made of plastic & rubber. On the other hand, Ukraine is a key manufacturer of systems that connect electronic components in vehicles. These wire harnesses are the central nervous system of the car. Ukraine is quite popular because skilled labour is available cheaply. Since the availability of such an important component is not possible in this situation of war, assembly lines of many German companies are shut down. Moreover, Russia was a large market for luxury cars manufactured by European automobile companies. Hence, these companies are looking for alternative sources for these components and markets.
Russian exports of vehicles and automotive parts are made to many countries worldwide. Some noteworthy markets that companies can target are Algeria and Vietnam, Ethiopia, and Egypt, especially for the plastic and rubber auto parts. Apart from these, Germany is the biggest market for Ukraine’s supply of wired harness systems for vehicles. Manufacturers of these products can tap into these markets to gain an advantage.
Joachim Damask, Managing Director at German Auto Industry Association, expressed that the German companies are finding newer sources of wiring systems in countries like Tunisia. There are many other players for automotive wiring systems in countries like the UK, Japan, Ireland, Germany, France, China, the USA, Finland, and India. Companies in other countries that specialise in producing these products have strong chances of obtaining a large profitable market since the production of these companies is highly reliant on these products. This is the right time to take advantage of this opportunity. India’s favourable automotive industry policy and Production linked Incentive (PLI) scheme can also make an attractive ground for the manufacturing companies to enter and establish their production units. It will be quite a lucrative advantage for both parties.
Aerospace and Space-Tech
The war has created two-fold opportunities for space-tech companies and world exporters. One of the biggest values adding manufacturing sector for Russia is Aerospace. Some of the major companies operating in the country are United Aircraft Corporation, Russian Helicopters, and Energia. The country recently started exporting its Orion E Combat drone, a UAV, to Myanmar.
Firstly, Because of the sanctions issued by various countries on Russia, the supply of Titanium — which is the key raw material for aircraft manufacturing — is now restricted. Russia’s VSMPO-Avista is the largest producer of Titanium in the world7. Since supply from this player will be limited in the coming years, the companies using this material will turn to other exporters for their Titanium needs to manufacture aircraft.
Secondly, Russia has been pulling itself out of the global space industry against sanctions. The Russian state-run space agency, Roscosmos, has announced that it won’t provide rocket launching services for delivering satellites, cargo, and crew into orbit to western countries. The global clients will now be turning to other countries or may strengthen their capabilities for this purpose. Either way, the companies and start-ups in those countries will have a lot to gain by contributing.
Both Russia and Ukraine have made significant contributions to the global space industry by providing rocket and propulsion expertise, supplying launch services, engine systems, and recently drones to customers worldwide. Russia is very successful in exporting relatively low-tech and low-cost equipment. Other significant products may include electronic propulsion units, electric thrusters, satellite communication systems and geo-information services. Suppliers of dual-use products such as GPS and aviation technologies also stand to gain in this state of war.
The importers of these products are generally Europe, the Middle East, Africa, and Southeast Asia, which will become potential markets for the players. Russia exports largely to Italy, [7] hence that will also be a market to focus on. Other than that, all the countries like the US and Europe that will need services for rocket satellite launches will also be looking for alternative destinations for these requirements.
The Indian space sector may also get to take advantage of this situation. India has start-ups like Skyroot Aerospace and Agnikul Cosmos looking to launch their rockets in the coming years. Even the authorities at ISRO are optimistic about grabbing the attention of global clients looking for launching their satellites now that they cannot rely on the Soyuz line of rockets in Russia. All the public and private companies in the Indian space sector have a lot to gain in this opportunity.
Moreover, Countries like Germany exporting to Ukraine will directly gain from these situations. Other beneficiaries are the major space-tech companies like SpaceX and others working in the value chain of the space station, satellite launching, and delivering services. Other start-ups engaged in developing satellite communication solutions will also stand to gain. Countries like Turkey and Israel, Russia’s major competitors in supplying drones, will also gain from Russia’s backing out of the industry.
Apart from these services, the global suppliers of Titanium other than Russia, such as the USA, Japan, Germany, and China, will also be able to take over Russia’s share in the market in this window opened for the short term due to bans and sanctions on Russia.
Conclusion
To sum it all up, every part of the world feels the pain that Ukraine is going through, both humanitarian and economic. The consequences of this invasion will be truly difficult to get over. However, there are also some opportunities for businesses to grab and make themselves strong in terms of market share and profitability. Businesses in these sectors can explore these possibilities and, with proper guidance and research, can enter newer markets to gain a competitive advantage over others. This article has pointed out those opportunities.
[2] https://oec.world/en/profile/country/rus
[3] https://www.statista.com/chart/27055/russian-arms-exports-destination-countries/
[4] https://www.icrc.org/en/doc/assets/files/2012/health-care-law-factsheet-icrc-eng.pdf
[5] https://www.trade.gov/country-commercial-guides/ukraine-medical-equipment
[7] https://oec.world/en/profile/hs92/spacecraft-satellites-and-spacecraft-launch-vehicles
