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**July 1995**
LAND OF OPPORTUNITY
by Mike Guerin

Bustling ports, agribusiness, oil, and tourism, make Southern Russia one of the
Russian Federation's most promising regions.  Its location on the Black Sea makes
Southern Russia the gateway to a vast industrial and agricultural hinterland, since
it has the closest ports to a huge area of Russia and Central Asia.  While it has not
attracted the same amount of attention as other parts of the country, any U.S.
company seriously interested in Russia should be sure to investigate this important
region. 

Krasnodar Krai (or province) is Southern Russia s economic and geographic
heartland.  Also known as the Kuban, after the great river which runs through it,
Krasnodar is renowned in Russia for its agriculture.  It combines some of Russia s
best soils with a favorable climate--resulting in the country's highest grain yields
and livestock production.  Food processing is the largest local industry, although it
suffers from poor management and a lack of capital.  Other important agricultural
products from Krasnodar include wine, dairy products, sugar, fruits, vegetables,
and fish.

Krasnodar's mineral resources include oil and gas, iron, manganese, copper,
mercury, apatites, and phosphorites.  Local manufacturing industries include
machine tools, instruments, agricultural equipment, machinery for the petroleum
industry, food-processing equipment, textiles, leather processing, shoe-making, and
porcelain.

Rostov Oblast, immediately to the north, has strong agribusiness,
machine-building, and chemicals sectors, as well as major anthracite coal reserves. 
Rostov has already begun to attract U.S. high-tech firms to the region, such as
Brother Computers, which recently signed an agreement with a local firm to
assemble personal computers for the Russian market.  Rostov-on-Don, the capital
of the Rostov Oblast, is the region's largest inland port, and is a regional transport
hub for air and river traffic, as well as a traditional trading center.  Like other cities
in Southern Russia, Rostov-on-Don has experienced  rapid growth in local
commercial activity since the collapse of the USSR.  

Stavropol Krai, northeast of Krasnodar, has a mixed economy based on oil and gas
and related industries, agriculture, and tourism.  Oil and gas are extracted locally,
although output is declining.  Copper is  also found in Stavropol Krai.  Equipment
for the oil and gas industries is manufactured in Stavropol, along with a variety of
refined products and agricultural chemicals.  Other local manufactured goods
include construction equipment, machine tools, and electrical equipment.  The
krai's agricultural sector specializes in sheep, poultry, wines, and fruits and
vegetables.  Stavropol's mineral springs and spas were well-known in Russia
during the Soviet era, but have fallen off in popularity in recent years. 

Post-Soviet Benefits

Since 1991, Russia's direct access to the Mediterranean has been limited to ports
along Krasnodar s Black Sea coast, which has raised Southern Russia's strategic
economic importance considerably.  Key ports include Novorossiysk, Tuapse,
Temryuk, Yeisk, and Kavkaz, as well as a new port under construction at Gorkoye
Ozero.  Rostov-on-Don links the region's seaports with Russia's industrial
heartland, via the Don and Volga rivers and the Volga-Don Canal.  Farrell Lines,
Sealand, and Lykes Brothers Steamship Company now all provide regular service to
Novorossiysk.
 
Southern Russia also benefits from the production, transit, and refining of
petroleum, both from local reserves and from the great oilfields of Western Siberia
and the Southern Urals.  Major new pipelines and other facilities will almost
certainly be located in Krasnodar, as well, to accommodate huge exports of crude
oil from Central Asia and the Caspian Sea expected to begin in the late 1990s. 
Russian oil companies have already begun to invest considerable sums in the
region's transportation infrastructure.

Several U.S. companies in the oil and gas industry are already involved in projects
involving Southern Russia, including New Jersey-based ABB Lumus Crest, which is
building a 180,000 barrel per day (b/d) refinery in Krasnodar with LUKoil; Energy
World Trade, which has a production-sharing agreement to develop a Stavropol oil
field, and Chevron, which will export 70,000 b/d of crude oil via Krasnodar ports
under an eight-year contract with LUKoil. 

Tourism in Southern Russia has considerable potential, as well.  Today, Southern
Russia has the only Black Sea resorts still accessible to Russians without crossing
international borders.  Skiing in the nearby Caucasus mountains and the region's
numerous hot-spring spas also offer a variety of development opportunities. 
Radisson Hotels is pioneering international tourism in Southern Russia (see:
Regional Corner, page 11).  Expansion and modernization of tourism infrastructure
are a major priority for the region's overall economic development.

Infrastructure

Like elsewhere in Russia, local infrastructure needs modernization.  Power
generation is an area of particular concern.  Rostov and Stavropol provide fully half
of Krasnodar s electricity, even though neither Rostov nor Stavropol generate
enough power to meet their own needs.  Solutions advocated by the region's 
governments vary, with Stavropol emphasizing energy conservation and alternative
power sources, while Rostov and Krasnodar are more interested in building and
refurbishing power plants. 

Local telephone communications, especially with outlying areas, also need
modernization.  Telecommunications with Moscow and overseas are less of a
problem, according to U.S. business people active in the region.  Hotels in the
region's major cities are generally not up to international standards. 
Rostov-on-Don, for example, has only 550 hotel rooms that meet minimum
Western standards, and no adequate meeting or conference space.  For more
information on doing business in Southern Russia, contact: Valery N. Kupriev,
Head of the Krasnodar Krai Foreign Economic Department, at 011 (7) 8612
57-67-64; Nataliya Golaenko, President of The Russian-American International
Business Institute in Krasnodar, at 011 (7) 8612 36- 34-27 (voice & fax); or the
Volgograd American Business Center, at 011 (7) 8442 33-59-46 (voice) or 011 (7)
36-27-32 (fax), or by e-mail at "[email protected]." 

Michael Guerin is Focus Editor for this issue of BISNIS Bulletin and also covers
financial issues for BISNIS.
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