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Doing Business in Russia: 

www.bisnis.doc.gov  www.bisnis-eurasia.org BISNIS Presentation Doing Business in Russia IN THIS PRESENTATION Russia’s Economic Indicators Russian Foreign Trade Best Prospects for U.S. Companies Conditions Affecting U.S. Exports to Russia Consumer Market Trade Financing Reasons to Be in Russia What are the Problems? Doing Business in Russia: Commitment Required Additional Resources

Russia’s Economic Indicators: 

www.bisnis.doc.gov  www.bisnis-eurasia.org BISNIS Presentation Russia’s Economic Indicators Economic Ministry forecasts GDP growth in 2004 to reach 6.8-6.9% in 2004 Inflation to exceed 10% official target in 2004 Russia likely to finish WTO talks in 2005 Russia’s imports from non-CIS countries rise 30.9% in Jan-Sept 04 Official Central Bank policy is slightly weakening ruble Central Bank reserves exceeded $100 billion in October Real Ruble exchange rate gains 5.7% against U.S. dollar in Jan-Sept (but loses against a basket of currencies, especially Euro) Russia posts $58 billion trade surplus in Jan-Sept

Russian Foreign Trade: 

www.bisnis.doc.gov  www.bisnis-eurasia.org BISNIS Presentation Russian Foreign Trade In 2003, total EXPORTS - $ 133.7 bln. (125% compared to 2002) IMPORTS - $57.4 bln. (124%) In 2003, the main trading partners were EU – 36% (Germany – 9.7%, Italy – 5.7%, Netherlands – 5.2%) – 122.3% growth Switzerland – 3.3%, 110% growth Eastern and Central Europe – 12.4%, growth rate 120.8% China – 6.1%, 126.5% growth rate United States – 3.7%, 102.1% growth rate as exports from U.S. declined to 97.9% compared to 2002 CIS countries – 17.8%, 131.8% growth rate In Jan-Sept 2004: Russia’s imports from non-CIS countries grow by 30% EU-15 and new EU countries make up a total of 49.6% of Russia’s trade turnover China gets 5.8% U.S. share is 4.1 % (U.S. exports $1.9 bln.) CIS countries 17.2%

Best Prospects in Russia: 

www.bisnis.doc.gov  www.bisnis-eurasia.org BISNIS Presentation Best Prospects in Russia Building Technology and Equipment Building Materials Engineering and Design Services Retail Trade (both food and non-food items) Automobiles, parts and accessories Franchising, Fast Food Health Care and Medical Research Scientific Instruments Machinery and Equipment: Wood Processing, Pulp & Paper Chemical, Petrochemical Oil/Gas and Pipelines Construction Mining Food Processing Printing Power Generation, Energy Efficiency Telecom equipment, electronics, security equipment EXAMPLE: Goods imported from the U.S. to NWR in 2001 meat (48%), tobacco (12%), Machinery – mainly oil/gas (11%), optic, medical and surgical instruments (5.4%)

Conditions Affecting U.S. Exports to Russia: 

www.bisnis.doc.gov  www.bisnis-eurasia.org BISNIS Presentation Conditions Affecting U.S. Exports to Russia What Stimulates U.S. Exports to Russia New unique technologies unknown in Russia Similarity of climate and geographical conditions in Russia and the U.S. High quality and reliability of products and good reputation of U.S. manufacturers Lower price due to weak dollar New projects in Russia with U.S. companies’ participation What Hinders U.S. Exports to Russia U.S. companies not well represented Marketing and after-sale service required U.S. focus on China, Afganistan and Iraq distracts resources from other regions Different metrics can be an issue U.S. visa is difficult to obtain, expensive travel Western Europe is close Historical ties with European firms (plans use their technology/equipment) Active European investment and government support (Germany largest investor) Low purchasing power in Russia (Chinese/Indian, Korean manufacturers gain advantage)

Consumer Market: 

www.bisnis.doc.gov  www.bisnis-eurasia.org BISNIS Presentation Consumer Market Russian consumer market (2002, per IRG): $275 billion (by official figures it is $100 billion less) Consumer market: expanded by $30-35 billion (during 2002, per IRG) ($6-8 billion increase of imports included) St. Pete consumer market (2002, expert estimate) : $7-9 billion (official figures: $4.5 billion) Per capita average income in St. Petersburg: $200 Share of Supermarkets not Large, but Growing Fast Margins of Retailors are Very High Average Salaries: Software Developer $971 Regional Sales Manager $3371 Project Manager $1722 Financial Analyst $1012 Production Manager $2442 Lawyer $3302 Chief Engineer $1351 Chief Accountant $1877

Trade Financing: 

www.bisnis.doc.gov  www.bisnis-eurasia.org Russian Banks are sophisticated in trade financing Current loose U.S. monetary policy boosted liquidity of the Russian banking system Russian companies (especially small ones) have limited access to long-term financing Russian banks view deals from legal standpoint, i.e. protecting themselves as if they have go to court to get repayment, instead of financing promising projects and business concepts U.S. banks and companies are hesitant to take on Russian risks Importers of components and equipment mostly use L/C’s or bank guarantees L/C is often financed by a foreign bank (up to two years, then ECA involvement is required) Large banks with foreign credit lines like to review deals starting from $1 million Some exporters accept guarantees from Russian banks without acceptance of foreign bank Traders pledge their assets to get short-term loans, or use supplier credit and off-shore accounts and deposits Many traders have established relations with exporters and get supplier credit BISNIS Presentation Trade Financing

Reasons to Be in Russia: 

www.bisnis.doc.gov  www.bisnis-eurasia.org BISNIS Presentation Reasons to Be in Russia Labor is not cheap (especially compared to China, but is not very expensive) Skilled labor is available, especially in microbiology, biology, chemistry, physics, software, shipbuilding, aerospace, optics and natural resources Good management skills often lacking Access to plentiful natural resources Expanding domestic market Tax regime, government policies are NOT primary inducements for investment

What are the Problems?: 

www.bisnis.doc.gov  www.bisnis-eurasia.org BISNIS Presentation What are the Problems? The key problems are with the customs, certification, licensing, the state fire, nuclear and sanitary authorities, etc. Difficult to find premises or land for green-field projects (in large cities) Speculators buying land and property for resale Skilled labor is becoming scarce Long-term financing may be difficult to obtain Deficit of reliable information

Doing Business in Russia: Commitment Required: 

www.bisnis.doc.gov  www.bisnis-eurasia.org BISNIS Presentation Doing Business in Russia: Commitment Required Russia’s potential is SME development, not big companies Good local partners are key to success Unexpected obstacles in “easy” things Commitment to Russia required Carefully research the market Beware official statistics (services in GDP, import prices, profits and turnover) Carefully evaluate potential partners Consumer demand is strong – balance price / quality Competition strong Foreign (mainly European) companies are very active

Additional Resources: 

www.bisnis.doc.gov  www.bisnis-eurasia.org BISNIS Presentation Additional Resources Overviews of NW Russia’s regions and Monthly Commercial News Updates Establishing Operations in St. Petersburg General Overview of St. Petersburg’s Labor Market Credit Reporting in Russia: Challenges and Opportunities Market of Industrial and Warehouse Premises in St. Petersburg Infrastructure Projects in St. Petersburg – 2004 Update Health Insurance and Private Medical Service Providers in St. Petersburg Consumer Market Developments and Retail Projects in St. Petersburg Venture Capital Industry in Russia Foreign Trade of Northwest Russia in 2001 All available on BISNIS web site at www.bisnis.doc.gov/bisnis/country/nw.cfm Other resources: U.S. Commercial Service – www.buyusa.gov/russia/en American Chamber of Commerce in Russia – www.amcham.ru

Igor Yegorov BISNIS Representative in Northwest Russia : 

Igor Yegorov BISNIS Representative in Northwest Russia Phone: +7-812-326-2585 Fax: +7-812-326-2561 Igor.Yegorov@mail.doc.gov

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