# Presentation: 579465

## U.S. Commercial Service Your Key To Russia

**U.S. Commercial Service ****Your Key To Russia**

**Prepared for the 2007 Trade Winds Forum**
**Washington, D.C. - May 15-16, 2007**** **

**The “R” in BRIC – Russia**
**Strategic Emerging Market**

## Russia

- “Russia is a riddle, wrapped in a mystery inside an enigma.”  Winston Churchill, 1939
- “Russia is an engine of growth for American companies.” Andrew Somers, President of AmCham Russia, 2007

_**PERCEPTION:**_

## Russia

_**In the Western Press**_**:**

-  “Backtracking” on Democracy
-  Litvinenko/Politkovskaya Cases
-  Relations with “Near Abroad”
-  Chechnya
-  Yukos

## Russia

_**Business Reality**_**:**

-  Russia is a Developing Economy
-  Significant progress over past 17 years
-  Impressive economic growth since 1998
-  Substantial structural, administrative,
-   and economic reforms implemented
-  Strategic market with significant assets

## 8 Consecutive Years of Economic Growth

## Macroeconomic Snapshot

-  Average GDP growth: 	6.7% per yr. since ’98
-  GDP 2006: 			$987 Billion
-  PC GDP 2006: 		$6,929 ($1,339 only 6 years ago)
-  Inflation:			9-10%
-  Unemployment: 		6.6%
-  U.S. exports 2006: 	$4.7B to Russia (+20%)
-  U.S. imports 2006: 	$19.8B from Russia (+29.5%)

_**Macroeconomic Snapshot**_

##  Oil and Gas Economy

-  Moscow awash with money; record oil/gas prices    driving economy.
-  Russia a major player in the global energy market:
-  World’s largest natural gas reserves and largest gas exporter
-  Neck-in-neck with Saudi Arabia for oil production; 2nd largest oil exporter.
-  World’s 3rd largest energy consumer

## Oil and Gas Economy(cont’d)

-  Putin/GOR bringing greater share of energy sector under state control – Strategic Sector
- Energy increasingly important element in Russian foreign policy
-  Simultaneously trying to diversify economy away from reliance on petrodollars

**Oil and Gas Economy****(cont’d)**

## Commercial Ties Critical to Bilateral Relationship

*“**While political issues between our nations tend to garner the most headlines, economic interests should not be ignored.  U.S.-Russia commercial ties are stronger and more dynamic than ever before, providing stability to our overall relationship.”  *
*  **Secretary of Commerce Carlos Gutierrez,*
*  **Moscow, April 2007*

## Market Challenges

-  Rule of Law, Bureaucracy – difficult to navigate
- State Control in some sectors
- Transparency
- Intellectual Property Rights
- Competition – Especially from W. Europe and Asia
- k

## Market Potential(AmCham Survey Results)

*Did you know that . . .*
- Half of American companies surveyed report sales increases of 200% or more from 2001 to 2005
- 97% of U.S. companies in Russia project continued growth in sales during the next 3 years
- 92% of U.S. companies in Russia believe that continued engagement with Russia is positive for American Business and 86% believe Russia’s membership in WTO will bring new opportunities

## What U.S. Business Executives are saying about Russia

- Our sales grew 80% in 2006 – **Johnson & Johnson**
- During 2006 our sales have increased by 70% with a strong trend for future growth – **Delta Airlines**
- Russia now ranks in the top 5 among 180 countries in which we do business – **Wrigley**
- We have exceeded $1B in sales w/ latest annual growth rates of 20-30% – **P&G**

## What U.S. Business Executives are saying about Russia

- Russia represents the largest subsidiary in the Europe Region for **Mary Kay **with 53% of 2006 net sales for the region
- Our business is now growing at a yearly average of about 40% – **Dow Chemical**
- Since our office opened in 2002 we have grown at over 70% annually and growth in increasing. 80% of our products sold in Russia come from U.S. factories in Illinois and Iowa – **John Deere**
**3M** Russia is a very important subsidiary for 3M Worldwide. Our business results, growth and profitability have been outstanding over recent years and have been some of the highest in 3M subsidiaries.

##  Russia’s Market PotentialNational Priorities

- Hundreds of Billions to be spent on new power stations, roads, other infrastructure over next 12 years
-  “National Priority Projects” – Education, Health, Housing and Agriculture
- Russia needs 67% more electrical capacity by 2020 to ensure sustainable economic growth. New nuclear, hydro and coal plants
- Debate over use of “stabilization fund” now at $108 billion

## Russia’s Market Potential

- 145 Million People
- Largest land mass in world - heavily urbanized pop.
- Moscow - 11 million,  St. Petersburg - 5 million
- 13 cities over 1 million people; 32 cities over 500,000
- Outside of Moscow and St. Petersburg retail market underdeveloped
- Huge (unmet) consumer demand
- Retail Growth exceeding overall growth in GDP

## Its not just Moscow anymore

## Example of Regional Expansion

## Example of Regional Expansion (Cont.)

- Lenta founded in 1993.  HQ in St. Petersburg, Russia
- Operates 14 hypermarkets - 15 sites under construction
- Ten of the existing retail complexes are in St Petersburg, two in Novosibirsk and one each in Astrakhan and Tyumen
- First big-box Russian retailer to expand into Western Siberia and the Volga regions
- Stores under construction in Barnaul, Nizhny Novgorod, Novgorod, Novosibirsk, Omsk, Petrozavodsk, Rostov-on-Don, Ryazan, St. Petersburg, Togliatti, and Volgograd
- EBRD $50 million unsecured loan to finance new regional outlets

## Retail Lending Consumer Access to Credit

- Credit card business still in its infancy in Russia
- Increased 128% in 2006 to 5.7 million cards issued
- Auto loans doubled 2005-2006 to almost $10 billion
- Mortgage lending increased almost 4 times 2005-2006 from $3.8 billion to $13.5 billion

## Best Prospects for U.S. Companies

**Telecommunications Equipment & Services**
**Automotive Parts & Aftermarket**
**Oil & Gasfield Equipment & Services**
**Building Materials & Construction Equipment**
**Franchising**
**Medical Equipment**
**Computer Hardware & Software**

**Aircraft & Parts**
**Agricultural Machinery**
**Construction Equipment & Building Products**
**Consumer Goods**
**Safety & Security Equipment**
**Tourism**
**Agricultural Commodities**

## Doing Business in Russia

**Doing Business in Russia**

-  Perform detailed, on-the-ground market research
-  Find a qualified local partner;  Conduct due diligence
-  Be patient;  Maintain a long-term timeframe
-  Know your trade financing options:  Make use of EXIM, OPIC and TDA
-  Consider and Explore the regions

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**U.S. Commercial Service****Russia**

- Offices:  Moscow, St. Peterburg, Vladivostok
- COMMERCIAL SERVICE, BIS, BISNIS, OPIC/EXIM, SABIT

## Contact Us

- Dorothy L. Lutter
- Senior Commercial Officer
- U.S. Embassy Moscow
- dorothy.lutter@mail.doc.gov
- http://www.buyusa.gov/russia/en