Russia

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Huge in terms of both population and land area covered, Russia is not really a single market so much as it is several. Most of the wealth is concentrated in the west, particularly around Moscow and St Petersburg. Russia has large reserves of oil and gas, and wealth resulting from these assets is likely to result in continuing economic growth. After hastily carried out privatisation in the 90s, the economy is stabilising and becoming more centralised, although recent cases concerning the ownership of privatised assets have raised concern about government involvement in certain sectors of the economy. Russia has enjoyed growth rates of between 6-7% for several years, and corresponding or greater increases in consumer spending.

Altai mountains

Sectors

Russia is rapidly expanding the exploitation of its oil and gas reserves, and is consequently investing in the export of these materials. At least two new oil pipelines to the east of the country are due to be built within the next five years. Foreign investment in these sectors is likely to be subject to quota, however. The manufacturing sector has attracted significant FDI over the last five years, with Ford, GM and Toyota all investing in facilities, either on their own account or in partnership with Russian manufacturers. The US Commercial Service recommends telecommunications equipment and services, computer hardware, pharmaceuticals and cosmetics as likely growth areas, where consumer spending will continue to grow on the back of Russia’s strong economic growth.

FDI

For its size, Russia currently attracts comparatively low levels of foreign investment. The total for 2004 was thought to be somewhere between $5 and $6 billion. There are currently no explicit plans or incentives in place to attract foreign investors. However, the Russian government has set up the National Agency for Promotion of Investment, to promote and support external investment in the country. According to the Financial Times, about half of all FDI in Russia goes into the energy sector. However, as average disposable income continues to rise, the retail and construction sectors are likely to offer attractive investment opportunities.

Legislative changes

The “Law on Foreign Investments” passed in 1999 grants foreign investors equal rights with Russian national companies with regard to property ownership, corporate governance and repatriation of profits. However, there are restrictions on foreign participation in certain sectors, which are subject to a quota system. These include the extraction of natural resources, aerospace and defence, and major construction projects. Particularly strict controls apply to the banking sector, where foreign banks are specifically forbidden to establish branches in Russia, although they may invest in Russian businesses, and in the insurance sector. A more detailed set of legislation that codifies investment practice in sensitive areas is currently being prepared, and it is hoped that this will allow greater investment in purely commercial projects.

Administration

Administration and bureaucracy are often reported as barriers to doing business in Russia. The country ranks 73rd in the World Bank’s ease of doing business index — about half way. The corporate tax rate is capped at 24%, but some companies have reported difficulties in getting VAT refunded.

Facts in brief

Red Square, Moscow: St Basil Cathedral built by Ivan the Terrible

Russia’s location is Northern Asia (the area west of the Urals is considered part of Europe), bordering the Arctic Ocean, between Europe and the North Pacific Ocean

Its climate ranges from steppes in the south through humid continental in much of European Russia; 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

Industries include complete range of mining and extractive industries; all forms of machine building; defense industries including radar, missile production, and advanced electronic components, shipbuilding; road and rail transportation equipment; communications equipment;

agricultural machinery, and construction equipment; electric power generating and transmitting equipment; medical and scientific instruments; consumer durables, textiles, foodstuffs, handicrafts

Diplomatic representation in the US — Chief of mission: Ambassador Yuriy Viktorovich Ushakov

Diplomatic representation from the US — Chief of mission: Ambassador William J Burns

Contact IInformation

American Chamber of Commerce in Russia
Ul. Dolgorukovskaya 7,
14th Floor
Moscow 127006
Russian Federation
Tel.: +7 (495) 961-2141
E-mail: info@amcham.ru
Website: www.amcham.ru

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