Russia and the Philippines: Trade and Investment Opportunities 2023/24

Emil Avdaliani

Russia and the Philippines have been peripheral to each other, because although bilateral trade and investment ties are small, geography also greatly prevents the development of closer ties. What could change that are geopolitical developments across Eurasia that are pushing Russia to seek closer ties with Southeast Asia.

Amid Russia’s trade shift from the West to Asia, the Philippines plays an important role in facilitating this long-term process. As a vital member of the Association of Southeast Asian Nations (ASEAN), the Philippines serves as a springboard for Russia to increase commercial ties with the rising Southeast Asian region.

After the outbreak of the conflict in Ukraine, Russia took great steps in this direction. For example, in 2022, Moscow opened a Russian trade representative office in the Philippines. Moreover, Manila has also indicated its willingness to enter into a Free Trade Agreement with the Moscow-led Eurasian Economic Union (EAEU), which follows the Double Taxation Agreement between the two countries.

the market

Trade relations between Russia and the Philippines have seen steady growth over the past years. Bilateral trade increased from US$486.3 million in 2010 to US$862.8 million in 2020. In 2021, Russian exports to the Philippines amounted to US$560 million, with iron semi-finished products being the main product, while Philippine exports to Russia amounted to 444 million dollars. In 2022, the Philippines’ imports from Russia were estimated at US$651.24 million, and the total trade level reached approximately US$1.4 billion.

Russia wants to diversify and expand its trade and investment cooperation with the Philippines, focusing on various sectors including pharmaceuticals, medical equipment, infrastructure and military equipment. Philippine exports to Russia consist of electrical machinery, mechanical devices and agricultural products.

These figures and initiatives reflect the strong and growing economic relationship between Russia and the Philippines, with both nations seeking to strengthen their agricultural trade ties as well as creating joint ventures for agricultural processing. In 2022, trade turnover of agricultural products between the two countries increased by 14% to reach USD 72.2 million.

Russian fuel is another product that the Philippines is interested in. Despite the conflict in Ukraine, Manila has refrained from criticizing Moscow and has not joined the Western sanctions regime. The goal is simple: Russian fuel will help the Philippines diversify its supplies, limiting the risks of over-dependence on any single importer.

Russian companies expect that the country could turn into a major meat and grain exporter to the Philippines if existing restrictions on the supply of Russian meat products are lifted. This would fit into the overall trend seen in 2018-2022, when the Philippines tripled its meat imports to US$2.4 billion. Almost half of these imports are pork – 44%. In total, in 2022, the Philippines imported almost US$21 billion worth of agricultural products. The Philippines is also interested in deliveries of petroleum products from Russia.

After a four-year hiatus, in October 2023 the joint Russian-Philippines Commission on Trade and Economic Cooperation, the governments agreed on a trade and economic meeting, signaling Moscow’s growing commercial and investment interest in the country and the wider ASEAN and Southeast Asian region. The Russian side was represented by giants such as Rosatom, Gazprom, Kamaz, GAZ Group and others.

After the imposition of Western sanctions on Russia, the latter’s trade contacts with the Philippines became more complicated. As a result, the two countries are currently looking for opportunities to trade through means other than SWIFT. However, no reliable alternative has been found so far, although Moscow and Manila have agreed to encourage the opening of correspondent accounts in the banks of the two countries.

investments

Russian investment in the Philippines has been encouraged and facilitated by the Philippine government as part of efforts to strengthen economic cooperation between the two countries. Russian companies have shown a special interest in oil exploration and the construction of traditional and nuclear power plants. Moreover, during the Philippine President’s state visit to Russia, at least 10 business contracts worth US$12.57 million were signed, indicating active engagement between the two nations.

There is also significant interest from the Russian financial sector, and Tinkoff Bank plans to invest in the country in 2021. In early 2022, former Tinkoff Bank executives launched a Fintech startup in the Philippines – an investment of USD 16 million. The startup will operate in Southeast Asia, but the Philippines will be its first market.

The Philippine political leadership has on numerous occasions assured Russian investors of potential gains and a favorable investment environment. Manila is also interested in attracting Russian investment in mineral processing, automobile manufacturing and the medical industry.

Russian companies are also exploring the possibility of trading a range of products with the Philippines and the wider ASEAN region. Areas of trade and investment cooperation are expanding, with new focus areas including pharmaceuticals, medical equipment, infrastructure, agribusiness, business process outsourcing, mining, tourism, creative industries and medical travel. These sectors have been highlighted as priority areas for Russian investors, demonstrating the breadth of opportunities available in the Philippines.

With the Philippines as a member of ASEAN, investors in the country have access to free trade with other ASEAN countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Singapore, Thailand and Vietnam. ASEAN also has an FTA with the Philippines’ large neighbor to the north – China, while Hong Kong is only an hour’s flight from Manila.

The two countries are also working on expanding ties in tourism. Manila believes direct flights (operated by Russia’s Aeroflot) will be established in the first quarter of 2024. Until now, Russian tourists used connecting flights mainly via the countries of the Middle East.

Physical infrastructure is also important. Given the position of the Philippines, there is limited connectivity with Russia, but one way to remedy this is to build connections with Russian Far Eastern ports such as Vladivostok. Extensive work still needs to be done on this front, but the two countries are thinking about developing trade along this route.

Emil Avdaliani is a professor at the European University in Tbilisi.

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