**COUNTRY COMMERCIAL GUIDE--RUSSIANFEDERATION**

**FISCAL YEAR ****2000**

 

****

**I.  EXECUTIVE SUMMARY**

ThisCountry Commercial Guide (CCG) presents a comprehensive look at Russia'scommercial climate.  CCGs wereestablished by recommendation of the Trade Promotion Coordinating Committee, amulti-agency task force, to consolidate various reports prepared for the U.S. businesscommunity.  CCGs are preparedannually at U.S. Embassies through the combined efforts of several U.S.government agencies. 

 

**Overview of Import Market**

 

Russia, with 147million residents across11 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 sharesin foods and consumer goods.  Potential demand is held back bydepressed incomes and limited working capital of enterprisesin the wake of the 1998 financial crisis. Long-term market potential merits interest by major U.S. exporters.  Russia remains a relativelydifficult market in which to do business.

 

**Synopsis of the Commercial Environment**

 

Russia is in the process of developing the legal basis of a modernmarket economy.  Since for severalgenerations the economy was ruled by a command system that prohibited privateenterprise, this task is formidable; and the task has been exacerbated by thedeep impact of the August 1998 financial crisis, in which the Russiangovernment defaulted on its domestic debt and devalued the ruble.  The crisis resulted in a serious cut inpurchasing power of the Russian population and rendered many Russian banksinsolvent.  Attention to commerciallaw-making and enforcement is complicated by competing demands on anadministration and legislature still facing key transitional social issues in anewly democratized nation.  Somecommercial and financial uncertainty will remain for several years tocome.  While Russia offers U.S.exporters and investors potential high rewards, risk is elevated and themarket’s unique complications need to be carefully understood.

 

**Russian Business Attitude Toward theUnited States**

 

Russiansadmire U.S. technology and know-how, and show strong interest in developing ties with U.S.firms.  More generally, someRussians’ attitudes are still partly affected by distrust toward America, largelya residual of the Cold War propaganda of preceding generations.  Strongnational pride also colors attitudes towards imports of everything from laundrypowder to jumbo jets.  U.S.products are generally equated with luxury, which can be either an advantage ordisadvantage.  One successfulstrategy is to offer the U.S. packaged product as well as a local version aimedat the broader market.  

 

 

**Leading Business Opportunities******

 

 

Westernproducts and services in demand include equipmentand services for the energy sector;telecommunicationsequipment; mining and constructionequipment; medical products;autos;food processing and farm machinery; computers; aircraft;cosmetics; and poultry,meats and other foods.  Theability of hard currency-earning sectors such as energy and metallurgy toimport U.S. goods has grown during the first half of 1999, while imports ofconsumer items, including cars and food products, are markedly below 1998levels 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 anda commercial law system that is still evolving.  Operating costs are relatively high, credit data onpotential partners is far below the U.S. norm, and even creditworthy partnersare hamstrung by a weak banking system. New laws in the commercial arena affect the range of operatingconditions from taxation and tendering to property rights and other areas.  Rule of law in commerce is hindered bythe absence of a tradition of accountability from law enforcementagencies.  Interpretations of lawsand regulations often vary.  Crimeand corruption exist and must be carefully avoided.  Protectionism in trade enjoys increasing popularity, whereasfree trade has a limited body of support. 

 

**Local and Third-Country Competition**

 

Western European firmsare active throughout Russia in most consumer and industrial products and services. In the Far East, Urals and Siberia, Asian firmsare aggressive, notably in autos and lower-cost consumer goods. In the northwest, Scandinavian firms are prevalent ininfrastructure development; and Turkishfirms are established in many areas of Russia in the construction industry.  Russian firms in most sectors offer low-costcompetition, and have gained a further advantage as a result of the ruble’s1998-1999 depreciation.

 

**Some Keys to Success**

 

U.S. companies - quality and innovation give them an advantage even inthis price-sensitive market, but those that approach Russia with aneye towardquick sales and low up-front investment aretypicallydisappointed.  Many U.S. firms havetaken a parsimonious approach to entering Russia -- with commensuratesales.  In contrast, firms whichresearch tax, customs and other requirements with professional sources inadvance, which visit Russia often to cultivate customers,which bring product literature in Russian, and which invest beyond a minimalamount in marketing and establishing distribution channels stand a betterchance of success.   

 

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

 

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

 

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