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Doing Business in Russia

Market Overview   

Russia presents both significant challenges and opportunities for experienced American exporters.  Russia's 2014-2016 economic downturn, driven by low oil prices and the lack of structural economic reform, squeezed both Russian corporates and the average consumer.  While targeted American and European economic sanctions remain in place, there is no overall trade embargo on Russia.  On the back of a tight fiscal and monetary policy, coupled with higher oil prices, Russia's should return to limited economic growth of 1-2% in 2017.  Over 1,000 American firms of all sizes continued to do business in Russia, given its 142 million consumers, $27k+ GDP per capita (as measured in purchasing power parity), a growing middle class and highly educated and trained workforce.  

There are two broad considerations when considering business prospects in Russia: geopolitics and market dynamics.  Russia's continued aggression in Ukraine and Syria and interference in the 2016 U.S. elections have raised tensions with the United States and its allies.  Targeted U.S. and European economic sanctions instituted in 2014 remain firmly in place and are not expected to be lifted for the foreseeable future.  Restrictions on offshore, Arctic and shale oil and gas, the financial sector and the defense industry continue.  For the past three years, U.S. agricultural exporters have been hit with Russian countersanctions, resulting in a X% drop in trade volumes.  In addition, a number of Russian entities and individuals are also subject to sanctions, requiring American firms to do careful due diligence on potential business.  Increasing state dominance of the economy, high costs of borrowing and a lack of broad economic reform constrain growth.  Both large, publicly-traded U.S. multinationals and small and medium size enterprises continue to carefully monitor the overall business climate in Russia, balancing opportunity and risk. 

As for market-based considerations, both Western and Russian firms approach 2017-8 with cautious optimism.  Stable oil prices, a less volatile ruble and a return to growth in some sectors will likely lift the Russian economy in 2017.   Indeed, Western and Russian firms report year-on-year growth in large industrial equipment in the mining, energy, and heavy construction sector.  The retail and residential construction sectors remain weak.  Early in 2017, Standard & Poors and Moody’s upgraded their ratings to BB+, a step below investment grade.  A Treaty on the Avoidance of Dual Taxation and Russia's WTO accession in 2012 have helped create new opportunities for American trade and investment through more certain and predictable access to the market across tariff, trade rules, and dispute resolution platforms.  Despite the need for deeper economic reform, most analysts doubt any major policy changes prior to the March 2018 Russian Presidential elections.  For more on U.S.-Russia trade, read Ambassador John Tefft's article on "Why U.S.-Russia Trade Still Matters."

U.S.-Russia trade reached over $20 billion in 2016, well off its level of $38 billion in 2013.  American investment in Russia was about $9 billion in 2015 (latest data available).  These figures are low and conservative, as they do not include third country trade and investment flows of U.S. origin and reinvested earnings from subsidiaries of American parent corporations.  Numbers aside, American firms view the Russian market as a long-term, strategic play, given its population, natural resources, growing consumer class and access to a low-cost labor force.


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