Bring Your Own Paper
Against the backdrop of the economic crisis, the Russian pulp and paper industry’s exports exceeded imports for the first time in 2015. Ksenia Sosnina, President of IP Russia explained in an interview to BRICS Business Magazine how the import substitution principle works in practice.
Can you talk about trends in the paper and packaging industry in Russia and how they compare with other BRICS countries?
In Russia, there are a number of growth trends within our industry. The first, which is very important, is actively investing in environmental projects, sustainable forest management, workforce safety, and social projects in regions where big businesses in our industry are becoming the main employers in a town and also systemically important at the national level. In economic terms, the major players in our industry in Russia are also more successful at exporting their products; in other words, these are non-commodity exports, of which there aren’t many in Russia these days. Secondly, they are engaged in import substitution as well as successfully modernizing and expanding their businesses. Serious attention is paid to developing qualified staff and production efficiency. Initially, our industry’s infrastructure, which was developed during the Soviet era, differentiated us from our peers, such as Brazil and countries in Asia, where all of the facilities are new and modern. Also, the renewal cycle of forest resources is much shorter. We expect support from the government, which in my opinion, is interested in seeing our industry remain and develop as one of our country’s competitive advantages. Russia has everything it needs to achieve this: forests, energy, people, and a tradition of large-scale industry that must not be wasted under any circumstances.
How is demand for paper and packaging changing given the current economic slowdown in BRICS countries compared to last year?
In different sectors, the dynamic can vary in different ways. In the majority of sectors, there has been stagnation or a relatively small drop in demand in the range of one to five percent. However, with import substitution, which I have already mentioned, producers’ options in Russia have expanded. When economic growth and business activity recover, growth of consumption in our sector resumes as well.
What drives demand for pulp paper and packaging in developing countries, particularly BRICS countries?
In short, all over the world, the main drivers of business and consumer activity are demographics and employment. Enterprises’ economic activity and low levels of unemployment form effective demand for paper and packaging. For example, it is obvious that in countries where there are new forms of industrial production, daily distribution of consumer goods, and initial developments of retail trading, there is the strongest potential for the packing industry to grow. In countries with good demographics and/or high business activity, there is still potential for paper consumption to increase.
Has your business growth strategy changed in Russia given the economic situation? Are you involved in import substitution? Has your export position strengthened?
Yes, I have already touched upon some of these issues – export and import substitution are key trends for major manufacturers. In terms of International Paper’s strategy in Russia, we make sure our strategy is relevant and continue to develop it. It is a growth and development strategy, and we are absolutely convinced of its relevance in spite of the current challenges. There never has been and never will be an ideal time, and intelligent strategies take this into account.
Which business and government measures could support the growth of the Russian pulp and paper industry?
As I have already mentioned, I consider our industry to be one of those that can give our economy a long-term advantage. We have the government’s support but would like to see more systematic, long-term programs implemented quickly and efficiently. In the first instance, these programs promote sustainable forest management, tax deductions, and the launch of investments in environmental programs by taxing emissions and giving incentives for using the best available technology, more predictable tariff regulation, improving inspection schedules, and, very importantly, training professionals, and actively supporting science and innovation in our industry. It is possible to continue expanding this list.
To what extent can the pulp and paper industry be considered sustainable?
Our products are perhaps among the most sustainable. Paper is produced from renewable resources. By using paper, we contribute to forest cultivation in line with sustainability principles, and, in turn, this helps to combat climate change. Today, paper remains a key element in education. Even with the development of digital technology, a certain amount of paper will always be needed, not to mention for packaging and certain varieties of tissue that are needed for disposable sanitary products and are produced from paper and pulp.
To what extent is sustainable development a relevant business solution today?
The sustainable development model is the only way if you want to create a stable system that will continue to grow. For our business – which is closely linked to natural resources, the environment, high capital intensity, and demand for skilled workers – a model for sustainability is the basic idea behind our approach. Let me remind you that the classic definition of a model for sustainability involves economic, social, and environmental components. All of them are relevant to our business but also to everyone.
Our products are perhaps among the most sustainable. Paper is produced from renewable resources. By using paper, we contribute to forest cultivation in line with sustainability principles, and, in turn, this helps to combat climate change. Today, paper remains a key element in education. Even with the development of digital technology, a certain amount of paper will always be needed, not to mention for packaging and certain varieties of tissue that are needed for disposable sanitary products and are produced from paper and pulp
As a major company, are you planning to invest in further modernizing your production in Russia?
Yes, of course. Our annual plans and multi-year program include investments into four areas: efficiency, environment, production maintenance, and strategic solutions.
How significant are BRICS countries as pulp and paper markets?
China, India, the Middle East, and Europe are natural markets for Russia, and they are very important for the export of pulp and products. China and India are gigantic markets that continue to grow, and these economies provide huge potential for further development, although, like all emerging markets and economies, they are more vulnerable to volatility and even shocks. Europe is the same – a stable, profitable market was formed with high demand, which, in my view, provides an excellent stimulus for Russian companies to grow products and services.
How is the digitization of many areas of business and the move towards electronic documentation affecting the pulp and paper industry?
In Russia, the most noticeable effect we see is in newsprint. Publications are on the Internet, which primarily negatively impacted publishing businesses and newsprint production immediately after. But even in the offset, office, and coated paper segments, we have not seen a significant drop in demand in Russia, and there is even potential for growth. If the drivers that I mentioned earlier – business and consumer activity, employment, and demographics – recover after the crisis, then the economy will develop positively. In more mature and innovative economies, the US, for example, reduced demand for paper is more noticeable. All emerging markets are continuing to grow at the moment.