Face to Face, Dec. 2001

Production & Text:
Rikke Lauritsen
Tomoko Sakata

International Trade Fair Association

Does exporting to "red tape" Russia Hold promise for U.S. exporters?

Watching the international news one might get a disparaging impression of the Russian business climate. However, optimism is warranted. Business opportunities abound and the Russian economy is doing well. In 1999 the economic output increased by 3.2%, regaining much of the 4.6% drop of 1998, and the Russian government is anticipating a 4% growth rate for next year. After three years of continued growth, the Ruble has now stabilized, and an increased amount of the national economic surplus is being spent to pay off foreign debts. This economic recovery was helped by the tripling of international oil prices in the second half of 1999, raising Russia's export surplus to $29 billion. "There has been incredible political and economic stabilization since the crisis," reports Pavel Buzytsky, a Russian export consultant for Progressor USA, LLC. "The fears that drove some U.S. companies to shut down business operations should be reasonably calmed." A study supporting Buzytsky's position was recently published in the Danish business newspaper, Jyllands-posten. It states that 80% of all western managers operating in Russia are optimistic about future prospects because of the growing need for foreign goods and the increased leverage of the Russian consumer.

Optimism on the Rise
Optimism about the Russian marketplace is most evident within non-U.S. companies. "I see Asian and European companies acting far more aggressively than American companies," says Dan Harris, attorney at Harris & Moure, a Seattle law firm regularly representing Russian companies worldwide, as well as U.S., Asian and European firms dealing with Russia and Russian companies. "There is a lot of potential for American companies."

Why do companies hesitate?
In the wake of the 1998 economic crisis, some U.S. companies decided to pull out and write off the Russian market more or less permanently. Now that the Russian economy is showing signs of improvement, why don't American companies put their doubts aside? "Companies are getting involved, but we are talking about a very slow resumption of business when you consider how the Russian business climate has improved," says Buzytsky. He continues to say, "American companies may still be overly concerned with potential risk. I wish there were more companies aware of the opportunities."

Foreign Direct Investment
The main concern for potential investors has been the sometimes perplexing Russian bureaucracy and the red tape that tend to hinder smooth business operations. However, there is a willingness and a drive to reform within the current Putin government. Since 1998, the Russian government has been very open to economic reform, exemplified by the reformed tax system. Also, business taxes are expected to decrease from 35% to 24% next year. Despite these developments, U.S. investment in Russia has grown only slightly over the last three years. However, more and more companies are realizing the potential. Margaret Niles, an attorney from Preston, Gates & Ellis who regularly consults U.S. companies doing business in Russia, cautions that, "It takes patience and a long-term commitment to succeed in Russia. There are no instant results, but I wouldn't be surprised to see more successful American business ventures in the future." Today Russia welcomes U.S. companies that take the time to learn about the political, economic and social system. Russia's economy is back on track and open for business, and U.S. companies have reason to expect a return on investment.