The Kremlin as seen from the banks of the Moskva River in Moscow. Stock image

Irish firms have taken "a big hit" as a result of the tit-for-tat trade war between Russia and the European Union. Enterprise Ireland's manager for the Russian region, Gerard MacCarthy, says the immediate future for Irish food exporters looks "bleak" after EU-US sanctions on Russia were recently extended until 2018.

Russia's declared ambition to achieve food self-sufficiency - in everything "except exotic fruits" - by 2023 has further dampened the mood among Irish firms.

The fallout from the trade war has affected the importation of EU-sourced meat, poultry, dairy, fish and other foodstuffs. Irish-Russian trade has been hit by a 'triple whammy' of events in the last three years: the collapse of the ruble, food sanctions, and the Kremlin's 'import substitution' policy.

The effects have been devastating to Irish exports, and have impacted on the 100-plus Irish firms in the Russian market.

Before the crisis, Russia had been one of Ireland's fastest-growing export destinations, with the value of food exports jumping 500pc between 2009 and 2014. Total exports hit a record €722m in 2014.

Goods exports fell to just over €364m last year 2016 - down from €369m in 2015.

One of the worst-hit sectors was Irish pig meat, which accounted for about a sixth of total exports, worth €59m, prior to the ban.

In addition to blockading €12bn worth of EU-US produce, Russia's main strategy is to increase farm efficiency.

This strategy, twinned with the sanctions war, is a double-edged sword for Ireland's dairy and agribusiness sectors.

The likes of food giant Kerry Group and agribusinesses such as Dairymaster, Keenan and Mastek look set to benefit from a farm tech boom in Russia.

Moreover, for the likes of Kerry Group, the sports nutrition and infant formula markets remain open, and both show potential for significant growth. But Kerry Group's plans to expand its Kerrygold brand in Russia have soured. The popular brand had found a foothold in Russia prior to the sanctions. That plan has ground to a halt.

"Market re-entry ­- if and when those sanctions are lifted - will be increasingly hard for Irish/EU companies as Russia's import substitution policy gains a deeper hold," said MacCarthy.

However, aside from sanctions, EI's man in Moscow said "the single biggest factor affecting Irish exports to Russia is the volatile exchange rate with the ruble", which has added a 75pc hike in the cost in rubles of goods imported from the EU. MacCarthy said Enterprise Ireland has been working tirelessly since 2014 to help Irish firms weather the storm.

Since then the trade body has diversified its efforts in Russia by identifying companies looking to launch into the US and Europe using Ireland as a base. "We really started to promote the Irish startup ecosystem in Russia," he said.

Enterprise Ireland's Competitive Start Fund has attracted a number of high-profile Russian startups to Ireland, many of them to Dublin's Silicon Docks area or the Guinness Enterprise Centre.

The fund has led to a wave of Russian startups moving to Ireland in the last two years, as well as established Russian firms choosing to relocate here.

Lured to Ireland by the IDA, Russian cybersecurity firm Kaspersky Lab opened a European R&D centre in Dublin last year.

Russia Today, a state-funded global news channel, has relocated its global social media headquarters to Dublin's Digital Hub, also with the IDA's assistance.

Following EI investment, Russian-owned InnaLabs relocated to Dublin from France. Its technology is found on many of Google's latest satellites.

More recent Russian startups here include retail analytics service CountBox and robotic warehousing firm Eiratech.

"We were very determined to generate a positive story to tell, something new to focus people's attention on to counterbalance the predominantly negative press," said MacCarthy.

Nevertheless, the sanctions crisis continues to command media attention.

Foreign direct investment in Russia fell from $69bn (€58.7bn) in 2013 to just $6.8bn in 2015.

The twin shocks of sanctions and plummeting oil prices have led to Russia's economic growth forecasts being slashed, with 2pc growth or less this year - a far cry from 7pc growth rates in the 2000s.

For over a decade Russia has been struggling to diversify and modernise its economy. Its over-dependence on oil and gas revenues means that it is vulnerable to market shocks. However, in recent years it has made great strides to create a start-up eco-system at Moscow's so-called 'Silicon Valley' Skolkovo where world-leading technology centres such as the Russian Quantum Centre are located.

Petr Lukyanov, managing director of Phystech Ventures, one of Russia's top early-stage VC funds, said sanctions have actually benefited the local industrial sector.

Lukyanov is a global player with investment vehicles in Silicon Valley, Europe and Asia. He is a former investment director at the Skolkovo Foundation. Skolkovo has received over $10bn in state cash to help steer the country's economy away from one heavily reliant on the sale of oil, gas and minerals to a hi-tech economy built on high growth potential startups.

One consequence of the EU-US sanctions targeting the energy sector is they have boosted M&A activity, with foreign firms circumventing restrictions by buying Russian firms to gain a local foothold in the oil and gas sector.

"Sanctions have stimulated a high level of M&A activity. More than 10 global players acquired more than 30 technology companies over the last five to seven years in Russia," said Lukyanov.

Enterprise Ireland's MacCarthy takes a similar 'glass half-full' approach. "Of course the Russian market is a massive challenge at the moment. It was never easy, and sanctions don't make it any sweeter to spin. However, it is a huge market. It is trying to modernise and rebuild its infrastructure at an accelerated pace. In Moscow, we have reliable relationships that allow us open new doors - and make sure they stay open for Irish businesses," he said.

Sunday Indo Business