Ian Ritchie Scottish Business Insider - May 2022
THE RUSSIAN INVASION of Ukraine has blown a massive hole in the globalised trading world. Vladimir Putin seems to have achieved the opposite of his stated objectives, uniting the west and NATO as never before in support of Ukraine, and encouraging many businesses to withdraw in disgust from serving the Russian market.
Unlike Germany or Italy, Scotland doesn’t export much in the way of luxury items to Russia. Scotland annually sells about £250m of goods and services, a relatively small amount compared to £6bn of trade with the USA, or over £2.5bn with individual European economies like France or Germany.
Whisky was the largest component of this at £28m but most major distillers like Diageo, Chivas and Edrington have now ceased supplying product.
We have had large enterprises in the past – Scottish and Newcastle (S&N) used to own the largest brewery in Russia, Baltika in St Petersburg, but after the Heineken acquisition of S&N it is no longer our problem and they have taken the difficult decision to withdraw from their £400m Russian operation, the third largest in the country, and its 1800 staff.
Indeed Baltika's massive expansion, across all the time zones of Russia, in specially refrigerated trains, was due to Vladimir Putin, who was then head of St Petersburg's council authority and he ought to increase the nation's tax income by shifting Russians from vodka drinking, which was often made illegally and disruptive on national productivity, to the consumption of low-strength beer, which delivered a tax benefit.
Several smaller Scottish companies have ceased supplying their products, including Tunnock's, Walkers Shortbread, and AG Barr’s iconic Irn-Bu. Pepsico, the US food giant, recently cancelled a contract to sell 2,000 tonnes of Scottish seed potatoes.
As for individual Russians – not all oligarchs have their mansions in Kensington or the Cote d’Azur. There are a few very rich ones who have, inevitably, bought Scottish castles and large estates, including Boris Mints and Vladimir Lisin, both of whom featured on the ‘Putin List’ published by the US Treasury in 2018, although Mints has recently come out in public as a critic of Putin, calling him a ‘modern Hitler’. Yuri Shefler, who owns the Stolichnaya vodka brand, is believed to own the Tulchan estate on the river Spey.
There is relatively little services activity between Scotland and Russia but several of our high-tech companies did have development activities with businesses or with individual contractors in Ukraine – activities which have pretty much now collapsed.
A major example is Edinburgh-based rocket manufacturer, Skyrora, which was founded by Volodymyr Levykin, a Ukraine-born tech entrepreneur, and in addition to their 80 Scottish employees they have a significant technology development base back in Dnipro (which used to be a ‘space city’ back in the Soviet era). Following the fall of Crimea in 2014, Levykin cut off all cooperation with Russia or their money. A few Dnipro employees have transferred to the UK but their Ukrainian operation is no longer operating effectively.
All this European chaos could be seen as a dress rehearsal for a much more destructive eventuality if China ever acts on its declared intention to reintegrate Taiwan with the Chinese nation. Just like Russia and Ukraine, President Xi has made it very clear that he sees Taiwan as a part of China.
Unlike Russia, China is far more integrated with the entire global economy, buying lots of luxury goods and cars from the West, and, in turn supplying us with manufactured items such as smartphones, computers, toys and other gadgets.
Also, as Taiwan currently accounts for 92% of the world's most advanced semiconductor manufacturing capacity, any attack on its economy would have a devastating effect on almost everything in the modern world; an unimaginable prospect.
The world urgently needs to start to think about how it could possibly react if China does follow through on their stated goal of taking back Taiwan, by force if necessary.
It would make the Russian/Ukrainian war trivial by comparison.