Russian Federation>
Location: Northern Asia (that part west of the Urals is sometimes included with Europe), bordering the Arctic Ocean, between Europe and the North Pacific Ocean.
Geographic Area: 17,075,200 sq km, slightly less than 1.8 times the size
of the U.S.
Climate: Ranges from subarctic in Siberia to tundra climate in the polar
north; winters vary from cool along Black Sea coast to frigid in Siberia; summers
vary from warm in the steppes to cool along Arctic coast.
Major Cities: Moscow, Vorone, Volgograd, Ufa, Toljatti, Simbirsk, Saratov,
Saint Petersburg, Samara, Rostov, Perm, Omsk, Novosibirsk, Krasnojarsk, Krasnodar,
Kazan, Ekaterinburg.
Population: 146 million (July 2000 estimate).
Ethnic Groups: Russian 81.5 percent, Tatar 3.8 percent, Ukrainian 3 percent,
Chuvash 1.2 percent, Bashkir 0.9 percent, Byelorussian 0.8 percent, Moldavian
0.7 percent, other 8.1 percent.
Languages: Russian (official), plus over 140 other languages and dialects.
Workweek: 40 hours.
Type of Government: Federal, composed of Republics, Oblasts (regions),
Territories and Autonomous Areas.
Head of State: President Vladimir Vladimirovich Putin
Currency: 1 Ruble = 100 kopeks.
Exchange Rate: U.S. $1 = 28.95 Rubles (April 29, 2001)
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Current Economic and Political Conditions: The effects of the 1998 financial crisis continue to dissipate, and economic and political factors increasingly support business. President Putin’s administration has stated its intention to improve the business climate and seek more foreign investment, producing an economic strategy document spelling out its plans. It recently pushed through major tax reform and has maintained tight fiscal discipline. Favorable economic signs include an anticipated economic growth rate of 4 percent, reduced annual inflation of 18 percent, a large balance of payments surplus, and increased real investment of 4.5 percent, the first increase since 1990. A number of factors still limit growth prospects, including slow progress in restructuring the banking sector. After the 1998 crisis, U.S. exports fell by about half, to $1.85 billion in 1999, but there have been signs of moderate recovery in 2000-2001. The United States trails only Germany as the top international investor country in Russia, and U.S. investment continues to rise at a moderate pace. Nevertheless, these levels will remain far below per capita investment levels in other transitional economies in Eastern Europe. Russia also plays a very small role in overall U.S. trade, less that 1 percent of combined imports and exports in 1999. These levels are far below the commercial potential of a nation with almost 150 million highly educated people and with abundant, exportable industrial commodities and natural resources.
Economic Data
Total GDP: U.S. $620.3 billion purchasing power parity
GDP Growth: 3.2 percent (1999 estimate)
Per Capita GDP: $4,200 purchasing power parity
Inflation Rate: 86 percent (1999 estimate)
Trade Balance: $27.2 billion
Trade With R.I.: Russia is Rhode Island’s 70th largest trading partner, with $295,000 in exports in 1999.
Exports: $75.4 billion (1999 est.); petroleum and petroleum products, natural
gas, wood and wood products, metals, chemicals, and a wide variety of civilian
and military manufactures. Export trading partners: Ukraine, Germany, U.S., Belarus,
Netherlands, and China.
Imports: $48.2 billion (1999 est.); machinery and equipment, consumer goods,
medicines, meat, grain, sugar, and semi-finished metal products. Import trading
partners: Germany, Belarus, Ukraine, U.S., Kazakhstan, and Italy.
Best Prospects for Exports: Oil and Gas Equipment and Services, Telecommunications
Equipment and Services, Aircraft and Airport Equipment, Construction and Mining
Equipment, Medical Equipment and Pharmaceuticals, Metallurgical and Metal Working
Equipment, Computers, Peripherals and Components, Automotive Assembly, Parts and
Aftermarket, Electronic Commerce and Internet, Food Processing and Packaging Equipment
Tariffs, Trade, Taxes, Trademarks
Tariffs: A new Russian Federation Customs Regime took effect on April 1,
2000. Based on the international harmonized system, the new regime uses a 10-digit
classification codes called the Commodity List of External Activity of the Russian
Federation. Russian import tariff rates currently range from zero to 30 percent,
depending on the item, and average 14 percent. The Russian government is planning
to reduce the maximum tariff from 30 percent (on aircraft) to 20 percent, eliminate
zero tariffs and make all other tariffs more uniform. Zero tariffs may be retained
exclusively for insulin, some printed matter, wheelchairs, and possibly cotton.
All other goods that were previously duty-free will be levied a 5 percent tariff.
The existing 11,400 groups of commodities will be divided into four categories
and assigned tariffs of five, 10, 15, or 20 percent.
Taxes: The universal VAT rate is now 20 percent, with the exception of
foodstuffs (for which VAT is 10 percent), and is applied to the import price plus
tariff plus excise tax. The excise tax applies to a number of luxury goods, alcohol,
cigarettes and autos, and varies from 20 percent to 570 percent.
Custom Duties: A customs processing fee of 0.15 percent of the cost (CIF)
is also levied. Customs duties are payable in hard currency or rubles at the current
exchange rate. According to customs regulations, processing should take no longer
than one month. If goods are refused entry by Russian Customs, regulations call
for their return to the country of origin.
Foreign Investment: Throughout the 1990s, the Russian Government has placed high priority on the attraction of foreign direct investment, and 45 regions have also developed laws and programs to attract it. Investment promotion is hampered most by several factors affecting the commercial climate. First, many legal underpinnings of a modern market economy remain to be firmly established. Second, relatively high incidences of unfair or non-transparent business and tax practices dissuade investors. Third, few investments are likely to show strong profits in the short term, given the current weakness of Russia’s economy. Finally, financing remains scarce.
Free Trade Zones: There are no actual free trade zones in Russia. Some free economic zones designed to encourage investments in specific areas, as well as free customs zones and free warehouses exist. Federal legislation on the development of free economic zones (FEZs) is no longer a Russian priority, despite the periodic resurfacing of draft bills. In 1997, a bill attempting to unify tax holidays and other concessions for FEZs across Russia passed parliament only to be vetoed by the president. Previously established FEZs, including the high profile Kaliningrad FEZ, have generated little new investment.
Trade Finance and Payment Methods: Limited choices and difficult tradeoffs confront companies choosing a bank in Russia. Companies can choose from three types of banks: a foreign-owned subsidiary, a state-owned Russian bank (new to the commercial field), or a variety of Russian private commercial banks. Most foreign businesses prefer to deal with foreign-owned banks because they are more stable and generally offer better quality service.
Companies new to exporting to Russia should insist on advance payment for goods and services, the normal procedure for most transactions in Russia.
The U.S. Export-Import Bank (Exim) offers loans based on sovereign guarantees from the Russian Government. Exim also developed financing structures based on hard currency revenues.
Product Standards: The Russian government does not recognize many international standards such as the ISO-9000 system. Instead, many imported products destined for sale or use in the Russian market must have a certificate of conformity issued by the Russian State Standards Committee (Gosstandart). Gosstandart accepts testing protocols from Underwriters Laboratories, the IECEE (electrical equipment) and the IECQ (electrical components).
Marketing and Selling Factors: Firms in Russia encounter erratic distribution, unpredictable but tough competition, and word-of-mouth marketing.
Advertising: Television, radio, print, and billboard advertising is pervasive.
Most major western advertising agencies are active in Russia. The number and professionalism
of domestic agencies continues to increase. Pending changes in corporate tax law
are expected to make advertising expenses deductible up to 5 percent of total
costs beginning in 2001.
Trade shows: U.S. firms should consider exhibiting at Russian trade shows,
because they are important marketing venues. Participation also reassures Russian
buyers that the company is committed to maintaining a presence in the domestic
market.
Direct marketing and E-Commerce: In Russian cities, telemarketing and fax
marketing to business customers is common but not effective. Other direct marketing
channels, via catalogs, e-commerce and regular mail, are still in their infancy.
Agents and Distributors: Experienced and inexperienced exporters should
cultivate personal relationships with agents, proceed gradually, and retain a
fall-back position should the relationship sour.
Product Labeling and Marking: New labeling regulations for non-food products came into force on July 1, 1998. Companies are advised to check their compliance with these requirements before shipping products.
Patents/Trademarks/Copyrights: Since 1992, Russia has enacted laws strengthening protection of patents, trademarks and appellations of origin, and copyright of semiconductors, computer programs, literary, artistic and scientific works, and audio/visual recordings. While the Russian government has successfully passed good laws on protection of intellectual property, enforcement of those laws has been a low priority.
Key Contacts
Bryant College, John H. Chafee Center for International Business
RI Export Assistance Center, Raymond W. Fogarty, Director
World Trade Center, Edward Barr, Manager
RI State Directorate, Maureen Mezei, International Trade Director
Contact: Mary-Ruth Foley
Telephone: (401) 232-6566
Fax: (401) 232-6416
E-mail:mrfoley@itdn.net
Web site: www.rieac.org
U.S. Export Assistance Center, Department of Commerce
Keith M. Yatsuhashi, International Trade Specialist
Telephone: (401) 528-5104
E-Mail:kyatsuha@mail.doc.gov
U.S. Small Business Administration
Marilyn Bogue, International Trade Officer
Telephone: (401) 528-4585
E-Mail:marilyn.bogue@sba.gov
U.S. Embassy in Russia
Novinskiy Bul’var 19/23, Moscow, Russia
Telephone: (7-095) 252-2451 to 2459
Fax: (7-095) 956-4261
Embassy of Russia
2650 Wisconsin Avenue, NW, Washington DC 20007
Telephone: (202) 298-5700 to 5704
Fax: (202) 298-5735
U.S. Department of Commerce
Market Access and Compliance
Russia and Independent States Division
John Anderson/MAC, Room 3318
14th and Constitution Ave., NW
Washington, D.C. 20230
Telephone: (202) 482-3952
Fax: (202) 482-3042
English Language Publications:
The Current Digest of the Post-Soviet Press
Telephone: (614) 292-4234
Interfax Europe Ltd., London
Telephone: 44 171 581 5550
