The State of Russian Trade in Latin America

Modern Russia holds a storied image internationally that no longer has a bearing in reality. In the days of the Union of Soviet Socialist Republics (USSR), Moscow went head-to-head with Washington in the battle to be the world’s most powerful economic force, but the modern era of Russia has seen it steadily losing influence as an economic power. 

No longer inside the top ten global economies, Russia now ranks alongside
Canada and South Korea, with an annual GDP of US$1.65 trillion. This decline is a matter of history, but the question of Russia’s future is a critical consideration, especially for a Latin American region that has long been an opportune area for Moscow to build new trade links that can be mutually beneficial.

Moscow-LATAM Relations in the USSR Era

Defining where Russian-Latin American relations need to go in future must come with an understanding of the past. It is not a past that either side should be bound or defined by, but one with old and strong trading relationships that can be renewed, and where new links can flourish in the absence of the Cold War divide.

In the era of the USSR, Moscow initially had a somewhat slow beginning in its quest for influence within the region. This owed to the realities of geographic distance and the profound influence of the United States within the Americas; pre-World War II the US not only sought to consolidate its status as the region’s most powerful nation but to marginalise any remaining European influence that could challenge its supremacy. There were also technological limitations that inhibited the ability of all great powers to build relationships at a distance, with the ease they do today.

In the post-war era, both Washington and Moscow had a new reach. Washington knew it needed to truly engage globally. Moscow found new opportunity to do so in a Latin American region that was rejecting colonialism across the board, and seeking a new path to economic development. 

Although the Cuban Missile Crisis of 1962 is seen by many as the quintessential example of Cold War strategic competition between Washington and Moscow in Latin America, in reality the USSR’s interests in the region were timid. It was only in the 1970s that the USSR’s presence within the region really kicked into gear. Moscow sought closer ties with governments that shared a desire to reduce US influence in the region, and provided them with political, economic and, where possible, military support. With Cuba already an ally, Nicaragua, Peru, Mexico, Argentina and Brazil were all key targets for Soviet support through the 1970s and 1980s, albeit with mixed success. Then, in 1989, the Berlin Wall fell and everything changed for Moscow and the world. 

Through the 1990s to Today

Russia entered the 1990s needing to define a new identity, and it was a painful experience. The USSR was dead, the US economic model was predominant globally, the European Union was growing in influence, and Moscow had the immense task of economic modernisation. Within Latin America, it began a new era with old friends. Russia rebuilt mutually beneficial ties with Cuba, helping the nation through its ‘special period’ and turning it into a tourism powerhouse, and enjoyed strong trading links with the Chavez regime in Venezuela. 

As covered in our other Businessweek piece on Russia this week, since Vladimir Putin’s succession of Boris Yeltsin and ascendancy to the presidency in 2000, he has presided over a return to a Cold War mentality in Russia’s foreign policy, and this informs the nation’s economics. Notwithstanding, modern Russia has found many new industries and opportunities within Latin America. Central to this is the potential of Russia’s pharmaceutical industry, with Russian producers hungry for new markets, and Latin America providing a huge demand. 

The pharmaceutical industry is abundant with variables that can impact its strengths, chiefly the high costs involved in research and production, and layers of red tape that can delay and frustrate production. Nonetheless, in a market where the region’s two biggest economies, in Brazil and Mexico, already maintain strong pharmaceutical industries of their own, a growing involvement by Russia brings the potential for a greater variety of effective treatments, and greater affordability due to increased competition. While competition with Brazil in this sector is one area of real promise for Russia, its partnership with South America’s largest nation is also critical to its future trade in the region.

Building in BRICS

Russia has a strong regional trading partner in Brazil. Both have a traditional bilateral trading relationship and, more widely, are two members of the BRICS (Brazil, Russia, India, China, South Africa) association. Less than a decade ago this trading bloc was seen as the collection of states that would redefine economic power in the 21st century but, more recently, has become renowned for its underperformance. However, there has been recent uptick in BRICS engagement within the region, such as India’s announcement in late September of a US$14 million grant for Caribbean island states. This amount is not colossal in the grand scheme of BRICS GDPs but it is significant as a downpayment on future growth.

Meanwhile, beyond Brazil, Russia has made modest economic gains on its evolving relationships with other nations, namely Mexico, Bolivia and Venezuela. While total Russian trade in Latin America was just US$12 billion in 2016, this represents a 44 per cent increase in volume from 2006. The greatest inhibition to future growth is not the reluctance of regional partners, but Russia’s woes that emerge out of Moscow.

The More Things Change . . .

Moscow’s aspirations for Latin America continue to be informed by its relationship with Washington. Yes, the era of Cold War politics is over, but Putin’s decision to rekindle and inflame old disputes has seen the Russian economy wracked by sanctions. In turn, Washington’s partners in the region have been pressured to punish Russia and resist closer ties.