TRADE IN VALUE ADDED: RUSSIAN FEDERATION

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1 TRADE IN VALUE ADDED: SIAN FEDERATION The international fragmentation of production in global value chains (GVCs) challenges the way we look at the global economy. Today, what you do - the activities a firm or country is involved in - matters more for growth and employment than what you sell - the products that make up final sales or exports. Understanding how GVCs work and how they affect economic performance is essential, as is determining which policies help derive the greatest benefits, and reduce the risks. The OECD-WTO Trade in Value Added (TiVA) database facilitates analysis of GVCs by measuring trade in value-added terms to generate new insights about the commercial relations among economies and the process of value creation. Drawing on the third version of the TiVA database, this note describes the Russian Federation s trade patterns in value-added terms, with a view to informing policy debates in a range of areas, including trade, innovation, and investment. Accompanying this note is a User Guide designed to assist interpretation and provide context to the indicators presented: Key findings The foreign content of the Russian Federation s exports has been broadly stable in recent years, with movements partly reflecting oil prices, and stood at 13.7% in This was the third lowest rate among G7 and BRIICS economies, largely reflecting specialisation in oil exports, which have a high domestic value-added content. At the same time, export orientation in manufacturing has fluctuated over the last two decades, between 40 and 6. Shares in 2011 were just under 5. Considering only exports of intermediates goods and services, the Russian Federation's major export destinations in 2011 were China (9.), Germany (7.8%), Italy (6.7%), and the United States (5.7%), with China s share increasing significantly in recent years. Over one-third (37.) of the total value of manufacturing exports reflected services content in 2011.

2 The role of foreign and domestic value added in exports The foreign content of the Russian Federation's exports increased to 13.7% in 2011, compared to 12.7% in 2009 but remains lower than the pre-crisis level of 13.9% in 2008 (Figure 1). This was the third lowest rate among G7 and BRIICS economies, reflecting in large part specialisation in oil exports which have a high domestic value-added content. Figure 1. Foreign value added content of gross exports by country percent, 2008, 2009, and 2011 (right insert = time series for Russian Federation) Of the Russian Federation s total exports of domestic value-added in 2011, 80.2% reflected exports of intermediates, higher than in 2009 (73.6%) and 1995 (71.6%) and significantly above the OECD average (61.) (Figure 2). Figure 2. Domestic value added content of gross exports by end-use category by country percent, 1995 and Intermediate goods and services 2011 Final goods and services 2011 Total 1995 Intermediate goods and services

3 Agriculture Wood & paper Non-metallic minerals Other manufactures Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Other services Total Agriculture Wood & paper Non-metallic minerals Other manufactures Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Other services Direct exports by the industry generated the greatest source (both direct and upstream) of domestic value added in 2011, accounting for 27. of the total value added of exports. The next three most important industries were Wholesale, retail & hotels at 13.9% (reflecting in part tourism and upstream distribution services to exporters), at 12.9%, and at 12.7% (Figure 3a). The largest foreign contributions were in and industries, which together contributed 5.7% of Russia s total exports. The three industries with the highest foreign value added shares were (37.7%), Electrical machinery (31.1%), and (29.2%), compared to the figures of 26.1%, 23.7% and 19.6% in 1995 (Figure 3b). Foreign content shares rose in most industries between 1995 and Figure 3a. Russian Federation's industry share of domestic and foreign value content of gross exports percent of total gross exports, 2011 DVA contribution to gross exports, 2011 FVA contribution to gross exports, Figure 3b. Russian Federation's foreign value added content of gross exports 1995 and 2011 FVA share of gross exports, 2011 FVA share of gross exports,

4 Agriculture Wood & paper Non-metallic minerals Other manufactures Utilities Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Other services Total Of the total value of the Russian Federation's imports of intermediate products and services, 33. was subsequently embodied in exports, below the OECD average (39.3%) (Figure 4) but above the share in 2009 (31.). The products with the highest import shares were (54.8%), (53.8%) and, (51.). Figure 4. Russian Federation's imported intermediate inputs used for exports, by import category percent of intermediate imports, 2008, 2009, and The destination of domestic value added produced in the Russian Federation Of the total domestic value added produced by the manufacturing sector in the Russian Federation, 48.1% reflected foreign final demand in 2011, significantly higher than in 2009 (40.7%) but marginally lower than in 2008 (48.2%) (Figure 5). Figure 5. Manufacturing domestic value added in foreign final demand by country, percent of total manufacturing value added, 2008, 2009, and 2011 (left insert = time series for Russian Federation) Note: Final demand excludes inventories: See also 3

5 Agriculture Wood & paper Non-metallic minerals Other manufacturing Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Total Manufactures Total At the total economy level, 29.9 % of Russia's domestic value added was driven by foreign final demand, with significant differences across industries. (85.,) and (83.3%) had the highest level of export orientation in the Russian Federation, with the lowest shares in (8.8%) and Business services (9.1%) (Figure 6). Figure 6. Russian Federation's domestic value added in foreign final demand, percent of value added by industry, 2008, 2009, and Note: Final demand excludes inventories: See also In gross terms, China (8.2%), Germany (7.7%) and the United States (7.) were the three most important Russian export market destinations. While in value-added terms, the top three export destinations were the United States (10.7%), Germany (8.1%), and China (7.6%) (Figure 7, top). For imports, the Russian Federation's top three partners in value-added and gross terms were China, Germany and the United States, although in value-added terms the difference between China and the United States was significantly smaller than when measured in gross terms, partly reflecting the higher domestic value-added content of US exports (Figure 7, bottom). Figure 7. Russian Federation's exports to and imports from main partner countries percent of total gross and value added exports and imports, % 1 8% 6% 4% 2% 16% 14% 12% 1 8% 6% 4% 2% Gross exports Domestic value added embodied in foreign final demand Gross imports Foreign value added in domestic final demand 4

6 Considering only exports of intermediates goods and services, the Russian Federation's major export destinations in 2011 were: China (9.), Germany (7.8%), Italy (6.7%), and the United States (5.7%), with China s share increasing significantly in recent years (Figure 8). Figure 8. Russian Federation's domestic value added embodied in intermediate exports to main partner countries percent of total intermediate exports, in value added terms, 2008, 2009, and % 8% 7% 6% 4% 3% 2% 1% The importance of services In 2011 the service content of total exports in the Russian Federation was 42., below the OECD average of 54.3%, reflecting in part the high share of oil exports which typically have a lower services content than other industries (Figure 9). Figure 9. Services content of gross exports by country, gross and value-added terms, percent of total gross exports, Domestic VA content Foreign VA content OECD average SNA service export share Note: SNA services export shares include re-exports in the denominator, and include any actual differences in free on board and basic prices (the distribution margin provided by resident distributors to resident exporters) in goods. 5

7 Agriculture Wood Paper, print, publsh Non-metallic minerals Other manufacturing For exports of manufactured goods alone, 37. of the total value reflected services sector value-added, above the OECD average (36.9%). Of this share, the Wholesale, retail & hotels sector accounted for 17.4% of total gross exports, with Transport & telecoms and Business services accounting for 8.7% and 5. respectively (Figure 10). Figure 10. Services value added embodied in manufacturing exports, by country, percent of total gross exports, 1995 and Construction Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Other services 1995, Total At the individual sectoral level, the services content of exports was highest in the (44.9%), (41.2%) and (40.4%) industries (Figure 11). Figure 11. Russian Federation's Services content of gross exports, by exporting industry and service category percent of gross exports by industry 2011 Construction Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Other services OECD average

8 The origin of domestic consumption In 2011, 18.3% of the Russian Federation's total final domestic consumption reflected foreign content, of which Europe contributed 8.2 percentage points (pp), NAFTA 1.6 pp, East and Southeast Asia 4.3 pp, South and Central America 0.6 pp and other regions 3.7 pp (Figure.12). Figure 12. Foreign value added content of domestic consumption by country by source region, Europe NAFTA East and Southeast Asia South and Central America Other regions Further Information The information included in this note is based on the 2015 edition of the Trade in Value Added (TiVA) database.» Access the data at Please contact us with your questions at tiva.contact@oecd.org 7