U.S. Commercial Service Your Key To Russia The U.S-Russia Chamber of Commerce of New England May 3, 2007 The “R” in BRIC – Russia as a Strategic Emerging Market
U.S. Commercial ServiceRussia PERCEPTION: “Russia is a riddle, wrapped in a mystery inside an enigma.” Winston Churchill, 1939. “Russia is an engine of growth for American companies” Andrew Somers, President of AmCham Russia, 2007
U.S. Commercial ServiceRussia Russia in the Western Press: Politkovskaya/Litvinenko Cases Backtracking on Democracy Beslan/Chechnya Yukos/Khordikovsky
U.S. Commercial ServiceRussia Reality: Russia is a Developing Country. Significant progress over past 15 years. Impressive economic growth since 1998. Substantial structural, administrative, and economic reforms implemented. Strategic market with significant assets.
U.S. Commercial ServiceRussia Macroeconomic Snapshot: Average GDP growth: 6.7% per yr. since ’98 GDP 2006: $987 Billion PC GDP 2006: $6929 ($1,339 only 6 years ago) Inflation: 9-10% Unemployment: 6.6% U.S. exports 2006: $4.7B to Russia (+20%) U.S. imports 2006: $19.8B from Russia (+29.5%)
AmCham Survey ResultsDid you know that . . . • Half of American companies surveyed report sales increases of 200%+ in Russia from 2001 to 2005 • 97% of U.S. companies in Russia project continued growth in sales during the next 3 years. • 92% of U.S. companies in Russia believe that continued engagement with Russia is positive for American Business and 86% believe Russia’s membership in WTO will bring new opportunities.
What Executives of American Businesses are saying about Russia • Our sales grew 80% in 2006 – Johnson & Johnson • During 2006 our sales have increased by 70% with a strong trend for future growth – Delta Airlines • Russia now ranks in the top 5 among 180 countries in which we do business. – Wrigley • Ford became the #1 selling foreign brand in Russia in 2006. • We have exceeded $1B in sales w/ latest annual growth rates of 20-30%. – P&G • Russia represents the largest subsidiary in the Europe Region for Mary Kay w/53% of 2006 net sales for the region.
What Executives of American Businesses are saying about Russia • Our business is now growing at a yearly average of about 40%. – Dow Chemical • Since our office opened in 2002 we have grown at over 70% annually and growth in increasing. 80% of our products sold in Russia come from U.S. factories in Illinois and Iowa. – John Deere • 3M Russia is a very important subsidiary for 3M Worldwide. Our business results, growth and profitability have been outstanding over recent years and have been some of the highest in 3M subsidiaries.
Commercial Ties Critical to Bilateral Relationship “While political issues between our nations tend to garner the most headlines, economic interests should not be ignored. U.S.-Russia commercial ties are stronger and more dynamic than ever before, providing stability to our overall relationship.” - Secretary of Commerce Carlos Gutierrez, Moscow April 2007
U.S. Commercial ServiceRussia Oil and Gas Economy: • Moscow awash with money; record oil/gas prices driving economy. Trickling down to regions. • Russia will continue to be major player in the global energy market: • World’s largest natural gas reserves and largest gas exporter. • Neck-in-neck with Saudi Arabia for oil production; 2nd biggest oil exporter. • World’s 3rd largest energy consumer.
U.S. Commercial ServiceRussia Oil and Gas Economy (cont’d): Putin wants to bring greater share of energy sector under state control. Simultaneously trying to diversify economy away from reliance on petrodollars. Energy remains strategic focus of bilateral dialogue and Presidential initiatives.
Putin’s Last Year(State of the Nation Address) • Call to spend hundreds of billions of dollars on new power stations, roads, other infrastructure over next 12 years. • Russia needs 2/3 more electricity by 2020 to ensure sustainable economic growth. 26 nuclear + hydro,coal plants • Start using “stabilization fund” now at $108 billion. • Improve housing – “It is inadmissible for a country with such reserves accumulated from its oil and gas revenues to be at peace with the fact that millions of its citizens live in slums”. • Pensions to increase 65% by 2010
Russia’s Automotive Market • Russia fastest growing market for new car sales in Europe and one of most dynamic markets in the world. • $33 billion car sales in Russia in 2006 (6 times 2001 figure) • Russian car models cannot compete with foreign models. • Consumer preference shifting to more expensive cars. Access to Credit. • High end niche 70% growth 2005-06.
Car Sales in Russia (thousands of vehicles) Over 2 million vehicles sold in 2006, a 20% increase from 2005
Manufactured near St. Petersburg since 2002 72,000 Ford Focus produced in 2006 6 month waitlist for new Focus.
Russia: 145 Million People • Largest country in world but heavily urbanized • Moscow 11 million - St. Petersburg 5 million • 13 cities over 1 million people • 32 cities over 500,000 people • 100+ cities over 100,000 people • Outside of Moscow and St. Petersburg retail market underdeveloped. • Enormous Scope for Retail Growth
Lenta’s Drive to the Regions • Lenta founded in 1993. HQ in St. Petersburg, Russia. • Operates 14 hypermarkets - 15 sites under construction. • Ten of the existing retail complexes are in St Petersburg, two in Novosibirsk and one each in Astrakhan and Tyumen. • First big-box Russian retailer to expand into Western Siberia and the Volga regions. • Stores under construction in Barnaul, Nizhny Novgorod, Novgorod, Novosibirsk, Omsk, Petrozavodsk, Rostov-on-Don, Ryazan, St. Petersburg, Togliatti, and Volgograd • EBRD $50 million unsecured loan to finance new regional outlets
Retail Lending – Consumer Access to Credit • Credit card business still in infancy in Russia • Increased 128% in 2006 to 5.7 million cards issued • Car loans doubled 2005-2006 to almost $10 billion • Mortgage lending increased almost 4 times 2005-2006 from $3.8 billion to $13.5 billion
Northwest Russia • Total Population – Approximately 15 million • St. Petersburg – 4.8 million • St. Petersburg and surrounding Leningrad Region constitutes the second largest regional market in Russia, as well as a base for operations throughout the NW.
St. Petersburg • Founded by Peter the Great in 1703 as a window to the west. Also known as the “Venice of the North” • Maintains a western atmosphere and is an important international marketplace due to its close proximity to the Baltic countries, Scandinavia and the rest of Europe • Major intellectual, cultural, financial, commercial, and industrial center of the Russian Federation
St. Petersburg • Natural transportation center for the entire Northwest • St. Petersburg seaport is Russia's largest commercial port by volume • Port handles over a third of all of Russia's imports • Extensive rail network connecting to Europe, Moscow and key regions in the country
Foreign Investment in St. Petersburg • Over $6 billion in new FDI announced in 2006 • U.S. Largest Foreign Investor in NW Russia • U.S. Investors in St. Pete/LenOblast: • Ford, Gillette, Wrigley, Kraft, International Paper, Philip Morris, Caterpillar, Motorola, Otis, Intel, HP, Sun Microsystems, General Motors • Retail investment: IKEA, Shopping Malls, Franchises • Increase in business/tourist visitors = new hotels
St. PetersburgForeign Investment 370,8% 143,9% 141,6% 79,0% % of previous year Source: AmCham, St. Petersburg Administration
St. Petersburg/Leningrad RegionKey industrial investment projects The city covers an area of 1,439kм2 International Paper Pepsi-Cola Baltika Nissan Ford Saint-Petersburg Sea port Gulf of Finland JTI General Motors Wrigley Gillette Severstal Coca-Cola Ring road Kraft Bosch-Siemens (BSH) Toyota Elcoteq Caterpillar, Roca, Henkel
Automotive Parts and Equipment Building Materials and Construction Equipment Oil and Gas Equipment and Services Information Technology Franchising Port Equipment and Services Food Processing and Packaging Forestry, Woodworking and Pulp and Paper Eq Safety and Security Equipment Tourism Medical Equipment Retail Equipment Best Prospects for U.S. Companies in NW Russia
U.S. Commercial ServiceRussia Advice for Doing Business in Russia: Perform detailed market research; identify specific sector opportunities. Find a qualified local partner; conduct due diligence. Be patient: maintain a long-term timeframe for plan implementation.
U.S. Commercial ServiceRussia Advice for Doing Business in Russia (cont’d): Know your trade financing options: make use of TDA, EXIM, OPIC. Consider regions – ground floor opportunities (13 cities w/populations > 1m).
News & Events in Russia Our Products & Services Trade Leads Upcoming Conferences U.S. Commercial ServiceRussia • Our Offices: • CS Moscow, CS St. Peterburg, CS Vladivostok • Includes: CS, BIS, BISNIS, OPIC/EXIM, SABIT Our Website: www.buyusa.gov/russia/en/ • Recent Market Reports • Industry Highlights • Special Programs
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Contact Us Keith L. Silver Principal Commercial Officer U.S. Consulate General St. Petersburg, Russia Tel:+7(812)326-2560 Fax: +7(812)326-2561 Email: email@example.com http://www.buyusa.gov/russia/en