Other State Department Archive Sites

The State Department web site below is a permanent electronic archive of information released online from January 1, 1997 to January 20, 2001. Please see www.state.gov for current material from the Department of State. Or visit http://2001-2009.state.gov for information from that period. Archive sites are not updated, so external links may no longer function. Contact us with any questions about finding information. NOTE: External links to other Internet sites should not be construed as an endorsement of the views contained therein.

Country Commercial Guides for FY 2000: Russia Report prepared by U.S. Embassy Moscow, Released July, 1999 Note*

I. EXECUTIVE SUMMARY

This Country Commercial Guide (CCG) presents a comprehensive look at Russia's commercial climate. CCGs were established by recommendation of the Trade Promotion Coordinating Committee, a multi-agency task force, to consolidate various reports prepared for the U.S. business community. CCGs are prepared annually at U.S. Embassies through the combined efforts of several U.S. government agencies.

Overview of Import Market

Russia, with 147 million residents across 11 time zones, has a diverse economy and tremendous natural and human resources. Demand for a wide range of goods and services is strong, with imports holding high market shares in foods and consumer goods. Potential demand is held back by depressed incomes and limited working capital of enterprises in the wake of the 1998 financial crisis. Long-term market potential merits interest by major U.S. exporters. Russia remains a relatively difficult market in which to do business.

Synopsis of the Commercial Environment

Russia is in the process of developing the legal basis of a modern market economy. Since for several generations the economy was ruled by a command system that prohibited private enterprise, this task is formidable; and the task has been exacerbated by the deep impact of the August 1998 financial crisis, in which the Russian government defaulted on its domestic debt and devalued the ruble. The crisis resulted in a serious cut in purchasing power of the Russian population and rendered many Russian banks insolvent. Attention to commercial law-making and enforcement is complicated by competing demands on an administration and legislature still facing key transitional social issues in a newly democratized nation. Some commercial and financial uncertainty will remain for several years to come. While Russia offers U.S. exporters and investors potential high rewards, risk is elevated and the market's unique complications need to be carefully understood.

Russian Business Attitude Toward the United States

Russians admire U.S. technology and know-how, and show strong interest in developing ties with U.S. firms. More generally, some Russians' attitudes are still partly affected by distrust toward America, largely a residual of the Cold War propaganda of preceding generations. Strong national pride also colors attitudes towards imports of everything from laundry powder to jumbo jets. U.S. products are generally equated with luxury, which can be either an advantage or disadvantage. One successful strategy is to offer the U.S. packaged product as well as a local version aimed at the broader market.

Leading Business Opportunities

Western products and services in demand include equipment and services for the energy sector; telecommunications equipment; mining and construction equipment; medical products; autos; food processing and farm machinery; computers; aircraft; cosmetics; and poultry, meats and other foods. The ability of hard currency-earning sectors such as energy and metallurgy to import U.S. goods has grown during the first half of 1999, while imports of consumer items, including cars and food products, are markedly below 1998 levels due to lower purchasing power throughout the broader Russian economy.

Major Roadblocks to Doing Business

The two major roadblocks to business in Russia are limited financing and a commercial law system that is still evolving. Operating costs are relatively high, credit data on potential partners is far below the U.S. norm, and even creditworthy partners are hamstrung by a weak banking system. New laws in the commercial arena affect the range of operating conditions from taxation and tendering to property rights and other areas. Rule of law in commerce is hindered by the absence of a tradition of accountability from law enforcement agencies. Interpretations of laws and regulations often vary. Crime and corruption exist and must be carefully avoided. Protectionism in trade enjoys increasing popularity, whereas free trade has a limited body of support.

Local and Third-Country Competition

Western European firms are active throughout Russia in most consumer and industrial products and services. In the Far East, Urals and Siberia, Asian firms are aggressive, notably in autos and lower-cost consumer goods. In the northwest, Scandinavian firms are prevalent in infrastructure development; and Turkish firms are established in many areas of Russia in the construction industry. Russian firms in most sectors offer low-cost competition, and have gained a further advantage as a result of the ruble's 1998-1999 depreciation.

Some Keys to Success

U.S. companies' quality and innovation give them an advantage even in this price-sensitive market, but those that approach Russia with an eye toward quick sales and low up-front investment are typically disappointed. Many U.S. firms have taken a parsimonious approach to entering Russia -- with commensurate sales. In contrast, firms which research tax, customs and other requirements with professional sources in advance, which visit Russia often to cultivate customers, which bring product literature in Russian, and which invest beyond a minimal amount in marketing and establishing distribution channels stand a better chance of success.

U.S. and Foreign Commercial Service (US&FCS), Foreign Agriculture Service (FAS) Regional Services

US&FCS and FAS operations in Russia are headquartered at the U.S. Embassy in Moscow. US&FCS maintains offices and/or staff at the U.S. Consulates in St. Petersburg, Vladivostok and Yekaterinburg; FAS operates offices in St. Petersburg and Vladivostok. Both agencies support U.S. firms with a range of services including customized counseling, agent/distributor search services, individualized appointments (Gold Key Service), trade promotion events and where appropriate, project-specific advocacy.

Country Commercial Guides are available on the National Trade Data Bank CD-ROM or via Internet. Please contact STAT-USA at 1-800-STAT-USA for details. CCGs can be accessed on the World Wide Web at www.stat-usa.gov; www.state.gov/; and at www.mac.doc.gov. They also can be ordered in hard copy or on diskette from the National Technical Information Service at 1-800-553-NTIS. U.S. exporters seeking general or country-specific export information and assistance should contact the U.S. Department of Commerce's Trade Information Center at Tel 1-800-USA-TRAD or fax (202) 482-4473.